GOLDSTEIN: Public debt servicing erodes national finances – report

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Even with low rates, interest payments on Canada’s over $ 1 trillion national debt will rise nearly 60% this year, predicts a new study from the Fraser Institute.

“Interest charges go from a budget of $ 22.1 billion in 2021-2022 to $ 35.2 billion, an increase of 59.4%,” the report says, Risks Related to Interest Charges for Government Budgets, by Jason Clemens, Milagros Palacios and Jake Fuss, released Tuesday.

The fiscally conservative think tank predicts that interest payments on the public debt will also increase in all provinces this year except New Brunswick, from a high of 35.7% in Nova Scotia to a low of 3.4% in Quebec.

The Trudeau government argues that historically low interest rates mean that its massive deficit spending due to the pandemic can be easily financed, noting that interest payments on debt account for around 1% of the country’s gross domestic product (GDP). country, up from a peak of 6% in 1995.

Likewise, the government says Canada’s net debt-to-GDP ratio will be 51.2% this year, up from a peak of 66.8% in 1995.

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But the Fraser study warns that provinces “and in particular the federal government, risk higher interest charges and erosion of public finances,” even though the cost of borrowing this year is similar to that of 2019-2020. .

“Governments… need to be more cautious and cautious about the continuation of debt-financed spending and the resulting debt build-up. “

  1. Prime Minister of Canada Justin Trudeau attends a press conference, as efforts continue to help slow the spread of COVID-19 in Ottawa, Ontario.  May 18, 2021.

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  2. Stacks of Canadian currency.

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  3. Finance Minister Chrystia Freeland attends a press conference in Ottawa on April 20, 2021.

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The study estimates that federal debt interest payments will increase by $ 13.1 billion this year, or 59.4%, from $ 22.1 billion to $ 35.2 billion. This will increase the deficit by 8.5%, from $ 154.7 billion to $ 167.8 billion.

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For the provinces, in 2021-2022, the study estimates:

– Expected interest payments on Ontario’s debt will increase by $ 1.58 billion, or 12%, from $ 13.1 billion to $ 14.7 billion. This will increase the deficit by 4.8%, from $ 33.1 billion to $ 34.7 billion.

– Expected interest payments on Alberta’s debt will increase by $ 177 million, or 6.4%, from $ 2.8 billion to $ 2.94 billion. This will increase the deficit by 1%, from $ 18.2 billion to $ 18.4 billion.

– Quebec’s projected debt interest payments will increase by $ 293 million, or 3.4%, from $ 8.6 billion to $ 8.9 billion. This will increase the deficit by 2.4%, from $ 12.3 billion to $ 12.6 billion.

– Expected interest payments on British Columbia’s debt will increase by $ 922 million, or 33.2%, from $ 2.8 billion to $ 3.7 billion. This will increase the deficit by 9.5%, from $ 9.7 billion to $ 10.6 billion.

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– Expected interest payments on Saskatchewan’s debt will increase by $ 103 million, or 13.6%, from $ 755 million to $ 858 million. This will increase the deficit by 3.9%, from $ 2.6 billion to $ 2.7 billion.

– Forecasted interest payments on Manitoba’s debt will increase by $ 239 million, or 24.1%, from $ 994 million to $ 1.2 billion. This will increase the deficit by 15%, from $ 1.6 billion to $ 1.8 billion.

– Estimated interest payments on Nova Scotia’s debt will increase by $ 254 million, or 35.7%, from $ 711 million to $ 965 million. This will increase the deficit by 43.4%, from $ 585 million to $ 839 million.

– The anticipated interest payments on Newfoundland and Labrador’s debt will increase by $ 249 million, or 25%, from $ 995 million to $ 1.2 billion. This will increase the deficit by 30.2%, from $ 825 million to $ 1.1 billion.

– Expected interest payments on PEI debt. will increase by $ 23 million, or 18%, from $ 128 million to $ 151 million. This will increase this year’s deficit by 20.5%, from $ 112 million to $ 135 million.

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