VANCOUVER—Federal government interest costs could increase to $35 billion in 2021-22, an increase of $13 billion, if costs return to 2019-20 levels, finds a new study released today by the Fraser Institute, an independent, non-partisan, Canadian public policy think-tank.
“If interest costs increase, governments across Canada could see their already large budget deficits grow even larger,” said Jake Fuss, senior economist at the Fraser Institute and co-author of Interest Cost Risks to Government Budgets.
As the country recovers from COVID, if policymakers want to avoid a further erosion of government finances, they must exercise more control over debt-financed spending
The study answers a simple question: what would happen to government interest costs (essentially the interest paid on outstanding debt) and government budgets if interest costs returned to the near-historically low levels of 2019-20?
The study finds that the federal government and every provincial government (except New Brunswick) would experience an increase in interest costs in fiscal year 2021-22. Combined, these costs would rise from $53.6 billion (the current projection based on the latest government budgets) to $70.6 billion, an increase of 31.7 per cent.
Crucially, it also finds that the federal government faces the greatest risk of higher interest costs. The increase in federal interest costs represents 77.4 per cent of the total potential increase in interest cost faced by all governments in Canada.
“As the country recovers from COVID, if policymakers want to avoid a further erosion of government finances, they must exercise more control over debt-financed spending,” said Jason Clemens, executive vice-president at the Fraser Institute and study co-author.
Media Contact:
Jake Fuss, Senior Economist, Fraser Institute
Jason Clemens, Executive Vice-President, Fraser Institute
To arrange media interviews or for more information, please contact:
Drue MacPherson, Fraser Institute
drue.macpherson@fraserinstitute.org
The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of 86 think-tanks. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute’s independence, it does not accept grants from governments or contracts for research. Visit fraserinstitute.org.
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