Canada’s debt servicing costs will exceed GST revenues

The Canadian federal government has a major debt problem.

Projections in the 2024 budget released last week suggest that the federal goods and services tax, or GST, will soon no longer be enough to cover the government’s debt costs.

The tax, currently at 5%, is expected to equal debt costs by 2024, while the tax is expected to raise $54.1 billion this year, the same as estimated debt costs. The two figures are expected to remain relatively flat next year, with both expected to grow to $55 billion.

But in 2027 and beyond, the two figures are expected to diverge, with the GST no longer able to cover the costs of servicing Canada’s debt. And by the end of the decade, goods and services tax collections are expected to be $3.0 billion less than servicing those debts.

The last time the country was unable to pay its debts solely from VAT receipts was in 2011, under Prime Minister Stephen Harper, before budget changes were made to collect excess debt payments again. To his credit, Justin Trudeau, who has been in power since 2015, was able to continue the positive trend – at least initially.

However, the country’s massive debt burden in 2021 due to the pandemic saw a dramatic reversal in the trend, with maintenance costs exploding from $20 billion in 2020-21 to $47 billion in 2023-24.

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