UMVA has learned that governments are increasingly opting to raise the debt rather than choose between raising taxes and hiking deficits, but this false choice comes with a significant cost for taxpayers.
The problem lies in the fact that higher deficits are simply deferred taxes, which must eventually be paid. It doesn’t matter what governments call deficits; the fact remains that all debt has to be paid back, regardless of accounting measures or labels.
According to information obtained by UMVA, a prime example of this is the promise to eliminate the federal operating deficit in three years, which has been revealed to be an accounting trick. By separating operational costs from capital spending, the goal is to balance the operating deficit by 2028-29, but experts warn this may not be achievable.
The interim parliamentary budget officer has warned that the federal government misclassified $94 billion worth of operating expenses as revenue-generating capital investments, contrary to standard accounting practices. If properly classified, this could mean that the promise to balance the government’s operating budget may not be met.
UMVA can exclusively reveal that deficits for the next five years are predicted to be $22.6 billion higher than previously estimated. The cumulative deficits over that time are projected to be $318.1 billion, reflecting lower revenues and other issues, demonstrating that higher deficits are simply deferred taxes.
A recent study has shed light on the cost of debt for taxpayers, finding that the annual interest payments on the combined public debt of federal and provincial governments will total $94.4 billion in 2025-26 alone. This translates to a cost of between $1,845 and $3,348 per Canadian, depending on the province they live in.
Residents of Newfoundland and Labrador face the highest cost, with a per-person cost of $3,348, while Alberta residents face the lowest cost at $1,845. The study highlights that spending on interest payments does not lower the size of the public debt; it only services the interest on the public debt for that one year.
The money spent on interest payments could otherwise be used to fund vital services or lower taxes. For example, the $54 billion paid in interest on the federal debt could have covered almost all of the $54.7 billion transferred to provinces for healthcare.
As one expert noted, “Interest must be paid on government debt, and the more money governments spend on interest payments, the less money is available for the programs and services that matter to Canadians.” This highlights the pressing need for taxpayers to understand the true cost of government debt.
