The Canadian federal government has a major debt problem on its hands.
Projections included within the 2024 budget released this past week suggest that the federal Goods and Services Tax, or GST, will soon no longer be enough to cover the governments debt servicing costs.
The tax, which currently sits at 5%, is expected to match debt servicing costs in 2024, with the tax expected to bring in $54.1 billion this year, the same as estimated servicing costs. The two figures are expected to relatively remain equal next year as well, with both estimated to grow to $55 billion.
But come 2027 and later, the two figures are expected to deviate, with the GST no longer able to meet the cost of servicing Canada’s debt. And by the end of the decade, the intake of goods and services tax is expected to be $3.0 billion shy of servicing that debt.
The last time the country wasn’t able to service its debt solely from GST receipts was 2011, under Prime Minister Stephen Harper, before fiscal changes were made to again collect in excess of debt servicing costs. Justin Trudeau, in power since 2015, to his credit was able to continue the positive trend – at least initially.
However massive debt taken on by the country in 2021 as a result of the pandemic dramatically reversed the trend, with the servicing costs exploding from $20 billion in 2020-21 to that of $47 billion in 2023-24.
Information for this briefing was found via The Hub and sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
