Canada’s Federal and Provincial Debt Projected to Top $2.4 Trillion in 2025–26

The combined net debt of federal and provincial governments in Canada has nearly doubled over the past 18 years from $1.24 trillion in 2007-2008 to a projected $2.44 trillion in the current fiscal year, a new study suggests.

The 2008-2009 financial crisis marked a shift away from the balanced-budget standards that were established in the mid-1990s and persisted until the late 2000s at both federal and provincial levels, according to a report released this week by the Fraser Institute.

The aftermath of the financial crisis consisted of nearly 20 years of deficit spending across all levels of government, highlighted by a sudden surge during the COVID-19 pandemic that contributed hundreds of billions in obligations in a very short time, Fraser Institute director of fiscal studies Jake Fuss wrote in his May 26 report.

Fuss argues that the ever-increasing government debt load will create “serious fiscal challenges for Ottawa and provincial governments in the years ahead.”

The Fraser Institute study evaluates net debt, adjusted for inflation, and represents the overall debt incurred by federal and provincial governments after accounting for their financial assets. This metric is used to gauge indebtedness.

The research indicates that Canada’s expected total government debt, which includes both federal and provincial debts across all 10 provinces, has not only nearly doubled since the fiscal year 2007-2008, this combined debt is projected to account for 75.4 percent of the country’s gross domestic product (GDP). In comparison, the debt made up 53.2 percent of GDP 18 years ago.

The combined federal-provincial debt-to-GDP ratio is expected to grow from 65.9 percent to 75.4 percent between 2019-2020 and 2025-2026, Fuss said.

The federal and provincial governments are also on track to have collectively accumulated $603.7 billion in total net debt between that same timeframe, resulting in a 32.8 percent increase.

Federal Debt

The report estimates the federal net debt rose by $712.7 billion in 2025 dollars over the past 18 years, marking a 93.7 percent increase. This is in sharp contrast to the period between 1996-1997 and 2007-2008, when Ottawa decreased its net debt by $364.5 billion.

“Put differently, in the past 18 years the federal government has accumulated nearly double the amount of debt that it repaid in the mid 1990s to late-2000s,” Fuss noted.

Looking ahead, the federal spring economic update forecasts that Ottawa’s net debt will increase by an additional 26.5 percent by fiscal 2030-2031, totalling $1.86 trillion.

Provincial Debt

All 10 provinces are projecting an operating deficit in 2025-2026 and 2026-2027 and eight of them—British Columbia, Alberta, Saskatchewan, Quebec, New Brunswick, Nova Scotia, Newfoundland and Labrador, and Prince Edward Island—are projecting a deficit each year through 2028-2029.

Manitoba, however, has the highest combined federal and provincial debt relative to its economy among all provinces, standing at 91.3 percent for fiscal 2025-2026, according to the report. This indicates that the total of the province’s net debt and its proportional share of the federal debt is almost equivalent to the total of its annual economic output.

Newfoundland has the second-highest combined federal and provincial debt-to-GDP ratio in Canada, coming in at 89.7 percent, followed by Nova Scotia and Quebec, both at 89.1 percent, P.E.I. at 88.8 percent, New Brunswick at 88.1 percent, and Ontario at 82.7 percent.

The western provinces had lower projected debt-to-GDP ratios, with British Columbia at 69 percent, Saskatchewan at 53.2 percent, and Alberta at 43.3 percent.

At the same time, Alberta experienced the largest rise in its provincial government debt as a share of the economy from 2007-2008 to 2025-2026. It rose from -13.4 percent to 8.1 percent, an increase of 21.5 percentage points.

The differences among the provinces become particularly evident when federal responsibilities are distributed to each province based on a per-capita calculation.

Newfoundland has the highest per capita debt burden at $71,611, followed by Ontario with $63,574 and Quebec at $63,488. Alberta, despite its recent decline, maintains the lowest total debt per person at $42,368.

“It’s important for Canadians to understand the magnitude of the country’s federal and provincial government debt because deficits and debt today mean higher taxes in the future,” said Fuss.

Long-term interest rates can increase as government debt rises, which subsequently raises the borrowing expenses for the private sector, Fuss said, noting that this has already happened in recent years.

Increased borrowing costs can lessen the appeal of private capital investment, he noted. And as investment levels decline, this creates substantial obstacles for the country’s potential to boost productivity and may lead to a decrease in future economic performance.

All of these factors can result in higher taxes as governments struggle to pay back debt or finance their interest payments, Fuss said, adding that revenues directed toward interest payments leave less money available for government programs such as health care, education, social services, or tax relief.