When it comes to a choice between raising taxes and hiking deficits, governments increasingly opt for raising the debt. The problem is, it's a false choice for taxpayers because higher deficits are simply deferred taxes, which must eventually be paid.
Carney's Operating vs. Capital Deficit Distinction
Prime Minister Mark Carney's distinction between operating and capital deficits is an accounting measure, but it doesn't change the fact that all debt has to be paid back. His promise to eliminate the federal operating deficit in three years is an accounting trick. Carney announced he is separating the operational costs of the government from capital spending and has promised to balance the operating deficit by 2028-29.
However, interim parliamentary budget officer Jason Jacques warned last November that the federal government misclassified $94 billion worth of operating expenses in its November budget as revenue-generating capital investments, contrary to standard accounting practices. If that $94 billion was properly classified as government operating expenses, Jacques said, Carney will fail to achieve his promise to balance the government's operating budget by 2028-29.
Higher Deficits Than Predicted
Current PBO Annette Ryan reported earlier this month that Carney's deficits for the next five years will, in total, be $22.6 billion higher than he predicted in his spring economic statement 51 days ago. The cumulative deficits over that time, the PBO projects, will be $318.1 billion compared to the government's estimate of $295.5 billion reflecting, among other issues, lower revenues, particularly personal income tax — demonstrating that higher deficits are simply deferred taxes.
Fraser Institute Study: Cost to Canadians
A new study by the fiscally conservative Fraser Institute explains in succinct terms what this means for taxpayers. Looking only at the annual interest payments on the combined public debt of Canada's federal and provincial governments for the year 2025-26 alone, which totalled $94.4 billion, the study found the cost to every Canadian will be between $1,845 and $3,348 depending on which province they live in.
Spending that $94.4 billion won't lower the size of the public debt by a penny; it only services the interest on the public debt for that one year. Residents of Newfoundland and Labrador face the highest cost of $3,348 per person, followed in descending order by $2,816 in Manitoba, $2,436 in Quebec, $2,282 in Ontario, $2,185 in B.C., $2,141 in New Brunswick, $2,138 in Nova Scotia, $2,133 in Saskatchewan, $2,078 in P.E.I., and $1,845 in Alberta.
Opportunity Costs of Interest Payments
Money that goes to pay interest on debt doesn't go to lowering taxes, nor does it go to providing services for Canadians. For example, the $54 billion the federal government paid in 2025-26 simply servicing the interest of the federal debt could otherwise have paid for almost all of the $54.7 billion it transferred to the provinces for healthcare. The $16 billion Ontario taxpayers paid servicing the interest on that province's debt in 2025-26 could have more than paid for the $14 billion it spent on post-secondary education. The $2.9 billion Alberta taxpayers paid servicing the interest on that province's debt in 2025-26 could have more than paid for the $1.6 billion it spent on child and family services.
As Jake Fuss of the Fraser Institute 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.
