Canada’s rising debt leaves it unprepared for the next crisis

“Reducing debt is difficult because the choices are difficult. Spending cuts can slow the economy, while higher taxes are unpopular and can affect incentives. And even when governments run surpluses, taxpayers soon ask why they are paying more in taxes or receiving fewer services,” Ragan said in comments provided to Wealth Professional. “But if we don’t make those choices, rising debt-service costs will leave governments with even less room to act.”

Why current spending pressures make this worse

Ragan identifies several significant spending pressures on the horizon that will make debt reduction even harder. Federal debt-service payments already amounted to roughly $55 billion in 2025, according to the report – approximately 10 percent of government spending, exceeding total annual federal health transfers to the provinces.

Ahead lie further costs: rising expenditures on elderly support programs and healthcare as the population ages; public investment in trade infrastructure to diversify away from the United States; and, most significantly, a permanent increase in defence spending to meet Canada’s renewed NATO commitments. Based on the federal 2025 budget, Ragan notes, only a small portion of these future increases has yet been incorporated into the fiscal framework.

The report challenges the notion that Canada’s geopolitical challenges justify debt-financed spending on the same terms as past crises. Unlike the two world wars, the Great Depression, the 2008 financial crisis, and the pandemic – which were all viewed as temporary events – Canada’s new strategic environment, driven by shifting US foreign policy, rising Chinese and Russian assertiveness, and threats to Canadian sovereignty, is more likely to be permanent.

If new spending commitments persist for decades, Ragan argues, financing them through borrowing rather than taxation or spending reallocation is difficult to justify.