According to Statistics Canada data on federal and provincial government revenues and expenditures between 1961 and the 2Q of 2020, the total interest payments on all government debts incurred over this time period has exceeded $2.53 trillion.
These are staggering and important statistics because they suggest that Canadians have been paying a large share of their income taxes (on average 35% of all income taxes paid by households and business between 1961-2020) on government deficits financed by selling government debt (bonds, treasuries) to the markets.
The graph above shows that interest payments on both federal and provincial government debts reached their apex between 1983-1998 averaging 54% of total incomes paid.
Due to falling interest rates the interest payments have declined to an all-time low of 16.1% of total taxes collected as of the 2nd Q of 2020 during the Covid-19 pandemic.
However, another dangerous fiscal sign is the massive increase in government spending in the 2nd quarter of 2020 when federal and provincial government expenditures exploded by 28.9% in one quarter, rising from $953 billion by the end of 2019 to an estimated $1,281 billion by the 2nd quarter of 2020.
This $328 billion increase in spending in only 2 fiscal quarters of 2020 represents the largest single quarterly increase in all government spending since 1961.
As I’ve pointed out in previous articles, the $2.53 trillion paid in interest costs on all government debt sold primarily to private financial markets could have been avoided by exercising the sovereign monetary powers of our public central bank — The Bank of Canada. In principle, the Bank of Canada could have purchased both federal and provincial government debt and ultimately written off this debt (i.e. forgiven the debt) since interest payments on the debt by federal and provincial governments would have simply been paid to our own central bank.
The implications are obvious: nearly $2.53 trillion in potential spending on improving the well-being of Canadians (i.e. health, education, and the environment) has been wasted unnecessarily over the past 60 years.
Put another way, $2.53 trillion in taxes paid by all Canadians could have been avoided had the Bank of Canada played its sovereign role as the public bank serving the needs of Canadians to create money and help balance government deficits without any burden.
It’s time to have a strategic conversation about Canada’s financial and monetary policy future that would restore public banking to its rightful place and make money a form of public utility.