The Carney government’s recent
announcement to rename and enhance the GST credit—at a cost of
$11.7 billion—is symptomatic of a broader Canadian problem. While framed as affordability relief, the harder truth is that it represents yet another instance of a leveraged nation borrowing to fund current consumption.
A federal government running a nearly
$80 billion deficit is effectively spending money it doesn’t have to patch immediate pressure points. This isn’t a critique of helping families manage costs; it’s an observation about where Canada now stands. We have become one of the world’s most indebted nations.
When households, corporations, and governments are simultaneously highly leveraged, our ability to respond to crises shrinks dramatically. Whether the next shock arrives as a trade war, a recession, or something unanticipated, we’ll face it with far less room to maneuver than we imagine.
The uncomfortable truth about Canadian debt
Canada ranks fourth in total indebtedness among 34 OECD countries, according to data from the
International Monetary Fund. Our aggregate household, corporate, and government debt has reached 377 percent of GDP, a burden surpassed by only Luxembourg, Japan, and France.
What makes Canada’s situation particularly concerning is that this debt is spread systematically across all sectors (households, corporations, and governments) alike.
Households: Living beyond our means
Canadian households carry debt equal to 103 percent of GDP, the second-highest among the 34 OECD countries examined, after only Switzerland.
To put this in perspective, the average household debt burden across these nations is just 58 percent of GDP. While much household debt is mortgage debt backed by assets, we’ve still borrowed nearly twice as much, relative to our economy, as the typical advanced nation.
Even the United States, often criticized for consumer profligacy, carries household debt of only 71 percent of GDP. The United Kingdom, at 81 percent, is the only other G7 economy in our stratosphere. Our household debt exceeds that of financial crisis-scarred Greece by more than double.
Corporations: Overleveraged and exposed
Canada’s non-financial corporations carry debt equal to 163 percent of GDP, placing us in the top tier globally. Only a handful of countries—led by Luxembourg and Ireland—have more heavily indebted corporate sectors. Luxembourg and Ireland are special cases, functioning as financial hubs where multinationals structure cross-border financing through local entities, inflating their debt ratios.
Canada’s corporate debt level exceeds that of the United States (145 percent) and far surpasses Germany (113 percent), despite their significantly larger industrial bases. For a resource-dependent economy like Canada’s, this corporate leverage creates acute vulnerability to commodity price swings and global demand shifts.
Government: Squandered fiscal advantage
Canadian governments—federal, provincial, and local combined—carry gross debt equal to 111 percent of GDP. Among major advanced economies, only demographically challenged Japan, the United States, France, and crisis-plagued southern European nations like Greece and Italy exceed our government debt burden. We carry more government debt than the United Kingdom (101 percent) and far more than Germany (64 percent). Our level also exceeds the 34-country average of 72 percent.
This represents a dramatic shift. Before the 2008 financial crisis, Canada’s gross government debt stood at just 67 percent of GDP—a fraction of the level today. We’ve squandered much of the fiscal advantage we once held.
Why this matters
The instinctive response to debt statistics is often a shrug; if everyone can still make payments, what’s the problem? This misses three critical dynamics that should concern anyone interested in Canada’s economic future.
Fragility trap
High debt levels change how economies respond to shocks. When households, businesses, and governments are all highly leveraged, the entire system becomes fragile in ways that individual balance sheets don’t capture.
Consider what happens when interest rates rise unexpectedly, commodity prices fall, or a recession arrives. Households cut spending to service debt. Businesses postpone investment and hiring. Governments face a tough choice: increase spending to support the economy while their debt servicing costs rise, or impose austerity when citizens need help most.
This isn’t theoretical. During the 2022-2023 interest rate hiking cycle, Canadian mortgage holders faced
payment shocks, businesses
delayed expansion plans, and government
deficits widened. We were fortunate that this cycle didn’t coincide with a recession. Next time, we may not be so lucky.
thehub.ca
