The Last 10 Years of Federal Finances
Inspired by the release of 2025-26 Federal Budget, Tembo did a deep dive on how the federal government’s finances have evolved over the last decade. In 2015-16, the government ran what was approaching a balanced budget. By 2025-26, deficits have become the norm, debt has more than doubled, and interest payments eat up a much bigger slice of the budget. These shifts happened under both Conservative and Liberal governments, but the pace accelerated after 2015. This newsletter looks at three big trends: the explosion in federal debt, the sharp rise in the cost of carrying that debt, and the way rapid money-supply growth has inflated nominal economic numbers.
Debt Has More Than Doubled in Ten Years
In fiscal year 2015-16, Joe Oliver’s last budget as finance minister, the federal government recorded a modest $1.4 billion surplus (later revised to be a deficit of over $2 billion). Total federal debt stood at $619.3 billion, with annual interest costs of $25.7 billion. Net debt to GDP was 31 per cent, close to the pre-2008 level, and most observers considered the country’s finances solidly in the black.
Fast-forward to the 2025-26 fiscal year, Mark Carney and François-Philippe Champagne’s first budget. The projected deficit is $78.3 billion (2.5 per cent of GDP), and gross debt now sits at $1.347 trillion, on track to reach $1.533 trillion by the end of the fiscal year. Since the Liberals took office in late 2015, the government has added $784 billion in new debt. The current plan adds another $317 billion over the next five years, meaning roughly $1.1 trillion in total new borrowing by 2029-30. Net debt is projected to climb to $1.797 trillion by then.
Put simply, federal debt has risen from about $619 billion to over $1.5 trillion in ten years, an increase of around 148 per cent. Even though the economy has grown, the debt-to-GDP ratio has jumped from roughly 30 per cent to 42.4 per cent. Revenues have risen nicely, from $290 billion to $507 billion, but spending has jumped even faster, from $298 billion to $581 billion. The surplus of 2015 has turned into structural deficits that show no sign of disappearing.
Interest Costs Have Doubled While the Debt Ceiling Jumps Again
Budget 2025 contains two numbers that should make every taxpayer pause. First, annual debt-interest charges have risen from $25.7 billion in 2015-16 to $55.6 billion in 2025-26, more than double in a single decade. Second, the government proposes raising the legal borrowing ceiling from $2,126 billion to $2,541 billion, an increase of $415 billion in one stroke.
To put the interest figure in perspective, $55.6 billion is now larger than the entire federal deficit at the worst point of the 2008-09 financial crisis. It is also more than the government spends on Employment Insurance, more than child-care programs, and rapidly approaching the cost of Old Age Security transfers to provinces.
Meanwhile, the domestic borrowing program for 2026-27 calls for issuing $589 billion in new bonds and treasury bills in a single twelve-month period. That includes refinancing $440 billion of maturing debt plus another $149 billion in fresh borrowing. The only time Canada has come close to that figure was the $650 billion issued in 2020-21 at the height of COVID stimulus and quantitative easing. Doing almost the same amount in a non-crisis year is remarkable. If interest rates rise again, or if a deep recession hits and revenues fall, refinancing that maturing debt could become considerably more expensive. There’s a fragility to all this that’s sobering given how fragile the world we now live in is.
Nominal GDP Grew 55%, But the Money Supply Nearly Doubled
Nominal GDP has grown from $2.05 trillion in 2015 to a projected $3.18 trillion in 2025-26, an increase of about 55 per cent. That looks respectable on paper; the economy appears one-and-a-half times larger than it was ten years ago.
Yet the money supply tells a different story. Canada’s M2 (currency, chequing and savings deposits, etc.) has risen from roughly $1.4 trillion in 2015 to approximately $2.74 trillion by mid-2025, an increase of nearly 100 per cent. In other words, the amount of money in the system has almost doubled while the nominal economy has grown by a little over half. When Tembo talks about inflation, this is the fact that underpins so much of it, the BOC steadily pumping up M2 to keep the system going.
Much of that money-supply growth came in big waves, with several years of double-digit increases, especially 2020-2022. When the money supply grows much faster than the real output of goods and services, the result is almost always some combination of inflation and/or asset-price bubbles. Inflation erodes purchasing power, makes debts appear smaller in, nominal terms (because the GDP number is bigger), but it does nothing to reduce the real burden of interest payments, which are set in today’s more expensive dollars.
In short, a good part of the 55 per cent nominal GDP growth we celebrate is simply the reflection of a near-doubling of the money supply. This is why a Big Mac now costs almost $10, not the combo, just the sandwich! Real growth, after accounting for inflation, has been far more modest, and the federal debt, though larger in dollars, looks less alarming relative to a money-inflated GDP. Interest costs, however, are painfully real and continue to climb.
The federal budget may seem like a distant topic, but for mortgage brokers, it shapes the entire lending ecosystem. Rising debt, higher interest costs, and money supply expansion all influence rates, affordability, and borrower behaviour.
Understanding these trends helps brokers anticipate client needs, navigate a shifting market, and partner with lenders who can deliver solutions quickly.