Canada’s federal debt: should you worry?

For this week’s Top Story, we’re finding out if the government’s debt is your debt.

In August, the U.S. federal debt crossed the $40 trillion mark for the first time in its history. It had more than doubled in less than 10 years. Reading that day’s news, I remember asking myself: what about us? Will Canadians, especially the younger generation (I have nine-year-old twin boys), be adversely affected?

How much is Canada’s debt?

As of June this year, Canada’s federal net debt stood at about $1.34 trillion, according to the Parliamentary Budget Office (PBO) data. That number is big, but economists look at the bigger picture.

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It’s more useful to measure debt relative to our ability to pay, explains Stephen Williamson, professor and current Stephen A. Jarislowsky Chair in Central Banking at Western University. That’s where the debt-to-GDP ratio becomes relevant. (GDP, or gross domestic product, is the value of the goods and services we produce in Canada.) PBO estimates that ratio will be 41.3% for 2025–2026. 

“Canada is actually in pretty good shape relative to other OECD countries, such as Japan or some of the big European countries,” Williamson says. Turns out, unlike a grade on a paper, 40-ish per cent isn’t bad.

Why does it seem like Canada’s always in debt?

Governments use bonds to borrow money from investors. And those roll over; as bonds come due, governments can issue new ones. Governments “can roll over the debt indefinitely, and that is perfectly financially sound,” Williamson says, as long as investors remain willing to lend. But borrowing comes with a price, of course: interest payments. Ottawa estimates those payments to be $55.6 billion in 2025–2026.

Should you care about Canada’s debt?

So, yes, Canada’s federal debt is substantial. However, size alone doesn’t tell us whether that debt is a problem. But if it’s not a problem now, should Gen Z and those younger worry about what happens to the debt in future? What about the rest of us?

Jonathan Vitti is 26, someone who belongs to the generation that will live with today’s borrowing decisions for decades. He is an economist at Montreal Economic Institute (MEI), a public policy think tank that generally advocates for lower taxes and restraint in government spending. He sees no reason to freak out about Canada’s debt today.

“There’s no place to panic here,” Vitti said. However, the longer-term debt concerns him. He worries about the deficit—the gap between what Ottawa spends and what it brings in each year. The federal government estimates a $66.9 billion deficit for 2025–2026. For younger Canadians, Vitti argues, persistent deficits matter because some of the cost of today’s spending gets pushed into future budgets through additional debt and the interest paid on it.

Younger Canadians have expressed their views on government spending in a July 2026 Ipsos poll for MEI, in which 52% of those aged 18 to 34 said federal government spending was either “too high” or “much too high.”

“The real risk isn’t in bankruptcy,” he said, “but that my generation enters a government with less room to manoeuvre.” In other words, future governments could have fewer choices for investment because a larger share of revenues will already be committed to servicing debt and other obligations.

Williamson adds another piece of context here. Much of Canada’s government debt is held by Canadian banks, pension funds, insurers and other financial institutions.

So, to an extent, “it’s the debt we owe to ourselves,” he says. Government bonds are also assets for the people and institutions that own them, rather than simply a giant bill waiting to be paid.

Who benefits from the debt? Who gets saddled with it?

Even if the debt is something we largely owe ourselves, it can still create a burden for younger Canadians. Williamson says the issue can arise between generations: one generation benefits from government spending, while a younger generation may eventually face the choices involved in reducing debt. 

“The government has to be spending less, or it has to be taxing more,” he says. Spending that strengthens the economy or creates useful public assets may provide a net benefit to the generations that eventually help pay for it, and that’s more easily justified. “You could make future generations better off,” he says.

Vitti prefers less spending and lower taxes. “The test is simple,” he says: will the people who eventually pay for the borrowing “receive something durable in return?”

What do young Canadians think?

Younger Canadians have mixed opinions. In the MEI-Ipsos poll that reported 52% of those aged 18 to 34 thought Ottawa was spending “too much,” the same percentage said they were getting value for their federal tax dollars. 

Concerns about government finances should be weighed against the other economic challenges Gen Z will inherit, says Williamson. He puts AI, the future job market, and uncertainty around Canada’s relationship with the U.S. ahead of public debt. 

Broadly, he says, there’s really one theme to many of the issues affecting Gen Z, and that’s: “Disruption.” 

Read more from this issue of The Get:

1. The costs of starting over in Canada when you’re from India
2. Moms at Work founder Allison Venditti on return-to-office mandates
3. Do you need $1.5 million (or more!) to retire in Canada?
4. What can a retiree in Canada do to increase their income?