Government debt in advanced economies is climbing sharply, and Canada is now among the most leveraged G7 members. The Institute for Fiscal Studies and Democracy reports that Canada’s general‑government gross debt hit 111% of GDP in 2024, up from 67% in 2001, while global public debt reached 95% of world GDP.

Canada’s debt climbs to 111% of GDP, fourth‑highest in the G7

According to the Institute for Fiscal Studies and Democracy, Canada’s gross debt now stands at 111% of GDP, placing it fourth among the G7 and seventh among all advanced economies... The $2.5 trillion debt figure does not subtract nearly $1 trillion in Canada Pension Plan and Quebec Pension Plan assets, which are legally earmarked for future pensions and cannot be used to offset current liabilities.

Rating agencies focus on gross debt because market‑value assets can evaporate when interest rates rise, leaving sovereign risk assessments anchored to the total borrowing burden.

U.S. 10‑year Treasury yields double since 2019, pressuring budgets worldwide

The surge in borrowing costs is evident in the United States, where the 10‑year Treasury yield averaged 4.4% in May 2024—more than twice its 2.4% average in May 2019. As the report notes, these higher yields are consuming a larger share of national budgets, a trend that reverberates across the G7, including Canada.

Higher yields raise the cost of servicing debt, forcing governments to allocate more of their fiscal space to interest payments rather than productive investment.

Prime Minister Mark Carney’s defence pledge adds to the fiscal strain

Prime Minister Mark Carney has pledged to raise Canada’s defence spending to 4% of GDP by 2030 and 5% by 2035. This “guns versus butter” dilemma adds a new layer of pressure on an already stretched budget , especially as the Parliamentary Budget Officer estimates that unfunded pension and health liabilities in the G7 equal 96% of GDP.

In Canada, unfunded senior‑benefit liabilities alone represent roughly 50% of GDP, a figure that could swell further if defence outlays continue to rise without offsetting revenue measures.

Demographic shift cuts tax‑to‑GDP ratio by half a point within a decade

Older Canadians earn and spend less, and tax policies such as pension splitting and GST/HST exemptions for essentials lower their effective tax burden. One analysis cited in the source suggests that total taxes fall by nearly nine percentage points of income when individuals retire.

Consequently, the tax‑to‑GDP ratio is projected to decline by about 0.5 percentage points over the next ten years solely due to aging, further eroding the fiscal base needed to service rising debt.

What remains unclear about Canada’s path to fiscal sustainability?

The source does not specify which combination of tax hikes, spending cuts,or structural reforms could realistically bring debt below the 120% threshold within five years. It also leaves unanswered whether provincial governments will align with federal targets on defence and social spending.

Finally, the impact of potential interest‑rate shocks on Canada’s net‑debt dynamics remains uncertain, as the report emphasizes that net‑debt measures become less relevant when market values collapse.