Canada's Net Debt Hits $1Trillion - Should You Be Worried?

Canada’s federal government recently (today, 21 November 2025) reached a significant milestone: its net debt has hit one trillion dollars. Alongside this, the interest expenses of the general government have surpassed $100 billion. These figures, reported by Statistics Canada, reflect the scale of public borrowing and its ongoing costs. For individuals planning their finances, understanding what this means is crucial. This post breaks down the implications of Canada’s growing debt and interest expenses, offering insights to help you make informed financial decisions.

Canadian Parliament building with flag waving

What Does One Trillion Dollars in Net Debt Mean?

Net debt is the total amount the government owes after subtracting its financial assets. When Canada’s net debt reaches one trillion dollars, it means the government’s liabilities significantly exceed its assets by that amount. This level of debt is a result of years of borrowing to fund public services, infrastructure, social programs, and economic stimulus measures. Even though this is not necessarily a bad thing since the Canadian government generally use these borrowings and debts to fund the country's capital investments and reccurent operational expenses, it is still very important to note and track the trend of thee obligations because it has a cascading effect on all Canadian residents.

Why Has Debt Grown So Much?

Several factors have contributed to this increase:

• Pandemic Response: Emergency spending to support healthcare, businesses, and individuals during COVID-19.

• Economic Stimulus: Investments aimed at boosting economic recovery.

• Long-term Commitments: Funding pensions, healthcare, and infrastructure projects.

  
  

The government borrows money by issuing bonds and other securities, which investors buy with the expectation of receiving interest payments.

The Impact of Interest Expenses Exceeding $100 Billion

Interest expenses represent the cost of servicing the debt. When interest payments exceed $100 billion, it means a large portion of government revenue goes toward paying interest rather than funding programs or reducing debt.

Why Are Interest Costs Rising?

Interest costs depend on:

• Debt Size: Larger debt means more interest to pay.

• Interest Rates: Rising rates increase the cost of borrowing.

• Debt Maturity: Shorter-term debt may need refinancing at higher rates.

  
  

Higher interest expenses can limit the government’s flexibility to invest in new initiatives or reduce taxes.

What This Means for Canadian Taxpayers

As a taxpayer, you indirectly bear the cost of government debt through taxes and public services. Here’s how the rising debt and interest expenses might affect you:

• Potential Tax Increases: To cover interest costs, the government may raise taxes or reduce spending.

• Reduced Public Services: Higher debt servicing costs could lead to cuts in healthcare, education, or infrastructure.

• Economic Growth Impact: Large debt might slow economic growth if it crowds out private investment.

  
  

How Should You Adjust Your Financial Strategy?

Understanding the government’s fiscal position helps you plan your finances better. Here are practical steps to consider:

1. Review Your Investment Portfolio

• Interest Rate Sensitivity: Rising interest rates can affect bond prices and borrowing costs. Consider diversifying your portfolio to include assets less sensitive to rate changes.

• Government Bonds: While Canadian government bonds are generally safe, their yields may rise with interest rates, offering better returns but also price volatility.

  
  

2. Manage Your Debt Wisely

• Fixed vs. Variable Rates: If you have variable-rate debt, rising interest rates could increase your payments. Locking in fixed rates might provide stability.

• Avoid Excessive Borrowing: With the government’s borrowing costs rising, personal borrowing costs may also increase.

  
  

3. Plan for Tax Changes

• Stay Informed: Monitor government announcements on tax policies.

• Tax-efficient Investing: Use registered accounts like RRSPs and TFSAs to reduce taxable income.

  
  

4. Build an Emergency Fund

Economic uncertainty linked to government debt levels can affect job markets and inflation. Having a cash reserve helps you weather unexpected expenses.

Broader Economic Implications to Watch

Canada’s high net debt and interest expenses have wider effects on the economy:

• Inflation Pressure: Government spending and borrowing can influence inflation trends.

• Currency Value: Large debt might affect the Canadian dollar’s strength.

• Credit Ratings: Credit rating agencies monitor debt levels; downgrades could increase borrowing costs further.

  
  

What Can the Government Do?

The government has several options to manage debt:

• Fiscal Discipline: Reducing deficits by cutting spending or increasing revenue.

• Economic Growth: Policies that boost growth can increase tax revenues without raising rates.

• Debt Restructuring: Refinancing debt at lower interest rates when possible.

  
  

Each approach has trade-offs that affect the economy and citizens differently.

What Should Canadians Keep in Mind?

While the federal debt is large, Canada’s economy is also substantial. The government’s ability to manage debt depends on economic growth, interest rates, and fiscal policies. For individuals, the key is to stay informed and adapt financial plans to changing economic conditions.

• Monitor Interest Rates: They affect borrowing costs and investment returns.

• Diversify Income Sources: Reducing reliance on a single income stream can provide security.

• Focus on Long-term Goals: Avoid reacting to short-term market fluctuations driven by government debt news.

  
  

Final Thoughts

Canada’s milestone of one trillion dollars in net debt and over $100 billion in interest expenses signals important shifts in the country’s fiscal landscape. For your financial strategy, this means paying attention to interest rates, managing personal debt carefully, and preparing for possible tax or spending changes. By staying proactive and informed, you can protect your financial well-being despite the challenges posed by rising government debt.

Reach out  to review your current budget, if you have one, address any gaps to avoid unpleasant surprises in the future and reorganize your financial plans in readiness for 2026. You can also read the related blogs on financial planning, managing finance and canadian financial realities.

If you need further support with budgeting, investments and tax efficiency - Let’s Talk. I help clients across Canada build sustainable financial plans rooted in clarity and confidence.