Canada’s finance minister, Chrystia Freeland, will provide a fiscal update next Tuesday. It will not be pretty. 

Federal finances are under increasing strain from slowing economic growth, expanded affordability measures, new social programs (such as dental care), massive subsidies for battery plants, and, perhaps most important of all, rapidly rising interest rates. 

In fact, the monthly interest costs of the federal government are now at an all-time high. The latest available data for August shows federal interest costs exceeded $4.3 billion, surpassing the previous record of $4.03 billion set in December 1995. It’s more than double the pre-COVID amounts, as I illustrate below. And it’s the fastest acceleration in interest costs in recorded history.^{1While the fiscal monitor data does not extend further back than 1995, my own estimates of monthly costs inferred from the historical public accounts suggest very strongly that August 2023 is indeed an all-time record but I’m willing to be corrected.}

At this rate, annual interest costs could exceed $50 billion—four years ahead of schedule. 

All this means that when Minister Freeland updates the numbers next week, the federal deficit will almost surely grow. A lot.

In the PBO’s latest economic and fiscal outlook, they anticipated a $46.5 billion deficit this year—up from the budget’s $40 billion.

Other projections suggest we may see an even larger deficit. The latest projection by Finances of the Nation, which releases new figures every month, including a new set published last week, projects a deficit of just under $56 billion this year. 

That may be overly pessimistic, of course. But if it is even close to accurate, then it would be a very large increase indeed. Excluding the COVID-19 years, which are obviously an exception, it would be an over $20 billion increase over last year. That’d be the largest increase since the financial crisis. And controlling for the health of the economy (using what’s called the “cyclically adjusted budget balance”), it would be the largest deficit, as a share of the economy, since 1995.  

This doesn’t mean we’re headed over a fiscal cliff. 

Relative to the size of government or the overall economy, the burden of these high interest costs remains lower than it was in the mid-1990s. Far lower. In 1995, interest costs were 35 percent of revenue and nearly 6 percent of our entire economy. Today, even if interest costs exceed $50 billion, that would be 11 percent of revenue and less than 2 percent of GPD. And central banks should start lowering their policy rates next year, perhaps by spring or earlier, as inflation pressures recede. 

Canada is also not alone. Indeed, the situation abroad is even worse. Based on the latest data compiled by The Economist, the U.S. federal deficit is set to reach 5.7 percent of GDP this year, equivalent to roughly $165 billion in Canada. Borrowing in the Euro area is 3.4 percent. The U.K. is 3.9 percent. Indeed, of all the countries it tracks—developed and developing alike—only three expect a surplus: Australia, Denmark, and Norway. 

However good the company we may be in, though, Canada has a challenge on its hands. 

The federal government’s 2023 budget was based on a 10-year interest rate of approximately three percent. That may now have to increase by half a point, which could increase borrowing costs by several billion per year for the foreseeable future.

And if rates stay higher for longer, as many (including the Bank of Canada) now expect, the government’s debt levels may not be sustainable. 

Consider a situation where federal borrowing costs average 3.5 percent, government revenue and economic growth slow to an average of 3 percent, and government spending grows at 3.5 percent. I estimate that federal debt GDP by 2028 would reach 47 percent—roughly where it was at its highest level following COVID-19. This is far higher than the government’s plan for 40 percent that year.

Federal debt that grows faster than the economy is not sustainable. If the fiscal update shows that, alarm bells should ring.

What can Canada do? As I’ve noted before, sticking with the government’s own previous plans would be a good start. Ratcheting up spending plans with every single budget is an important reason why we’re in this situation. Looking ahead, those seeking to replace the current prime minister—whether within the Liberal Party or Pierre Poilievre of the Conservatives—should start considering options.

The longer we delay, the larger and more difficult our fiscal challenges will become.

Arriving from Israel on a cold Sunday morning, eight family members of Jewish hostages currently held prisoner by the Hamas terrorist group in the Gaza Strip came to Ottawa to share their story and plead for Canadian support.

They visited Canada from October 29-31, just weeks after the Hamas terrorists murdered 1,200 Jews during a kill-and-capture raid against Israel on October 7. They met with politicians, spoke to the media, and appealed to ordinary citizens with one united message: “Don’t forget our stories. Bring our families home.” 

To those of us who spent time with these family members of the hostages, their stories did indeed become more vivid and real. Not social media abstractions but living human tragedies told by people longing to be able to hug their mothers, their nephews, their nieces, their uncles, and their aunts again. 

There was the story of Sapir, told by her family member Alexandra. Sapir had traveled to spend the Sabbath with her husband Alexander’s family at Kibbutz Nir Oz. Alexander’s father, Vitaly, 50, was murdered, while his mother Elena, 50, and grandmother Irina Tati, 73, were taken to Gaza as hostages. Aviv and Alexandra then learned of Sapir’s captivity by seeing a TikTok video of her paraded through the streets of Gaza, spit upon, beaten, and horrified.  

Then there is Aharon, who spoke so beautifully about his sister-in-law, Hagit, and her kindness, and the summer he spent with her and her children, Ofri, 10, Yuval, 8, and Uriah, 4, in Toronto. On October 7th all 4 were kidnapped from their home in Kibbutz Kfar Aza and taken to Gaza.

Itay and his mother Merav came to Ottawa to speak for her uncle and aunt, Avraham and Rute Munder, both of them 78 years old, who were kidnapped by Hamas terrorists along with their daughter Keren Munder, 54, and her son Ohad Munder Zichri. Ohad turned 9 while in captivity, rather than celebrating with his friends and family over a birthday cake, he is being held in cruel captivity.

Harel came to share the story of his niece Tiferet Lapidot. On October 7th, like any normal 22-year-old, Tiferet went to dance at the Nova music festival, before it turned into a site for terror and mass murder. Tiferet was murdered by Hamas terrorists at the Nova music festival where more than 260 innocent people were slaughtered.

And finally, there was Chen. Chen came to raise awareness about his mother Vivian Silver. Vivian was a Canadian, who moved to live at Kibbutz Be’eri where she built a beautiful life. She was a leader in the peace movement, committed to bringing unity to Israelis and Palestinians. On November 13th, Vivian was officially declared amongst the dead rather than missing. Listening to her son speak about her in the news conference, you learned about a woman who was full of light and kindness. Vivian devoted her life to the peace movement, building real and everlasting relationships with Palestinians in Gaza. It took five weeks to identify her body amongst the ruins of Kibbutz Be’eri, symbolizing the immense devastation caused by Hamas.

And yet amid the suffering, while listening to these stories, I felt ensconced by two emotions that seemed to be held by every single person present, Jew or non-Jew. Love: the kind of love we forget to feel so much of the time but streams powerfully from our hearts when our deepest sense of humanity is impacted. And will: Israel’s iron will to survive. To fight, win, and thrive. 

In the spring of each year, Jews around the world gather at the Passover table for Seder supper and recount the story of the Israelites’ exodus from Egypt. Through joy and song we remember that once we were slaves—without rights, without land—but now we are free, with our ancestral homeland in our permanent possession.

After spending precious, terrible moments with those whose loved ones are being held captive by the Hamas in Gaza, I also couldn’t help but reflect on the Seder meals I’m so grateful to have had and that I look forward to with my family.

The Haggada, the Jewish text that governs the Seder meal, gives considerable space to the hardships our ancestors faced—the bricks, the mortars, and the tears. It’s how we mourn and make meaning from our people’s suffering.

The next Seder, in Spring 2024, will become vividly and tragically personal for the Jewish community around the world as we meditate upon my people’s suffering and the meaning we make of it in moments of triumph, and in our stubborn refusal to be bullied, smeared, and eradicated.

The Jews’ exodus from Egypt began with four simple words from Moses: “Let my people go.”

Today, that message is directed to the terrorist cowards hiding behind 239 Jewish hostages—and, let’s not forget, innocent Palestinian civilians—as they rain rockets down on the world’s first and only Jewish State. 

Moses got his people back. And so will we.