Reducing Government Debt Could Boost Canadian Incomes by $2,100—Here’s How

A new study by the Fraser Institute shows that eliminating government debt in Canada could increase the annual incomes of the average worker by a large amount. If the federal and provincial governments reduce their debt levels to where they were prior to the COVID-19 pandemic in the next five years, they would increase the average full-time worker’s earnings on an annual basis by $2100 dollars as a result of higher labour productivity.

Labour productivity involves measuring the value of goods and services produced per hour of actual work. Labour productivity is central to increasing wages and living standards and developing a strong economy. However, the study states that Canada’s gross government debt is 107% of GDP as of 2023, which is the highest of any developed market. Such high debt grows both productivity and wage potential.

How Debt Reduction Impacts Worker Incomes

According to the study, a decline in the debt-to-GDP ratio could result in a 1.6% rise in worker productivity. This might sound small, but it would be an inflation-adjusted $2,100 yearly income increase for the average full-time employee working 40 hours per week. The reasoning is straightforward: less government borrowing creates more opportunities for productive investment, and this is good for businesses and workers.

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Why High Debt Hurts Productivity

High public debts mean governments are spending money on interest payments rather than spending on infrastructure, innovation or education. This can reduce the efficiency of the economy and will limit real wage growth. The report encourages the leaders of Canada to put an end to deficit spending and focus on long-term fiscal responsibility in order to foster higher productivity and better living standards.

Canada has the opportunity to improve its economy and put more money in the pockets of workers by getting its debt down.