What are government deficits and do they matter?

The federal government’s deficit for the 2022-2023 fiscal year was approximately $35.23 billion, a significant decrease from $90.32 billion the previous year. A budget deficit occurs when a government spends more than it collects in revenue within a fiscal year. Between 1966 and 2024, the Canadian federal government achieved a balanced budget—spending less than it collected—only 12 times. The longest streak of balanced budgets occurred from 1997 to 2007, spanning 11 consecutive years.

Governments run deficits for various reasons, such as stimulus spending to support a struggling economy, funding disaster and emergency relief efforts (e.g., flood and wildfire response), and making long-term investments in infrastructure like transit systems and healthcare facilities. These expenditures often coincide with reduced tax revenues, further contributing to deficits.

The federal deficit surged from $39.39 billion in 2019-2020 to $327.73 billion in 2020-2021—an increase of more than eightfold. This dramatic rise was driven by the government’s response to the COVID-19 pandemic, which included expanded unemployment benefits, the Canadian Emergency Wage Subsidy (CEWS) to support businesses, and direct stimulus payments to individuals.

Between 1970-2024, Canada balanced its budget only
12x
The most notable streak of surpluses (11 consecutive balanced budgets) occurred between 1997 and 2007.
Source: Department of Finance Canada
The federal deficit in FY-2020-2021 was more than
8x
the amount in 2019-2020, mainly driven by government expenditures related to programs to support individuals and businesses impacted by the COVID-19 pandemic.

Unlike annual deficits, the federal debt represents the total amount of money the government has borrowed throughout its history. As the debt grows, more resources are required to pay interest and reduce the principal, leaving less funding available for social programs, defense, and infrastructure projects such as roads, bridges, and hospitals. To address these obligations, the government can either borrow more money or increase revenue through higher taxes and fees.

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Henry Dang

Henry is the founder of Fun with Data. His mission is to help people connect the dots so they can see the bigger picture. Henry has over a decade of experience in financial, employee, and brand communications. He started Fun with Data to share his passion for data and inspire others to become better storytellers with data. Henry spends his free time hiking with his two dogs Louie and Rocco.

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