Rising interest rates will squeeze Federal public debt government spending… charges as a share Households won’t be alone in feeling pressured by rising interest rates. of GDP Governments will also see their spending options limited as they have to earmark more money for debt charges. Consider the federal government’s fiscal outlook. Relative to other expenditure items, federal debt-servicing costs will account for the second-largest increase in federal spending from fiscal 2017-2018 to fiscal 2023-2024. Only one other item will increase faster: benefits for the elderly. To be sure, as a share of GDP, federal public debt charges – at 1.2% – are small compared to the 5%-6% witnessed in the late 5%-6% 1980s and into the 1990s. At that time interest rates were in the double dig- 1980s & 90s its. Nothing like that is going to happen during this round of tightening by the Bank of Canada. However, with growing demands on the public purse from an aging population, higher debt charges will account for an increas- 1.2% ing part of the equation limiting funds available for other priorities. Today Ottawa will spend more on debt payments than almost any program Federal government spending growth, FY 2017-18 to 2023-24, billions of dollars Elderl enefits €ulic det charges Canada Health Transfer ther transfer pa ments Emplo ment ­nsurance enefits Eualiation Children’s enefits Canada Social Transfer perating expenses Home care and mental health Territorial Formula Financing Gas Tax Fund 0 5 10 15 20 Source: Department of Finance, RBC Economics Research Source: Department of Finance, RBC Economics Research RBC Economics Research | Navigating 2019 - 9 big insights for the year ahead | January 2019 9