Deficit Spending: Not the Boogeyman You Think It Is
In defence of red ink.
What if I told you that going into debt isn't always irresponsible?
In fact, for governments, strategic debt can be the engine that fuels economic growth and builds a stronger future.
The conventional wisdom says spending more than you earn is always bad. But a closer look reveals that this “responsible” approach can actually hold us back.
Debt, when managed well, works for everyone.
Here’s the idea:
Two Governments
Imagine two governments.
Government A is “fiscally responsible.” No debt. No deficits. It funds everything with tax revenues. Need a new road? Only if there’s cash in the bank. No cash? No road. Need to boost defence spending? Better cut another program—or raise taxes.
Government B is the “irresponsible” one. It runs deficits. It borrows. Needs a road? Fire up the credit card. New hospital? Issue some bonds. Spend, spend, spend.
Pretty obvious which one’s better… right?
Let’s back up.
The Cost of “Responsibility”
Government A looks responsible. But refusing to borrow means essential projects don’t happen.
Roads get delayed: longer commutes, higher shipping costs.
Infrastructure crumbles: power grids fail, bridges become unsafe.
Healthcare and education get squeezed: hurting families now and limiting future opportunities.
In trying to “live within its means,” Government A could end up limiting its potential.
The Truth About Government Debt
When governments borrow, they don’t go to payday lenders. They issue bonds—Treasury notes that people and institutions can buy. These are among the safest investments available because governments rarely default.
And here’s the kicker: much of this debt is typically held domestically. The interest payments go to pension funds, retirement portfolios, and regular investors. That money stays in the economy.
A government with no debt? That means fewer low-risk investment options for citizens—no ballast in a volatile market.
Meanwhile, Government B—the spender—might actually be making strategic investments in the future:
Child care that helps parents rejoin the workforce
Education and skills training for tomorrow’s workers
Research, clean energy, digital infrastructure
Debt isn’t always reckless. Sometimes it’s essential.
When Deficits Go Too Far
Of course, deficits aren’t harmless. They’re powerful tools, but like any tool, they require careful handling.
There’s no hard-and-fast rule, but there are benchmarks. The European Union, for example, under the Stability and Growth Pact, recommends keeping deficits below 3% of GDP.
If a country’s GDP is $100 billion, a deficit of over $3 billion may raise red flags.
What About Canada?
Based on the political noise, you’d think we were blowing past that 3% threshold every year that we’re teetering on the edge of a debt spiral.
But here’s the reality:
Before COVID, Canada’s deficits under Trudeau ranged from 0.6% to 1.7% of GDP.
In 2020, during the peak of the pandemic, spending spiked to 15%—wartime levels.
In 2021, it dropped to 3.6%.
Since then? Under 2%.
So no, we’re not on the brink of collapse.
Looking Ahead
Yes, spending will rise. And that’s appropriate.
Defence budgets are increasing.
Our population is aging.
Infrastructure needs investment.
But deficits aren’t inherently bad. If we’re borrowing to invest in our people and our future, that’s not reckless.
That’s responsible.
Final Word
It’s time to move beyond simplistic narratives about “good” and “bad” debt. What matters is what we’re spending on—and whether we’re building a stronger Canada for everyone.
Strategic investment isn't a liability.
It’s a necessity.
Craig Out.
If you found this helpful, share it with someone who thinks all debt is bad. The conversation around deficits needs more nuance—and that starts with better information.
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Fantastic! Appreciate the structure of your article comparing two scenarios! Great work
Another banger!