Is Canada Overtaxed? Or Just Bad at Spending? (... or neither?)

A look at Interest Payments and Tax Burden compared to our Peers.

I started down this rabbit hole with a very normal question:

How much does Canada spend on interest payments per person?

(Yes, I’m a hit at parties, thanks for asking.)

However, along the way, I discovered a more accurate metric—one that economists and policy experts actually use: interest payments as a percentage of government revenue.

So what does that mean?

In plain terms: for every dollar the government collects in taxes, how many cents go to paying interest on the debt?

We’re golfing here. Lower is better. It means more of your money is going toward services—not bondholders.

Initially, I aimed to compare interest burdens across countries. But then a second question hit me:

If Canada is supposedly “overtaxed,” AND our interest payments are super high… how bad is this situation?

---

So Where Do We Actually Rank?

According to World Bank data, Canada allocates approximately 7.6% of its tax revenue to interest payments. That’s down from 12.8% in 2005, bottomed out around 6% under pre-COVID Trudeau-era borrowing, and has ticked back up in the last two years as shorter-term pandemic loans come due.

That puts us:

• Below the U.S. (~14%)

• Roughly on par with the UK (7.8%) and Italy (8.5%)

• But above France, Germany, and Japan, who pay significantly less

So what does that mean?

We’re doing better than some—but worse than others. We’re not drowning like the U.S., but we’re not operating at the efficiency levels of Germany or Japan either.

---

What About Tax Burden?

Here’s where the “Canada is overtaxed” argument starts to wobble.

Canada’s total tax revenue as a share of GDP is ~33%. That’s:

• Comparable to Japan (32.9%) and the UK (34.3%)

• Higher than the U.S. (26.8%)

• Lower than most of Europe, where many countries collect over 40% of GDP

So no—Canada is not overtaxed relative to its peers. Not even close. We sit in the middle of the pack, well within the norm for developed nations.

And if you believe in public services—healthcare, education, infrastructure—then this level of taxation isn’t evidence of dysfunction. It’s table stakes.

---

So What’s the Real Problem?

Here’s the picture:

• Canada isn’t overtaxed.

• Our interest burden is rising, but not unusually so.

• Our net debt-to-GDP ratio is solid—our gross looks worse only because we count public pensions fully, while other countries don’t.

• Our tax base is middle-of-the-road, but we expect services closer to what high-tax countries provide.

• We’re not the envy of the world. But we’re not the cautionary tale either.

• We’re managing.

But here’s the catch: the future’s about to get a lot more expensive.

• We need to invest in infrastructure to get our resources to global markets.

• Our military spending is decades behind and falls short of NATO standards.

• Our population is aging, fast—and healthcare costs are going to balloon.

• And our largest trading partner is erratic, flirting with tariffs and protectionism that could destabilize global markets for years.

All of this will cost money. And we don't have the infinite money cheat code some seem to think we do.

We still have room to raise more revenue—modestly, smartly—but the window is closing. And yes, interest payments may also increase. That’s the cost of past decisions. But it’s not doom. Much of that money recirculates into pensions, investments, and Canadian households.

The point is: we have options. But pretending we’re broke—or worse, that we’re overburdened—only makes the eventual reckoning harder.

We can do better.

We may have to.

Craig out.