One of the questions I received after launching this newsletter was simple.

I loved that question because I think a lot of Canadians wonder the same thing.

Every payday, money comes off your cheque.

You pay GST when you buy something.

You fill up your car and pay taxes there too.

But where does all that money actually end up?

Let's break it down.

The first thing that surprised me when I started looking into this is that the federal government spends well over $500 billion a year.

That's a lot of money.

But it doesn't all go where most people think.

The biggest chunk doesn't go to foreign aid.

It doesn't go to politicians.

And it doesn't even go directly to health care.

Here's where most of it actually goes.

The federal government spends a huge amount on seniors through programs like Old Age Security and the Guaranteed Income Supplement.

Millions of Canadians rely on those payments every month.

A large share of your federal taxes gets transferred to provinces.

That money helps pay for health care, social programs, and other services.

A lot of people think Ottawa runs hospitals.

It doesn't.

The provinces do.

The federal government helps pay for them through the Canada Health Transfer and other transfers.

One of the fastest growing expenses isn't a program at all.

It's interest on the national debt.

Think about it like carrying a balance on a credit card.

Except instead of a few hundred dollars, it's tens of billions every year.

That money doesn't build a road.

It doesn't hire a nurse.

It doesn't buy military equipment.

It simply pays the interest on money that was borrowed in the past.

Canada has also been increasing defence spending over the past few years as it works toward its NATO commitments.

That's a growing expense.

But it's still much smaller than what Ottawa spends on seniors' benefits and transfers to provinces.

This one gets talked about a lot.

But here's something many people don't realize.

Foreign aid makes up roughly one percent of total federal spending.

That doesn't mean people shouldn't debate whether it's too high or too low.

It just means it represents a much smaller piece of the budget than many Canadians assume.

This stood out to me.

A lot of our political debates focus on the most visible spending.

Foreign aid.

Government consultants.

Travel.

Procurement.

Those are legitimate conversations to have.

But they're not where most of the money goes.

Most federal spending is tied up in benefits, transfers, debt interest, and the day to day operation of government.

That's why balancing the budget is so difficult.

If a government wants to spend more on defence...

Or lower taxes...

Or increase health transfers...

Something else usually has to change.

Either spending goes down somewhere else.

Or borrowing goes up.

That's the tradeoff every government has to make, no matter which party is in power.

So the next time you hear a politician promise to cut taxes, balance the budget, or dramatically increase spending, one question is worth asking.

Where is the money going to come from?

That's usually where the real debate begins.

Until next time,

Dean

P.S. What part of the federal budget would you like me to explain next? Equalization? The national debt? EI? CPP? Hit reply.