Parliamentary Budget Officer (PBO) Yves Giroux says Canada’s current fiscal policy is sustainable over the long term. PBO’s latest fiscal sustainability report shows that Canada’s overall debt level is expected to decline steadily over time.
At the federal level, the report says, the government could permanently increase spending or cut taxes by 1.8% of GDP and remain fiscally sustainable. This is equivalent to 45 billion in current dollars. “It’s generally pretty good news overall for Canada’s financial outlook,” said Randall Bartlett, senior director of the Canadian economy at Desjardins.
The annual report aims to determine what changes are needed to current fiscal policy to ensure that the accumulation of public debt does not become unsustainable. To do this, it assesses the net debt/GDP ratio.
The report released Thursday includes assessments of the spring federal and provincial budgets. He warns that the tax policies of some provincial governments are unsustainable. The report indicates that over the long term, relative to the size of their economy, provinces will face increased health care spending due to aging populations.
However, most provinces have seen their financial situation improve since last year. ” [C’est] probably a pretty substantial improvement,” Bartlett said.
The report says fiscal policies in Quebec, Alberta, Saskatchewan and Nova Scotia are sustainable, while other provinces and territories would need to cut spending or raise taxes to achieve fiscal sustainability over time.
The leeway to increase spending or reduce taxes ranges from 1.2% of provincial GDP in Quebec to 0.1% of provincial GDP in Nova Scotia, it says. In the other provinces, the measures required by the governments of these jurisdictions to ensure their financial viability vary from 0.2% of provincial GDP in Ontario to 10.4% of GDP in the territories.
Bartlett said he was most surprised by the improved fiscal situation in Alberta and Saskatchewan, noting the changes are likely the result of higher oil prices.
Aging of the population
The report also highlights how Canada’s aging population will affect economic prospects, with growth expected to slow as the number of Canadians retiring increases. Bartlett said Canada’s population decline is “inevitable”, but some of the decline is offset by improving immigration levels. “There is a kind of pan-partisan agreement, among the major parties anyway, that immigration is necessary to support long-term economic growth in Canada and to offset the aging population we have here,” he asserted.
The report also assessed the Canada Pension Plan and the Quebec Pension Plan, and concluded that their structures were sustainable over the long term.