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Federal and provincial long-term fiscal sustainability going in opposite directions

PBO report says restraint on federal health spending transferred the burden to the provinces and increased their fiscal gap over the long term.



OTTAWA—A new report from the parliamentary budget office says federal finances and the Canada and Quebec pension plans are in good shape over the long term but the provinces are in trouble.

The long-term fiscal sustainability report—which forecasts current trends out over a 75-year horizon—says Ottawa has room to cut taxes, increase spending or a combination of both without harming its current debt-to-GDP ratio.

The budget office says the Conservative government put federal finances on a sustainable path in 2011 when it cut spending and moved to limit sharp increases in its health transfers to the provinces.

But the report says that same restraint on federal health spending transferred the burden on to the provinces and increased their fiscal gap over the long term.

Indeed, Ottawa has almost $25 billion in fiscal room in 2013, while the provinces collectively are more than $36 billion in the hole.

The budget report notes that due to the long time frame it is somewhat speculative and relies on current government spending and taxation remaining unchanged over decades.

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