OTTAWA—The federal government’s bottom line is on a sustainable path that could see Ottawa eliminate the national debt entirely in about 40 years, a new report from the parliamentary budget officer said Oct. 5.
However, the analysis highlighted far bleaker fiscal outlooks for many of the provinces, with particular long-term budgetary challenges in Alberta and Newfoundland and Labrador.
While Ottawa is on track to pay off its debt by 2060, the document projects the combined debts of provincial and territorial governments to rise to over 100 per cent of gross domestic product from 28 per cent of GDP within the next 75 years under existing fiscal policies.
The office notes that these fiscal projections are not forecasts and it stresses they only show the possible consequences if governments were to maintain their current fiscal structures over the long term.
Mostafa Askari, the assistant parliamentary budget officer, said the document is intended to provide governments with a sense of what lies ahead—and enough time for them to make any adjustments well before their situation gets worse.
“The idea is that if you wait too long, the challenge becomes much bigger and more painful for people,” Askari said.
“This provides a framework for debate on these policy issues.”
At the federal level, the PBO estimates the government could maintain fiscal sustainability even if it were to introduce permanent tax cuts or spending increases worth 1.2 per cent of gross domestic product—or $24.5 billion.
It said Ottawa is on a trajectory that, without any changes, could see it eliminate its annual deficits by around 2040.
Among the provinces, the report did identify two bright spots that stand out from their peers: Quebec and Nova Scotia.
They are the only provinces with fiscal trajectories that were considered sustainable over the long haul, leaving them room to introduce tax cuts or to increase government spending.
The report found Quebec to be in the best fiscal position. It said Quebec could even maintain its fiscal sustainability after introducing permanent tax cuts or spending increases worth up to three per cent of its GDP or $11.7 billion.
At the other end of the spectrum, the analysis found that the remaining provinces and territories will likely be forced to raise taxes or reduce expenditures in order to avoid decades of deficits.
The energy-producing provinces of Alberta and Newfoundland and Labrador face the biggest challenges, said the analysis overseen by parliamentary budget officer Jean-Denis Frechette.
For Newfoundland, it estimated that permanent tax hikes or spending cuts of 6.5 per cent of provincial GDP—or $2 billion—would be required to achieve fiscal sustainability.
In Alberta, the government would need permanent tax increases or spending reductions of 4.6 per cent of provincial GDP&mash;or $14.1 billion—to return to a sustainable track.
Askari noted that equalization transfers via the federal government to the provinces definitely have an impact on the PBO’s long-term calculations.
He said the analysis found that Quebec, which currently receives about 61 per cent of the total equalization envelope, would see its share grow to 75 per cent in 75 years.
Over the same period, however, Askari added that Newfoundland and Labrador isn’t expected to receive anything from equalization, largely because of its shrinking population.
In 2017-18, Quebec was once again—by far—the biggest beneficiary of equalization payments as it received more than $11 billion from the $18-billion program.
Based on a complex and long-contentious formula, the constitutionally guaranteed equalization program redistributes cash to poorer provinces to help fund public services.
The PBO numbers look different from a Finance Department report released last December by the Trudeau government, which predicted that, barring any policy changes, the federal government could run annual shortfalls until at least 2050-51.
Since then, the country’s outlook has changed after the economy easily beat expectations with a powerful performance in the first half of 2017.