Federal debt could be erased by 2060, PBO says
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 Thursday.
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 the federal government 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.
“Taken from the perspective of the government sector as a whole — that is, federal and subnational governments and public pension plans combined — current fiscal policy in Canada is sustainable over the long term,” said the report from parliamentary budget officer Jean-Denis Frechette.
“However, this perspective masks unsustainable fiscal policy at the subnational level.”
The office notes that these fiscal projections are not forecasts or predictions, and it stresses they only show the possible consequences if governments were to maintain their current fiscal structures over the long term.
It did identify two bright spots that stand out from their provincial peers: Quebec and Nova Scotia.
They are the only provinces with fiscal trajectories that will be sustainable over the long haul, leaving them room to introduce tax cuts or to increase government spending, the research said.
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 to avoid decades of deficits.
It says the energy-producing provinces of Alberta and Newfoundland and Labrador face the biggest challenges.
For Newfoundland, the analysis 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 hikes or spending cuts of 4.6 per cent of provincial GDP — or $14.1 billion — to return to a sustainable track.
At the federal level, the PBO estimates permanent tax cuts or spending increases worth 1.2 per cent of GDP — or $24.5 billion — could be implemented while maintaining fiscal sustainability.
The parliamentary budget office says the federal government is on a trajectory that could see it erase its annual deficits by around 2040.
A Finance Department report released last December predicted shortfalls until at least 2050-51.
Since then, the country’s outlook has changed after the economy easily beat expectations.