Government spending at both the federal and provincial levels is sustainable over the long term, according to a new report from the Parliamentary Budget Officer, but the budget strength of five provinces is helping to offset the weakness of the others.
Parliamentary Budget Officer Yves Giroux released his office’s annual fiscal sustainability report Wednesday.
The analysis takes into account spending decisions made in the 2024 federal and provincial budgets and extrapolates current spending and revenue trends over a 75-year horizon. The report defines fiscal sustainability as a spending plan that does not cause government debt to grow continuously as a share of the economy.
The difference between current plans and a sustainable fiscal policy is defined as a fiscal gap. The report incorporates current assumptions in areas such as demographics and inflation and does not attempt to forecast future policy decisions.
By this measure, the PBO says fiscal policy at the federal level is sustainable over the long term and Ottawa could afford to either cut taxes or increase spending by 1.5 per cent of GDP, or $46-billion annually, while maintaining fiscal sustainability.
For the provinces and territories as a whole, the report says their finances are sustainable.
At an individual level, however, only Quebec, Saskatchewan, Nova Scotia, Ontario and Alberta are in that positive position. The remaining provinces of Newfoundland and Labrador, New Brunswick, Prince Edward Island, Manitoba and British Columbia – as well as the territories – are deemed to be in unsustainable fiscal positions. That means they will need to increase tax revenue, cut spending or approve a combination of both to reach a sustainable track.
The report also says the Canada Pension Plan and the Quebec Pension Plan are sustainable over the 75-year horizon.
The federal Liberals have long faced criticism from Conservatives and some economic observers for abandoning the party’s past commitment to targeting balanced budgets.
Prime Minister Justin Trudeau came to power in 2015 on a promise of running relatively small short-term deficits to boost the economy, but did not follow through on the pledge to eventually balance the books. Instead, deficits grew and then spiked dramatically during the COVID-19 pandemic, because of lower economic activity and massive emergency support programs for individuals and businesses.
As a result, the size of the federal debt as a share of GDP reached a high of 47.5 per cent in 2020-21, up from 31.2 per cent in 2019-20 before the pandemic.
That figure has declined in the two years since and is scheduled to slightly decline further over the next five years, according to the 2024 federal budget, which said it will be 41.9 per cent in the current fiscal year.
Preliminary figures show the federal government posted a budget deficit of $50.9-billion for the fiscal year that ended March 31, but Ottawa has cautioned that revisions are expected before the final number is booked later this year.
Finance Minister Chrystia Freeland vowed in the 2023 fall update that the deficit for the 2023-24 fiscal year would not exceed $40.1-billion. Ms. Freeland’s April budget projected the deficit would be $40-billion.
Conservative Leader Pierre Poilievre, whose party has a substantial lead in public opinion polls, has made debt and deficit concerns a central theme of his leadership. He released a 15-minute video called Debtonation and regularly says he will “fix the budget.”
Mr. Poilievre has not outlined a detailed fiscal plan. Political parties typically release such plans as part of a platform document during an election campaign. The next federal election is scheduled for October, 2025, but could occur sooner if the minority Liberal government were to lose a vote of confidence in Parliament.
During the 120-day period before a fixed-date general election, or when an election is called, political parties can submit proposed platform elements to the PBO for an independent fiscal cost analysis.
Katherine Cuplinskas, a spokesperson for Ms. Freeland, said in a statement that the report shows the government has a fiscally responsible economic plan.
Conservative MP and finance critic Jasraj Singh Hallan said that the Liberals have doubled the size of the national debt in dollar terms since 2015. He said in a statement that the government’s “inflationary spending” contributes to higher prices for food and housing. He said a Conservative government will find a dollar in savings for every new dollar of spending.