Fiscal Sustainability Report 2022: PBO finds that fiscal policy for Canada’s government sector is sustainable
The Parliamentary Budget Officer (PBO) today released his assessment of the long-term sustainability of government finances. The assessment reflects all measures in federal, provincial and territorial government budgets in 2022.
The PBO’s 2022 Fiscal Sustainability Report finds that current fiscal policy, if maintained over the long term, is sustainable for the government sector as a whole. Relative to the size of the Canadian economy, total general government net debt is projected to remain below its 2021 level over the long term under status quo fiscal policy.
“Assuming no major new spending initiatives, we project the total government debt-to-GDP ratio to decline steadily over the long term largely due to the fiscal room at the federal level”, says Yves Giroux, PBO. “The federal flexibility reflects elevated revenues as well as spending on programs that will gradually decline over the long term relative to the size of the economy.”
Based on the PBO’s latest assessment, in addition to the federal government, governments in the provinces of Quebec, Alberta, Saskatchewan and Nova Scotia, all have some fiscal room to reduce taxes or increase spending. Status quo fiscal policy is not sustainable in the remaining provinces and the territories due in part to an ageing population.
“Healthcare spending will continue to outpace growth in the economy as the population ages,” adds Mr. Giroux. “In most jurisdictions, the Canada Health Transfer will not keep pace with rising healthcare spending and growth in social spending will exceed increases in the Canada Social Transfer.”
The report also assesses the Canada Pension Plan and Quebec Pension Plan and finds that both plans are sustainable over the long term. Given benefits projected under the current plans’ structure, status quo contribution rates are sufficient to ensure that the net asset-to-GDP position of each plan is at or above its 2021 value over the long term.
The PBO’s Fiscal Sustainability Report is designed to identify whether changes in current fiscal policy are necessary to avoid unsustainable growth of government debt and estimate the magnitude of those changes using the fiscal gap.
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