Fiscal Sustainability Report 2022
This report provides PBO’s assessment of the sustainability of government finances over the long term for the federal government, subnational governments and public pension plans.
From the perspective of the total general government sector, that is federal and subnational governments and public pension plans combined, current fiscal policy in Canada is sustainable over the long term. Relative to the size of the Canadian economy, total general government net debt is projected to decline steadily over the long term primarily due to fiscal room at the federal level.
Current fiscal policy at the federal level is sustainable over the long term. We estimate that the federal government could permanently increase spending or reduce taxes by 1.8 per cent of GDP ($45 billion in current dollars, growing in line with GDP thereafter) while maintaining fiscal sustainability.
For provincial-territorial, local and Indigenous governments, current fiscal policy is not sustainable over the long term—albeit to a modest extent. We estimate that permanent tax increases or spending reductions amounting to 0.1 per cent of GDP would be required to achieve fiscal sustainability over the long term.
The current structure of the Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) is sustainable over the long term. Under the current structure of the plans, projected contributions and benefits are sufficient to ensure that the net asset-to-GDP position is at or above its 2021 value after 75 years.
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. 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.
Healthcare spending will continue to outpace growth in the economy as the population ages. 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.
Parliamentary Budget Officer