Current federal spending bad for Canada’s fiscal health, says PBO report

The PBO’s Fiscal Sustainability Report reported that Ottawa’s fiscal situation was "sustainable," but it spurred warning calls about Canada’s fiscal health. Ballooning elderly benefits costs, temporary expansions to employment insurance, childcare, reflect sizable new social spending plans by the government.

Longer-term issues like Canada’s ageing population will continue to strain public finances. The PBO predicted annual costs for elderly benefits will double peak in 2032 from $56 billion in 2020 to $115 billion. These costs as a percentage of GDP would increase from 2.6 percent today to 3.1 percent then. Provincial healthcare systems are not equipped to handle the projected uptick in service demand.

"Overall, it paints a picture of unsustainability for finances, both federal and provincial combined," Parliamentary Budget Officer Yves Giroux said in an interview with the National Post. "And that is the big elephant in the room that nobody seems to be worried about or wanting to address."

"The federal government’s fiscal room has been eaten up by additional successive spending initiatives at the federal level, which has not relieved the pressure at the provincial level," he said. The PBO projects temporary spending programs during the pandemic to aid people and businesses will fall as the province’s ease public lockdowns.

The federal government claims debt projections will fall, with Canada’s net debt declining from 50 percent of GDP today down to 37.3 percent of GDP in 2038. The widening fiscal gap because of declining revenues and pandemic lockdowns among provinces and territories is also an area of concern. Combined, all provincial and territorial governments in Canada need to cut spending or raise taxes by $18 billion to close their fiscal gap.

Despite gradual improvements to the resource-dependent provinces of Alberta, Saskatchewan, and Newfoundland in 2021, the fiscal hurt remains as recovery from the commodity crash in 2014 remains a pipedream. Newfoundland perhaps faced the direst fiscal outlook of all, with a recently commissioned group of experts proposing “transformational” changes to return the province on a path to financial stability.

The federal government won’t return to a balanced budget until 2070 under the status quo, according to supplementary data released by the Parliamentary Budget Officer in its most recent Fiscal Sustainability Report. They project another $2.7 trillion in debt before balancing the budget in 2070. This is in addition to the current $1 trillion in existing federal debt. Interest charges will cost taxpayers about $3.8 trillion by 2070.