Parliamentary Budget Officer Yves Giroux estimates that federal public finances will be sustainable for 75 years, while Canada's net debt should be around 40%. (Archives)
Federal public finances will be sustainable for the next 75 years, says a report released Thursday by Parliamentary Budget Officer (PBO) Yves Giroux. “Financial viability” means that at the end of this period, net debt will hover around 40% of GDP, he noted in an interview with Midi info.
In its calculations, the PBO took into account the announcements that were made by the federal government in its 2022 budget. It also took into consideration transfers to the provinces and transfers to people. He made assumptions about Canada's economic and population growth over the next 75 years, and concludes that public finances will be sustainable for that period.
Yves Giroux, however, pointed out that these are projections, not predictions. When you project over such a long period, the amounts are not very precise, he insisted, but he estimates that the federal government will have some $45 billion in financial flexibility. Money that could be used to increase government spending or lower taxes for Canadians.
The government has programs that are indexed to inflation, or to population growth, recalled Mr. Giroux, and transfers to individuals such as old age security, or even equalization which is used in health and social programs are limited by economic growth and incomes. But according to his assumptions, federal government revenues should remain roughly the same as a proportion of the economy, he added.
This is why Mr. Giroux believes that federal public finances will be sustainable over a long period of 75 years.
The main threat to this financial sustainability of Ottawa would be, thinks the PBO, an increase in spending that would be permanent, including equalization. This would have a far greater impact on sustainability over decades than a one-time shock like the pandemic.
Mr. Giroux stressed that the Canadian economy and public finances are capable of absorbing a one-time shock, such as the measures taken to deal with the COVID-19 pandemic. But the keyword is punctual, he insisted. The condition [is] that it be a choice, which is once in a while, and not something permanent.
On the other hand, the room for maneuver of public finances must also take into account the increase in productivity and demography.
“If life expectancy increases, it will have negative repercussions on financial sustainability, especially [for] the provinces.
—Yves Giroux, Parliamentary Budget Officer
Yves Giroux argued that the Canada Pension Plan (CPP) and the Quebec Pension Plan (QPP) will also remain stable, due to the substantial increase in contribution rates in the late 1990s.
The PBO report indicates that the CPP and QPP are viable at the current state of contribution rates and current benefits, and will remain so in the decades to come – which is confirmed, according to Mr. Giroux , by actuarial valuations every three years.
But if the situation of the federal public finances is favorable, this is not the case for all the provincial partners, specified the PBO. Quebec, Alberta, Saskatchewan and Nova Scotia have favorable prospects, but Ontario, British Columbia, Manitoba and New Brunswick will find their finances in a more precarious situation.
Budget deficits and aging populations, while they may affect all Canadian provinces, will have a marked impact on some, such as Newfoundland and Labrador.
Federal transfers will also affect provincial public finances, said Mr. Giroux. If some provinces have demographic or productivity assumptions that will improve, in others, that means that equalization will decrease […] this is the case in Manitoba, he suggested. Manitoba would receive much less equalization than the current situation [which] will contribute to deteriorate [its] budgetary situation, said Mr. Giroux.
“It's the opposite in Quebec, which is going to be an aging province, which taxes its citizens more […] to finance its social programs […] and will benefit from a slightly increasing proportion equalization, which will help Quebec have a viable financial situation. ”
—Yves Giroux, Parliamentary Budget Officer
But these forecasts for the next 75 years could change, for example if a shock causes that, permanently , productivity [in Canada] is lower, concluded Mr. Giroux.