Canada could lower taxes and remain fiscally viable, says PBO

The parliamentary budget officer says Canada’s current fiscal policy is sustainable over the long term.

The PBO’s latest fiscal sustainability report finds that Canada’s overall debt level is projected to decline steadily over time.

At the federal level, the report says, the government could permanently increase spending or reduce taxes by 1.8% of GDP and remain fiscally viable. That amounts to $45 billion in current dollars.

“It’s generally a pretty good news story overall, for the fiscal outlook for Canada,” said Randall Bartlett, Desjardins’ director of Canadian economics.

The annual report aims to identify any necessary changes to current fiscal policy to ensure government debt accumulation does not become unsustainable.

It does this by assessing the net debt-to-GDP ratio.

The PBO’s assessment includes federal and provincial budgets from the spring.

In its assessment of provincial, territorial, Indigenous and local governments, it cautions that the fiscal policies of some governments are not sustainable.

The report says that over the long term, relative to the size of their economies, provinces will face rising health-care expenses due to the aging population.

However, most provinces saw an improvement in their fiscal standing since last year.

“It’s arguably a fairly substantial improvement,” said Bartlett.

The report says fiscal policy in Quebec, Alberta, Saskatchewan and Nova Scotia is sustainable, while the remaining provinces and territories would need to cut spending or increase taxes to attain fiscal viability over time.

Bartlett said he was most surprised by the improvement in the fiscal standings of Alberta and Saskatchewan, noting that the changes are likely a result of higher oil prices.

The report also highlights how Canada’s aging population will affect the economic outlook, with growth expected to slow as the share of Canadians retiring rises.

Bartlett said the demographic decline in Canada is “inescapable,” but some of the decline is being offset by improving immigration levels.

“There’s sort of a pan-partisan agreement, among the major parties anyway, that immigration is necessary to support long-term economic growth in Canada and to offset the aging population that we have here,” he said.

The report also assessed the Canada Pension Plan and Quebec Pension Plan and found their structures to be sustainable over the long run.