Despite the impacts of the pandemic, federal finances still sustainable over the long term, says PBO

The Parliamentary Budget Officer (PBO) today released an update of his assessment of the long-term sustainability of government finances, analyzing the impacts of unprecedent pandemic support spending on public finances in Canada.

According to PBO Yves Giroux, the long-term outlook for the government sector as a whole remains sustainable under current fiscal policy—assuming no new permanent programs are introduced.

Fiscal Sustainability Report 2020: Update incorporates federal and provincial governments’ pandemic budgetary measures and assumes that these measures are withdrawn as currently scheduled.

Based on the PBO’s assessment, the federal government, and the provinces of Quebec, Nova Scotia, as well as Ontario all have the fiscal flexibility to increase spending or to reduce taxes. Current fiscal policy is not sustainable in the remaining provinces and the Territories.

“Assuming that pandemic spending is temporary, current fiscal policy at the federal level is sustainable over the long term”, says Yves Giroux, PBO. “However, most provinces face a financial situation that is unsustainable in the long term.”

Rising health care costs due to population ageing continue to drive the deterioration in provincial and territorial government finances over the long term. The negative impact of the pandemic and oil price shocks contribute to higher program spending relative to GDP, straining finances across provinces and territories in 2020.

The Fiscal Sustainability Report 2020: Update is designed to identify whether changes in current fiscal policy are necessary to avoid excessive growth in government debt and estimate the magnitude of those changes using the fiscal gap.