Parliamentary Budget Officer Kevin Page is sounding the alarm over mounting debt in Ottawa and the provinces as governments start feeling the financial squeeze of an aging population.
Describing an extensive new report to be released on Thursday, Mr. Page says five-year budget forecasts of the type that Ottawa, the provinces and his own office regularly produce fail to address the longer-term issues on the horizon.
Mr. Page said his report aims to highlight Canada's combined federal and provincial debt and the need for the two levels of government to work together to tackle the problem.
Governments have focused on the short term during three years of turmoil in the global economy, which triggered stimulus spending and increased government debt. But Mr. Page said government leaders must also focus on the long-term cost of this higher debt burden.
"Like many other countries, Canada does not have a sustainable fiscal structure," said Mr. Page, who outlined his report in an email. "Policy makers will need to address the aging demographic issue. We feel it should be part of the discussion leading up to the 2012 budget."
The dependency ratio – a measure of the number of Canadians 65 years of age or higher in contrast to the population who are 15 to 64 – is projected to rise as much this decade as it did over the past 40 years, he noted. This means fewer working-age taxpayers and a greater number of retirees receiving government benefits. As a result, Mr. Page said demographics and the cost of health care clearly should be a big part of negotiations to renew transfer deals with the provinces that expire in 2014.
There are different ways of measuring combined debt. The PBO points to Statistics Canada data that show combined federal, provincial and municipal liabilities of $846-billion for 2011.
Prime Minister Stephen Harper responded to opposition questions on the economy on Wednesday by insisting his government is striking the right balance between stimulus spending and returning to balanced budgets.
"The government continues to run a significant deficit, as is appropriate at these times, but we are taking steps to ensure the budget will balance as the economy grows," Mr. Harper said.
The Globe and Mail reported earlier this year that while the Conservative government is saying little about its plans to renew transfers or address the demographic challenge, internal documents show the issue is creating a great deal of activity behind the scenes in terms of high-level meetings and briefings.
Documents obtained by The Globe under an Access to Information request highlighted a string of statistical warnings, including the fact that Canada will move from the 27th oldest to the 11th oldest country in the Organization for Economic Co-operation within 20 years.
Demographic change leads to debate on a wide range of potential policy options, from raising the retirement age, encouraging higher fertility rates, boosting immigration, tackling health care costs or future levels of taxation and government services for younger workers.
Canada's aging population is partly why Mr. Page believes Ottawa faces a permanent – or structural – deficit that will not be erased by the government's timeline of 2014-15.
Deficit warnings from Mr. Page, who became Canada's first Parliamentary Budget Officer in 2008, have prompted tension between his office and the Conservative government.
The Globe and Mail analyzed 15 comparable fiscal projections from Finance Canada and the PBO over the past three years and found the government's numbers proved more accurate nine of the 15 times. The PBO's numbers were more accurate on four occasions and there were two ties.
Overall, the difference in forecast accuracy was small. Over the 15 projections, Finance's numbers were off by an average of $12.6-billion while the PBO was off by an average of $13.2-billion, a difference of $0.6-billion. The errors were particularly large for 2008 and 2009, as neither Finance nor the PBO predicted the deep deficits triggered by the global recession.
Mr. Page has repeatedly said that government departments often refuse to provide the PBO with financial data it requests for the purposes of creating forecasts.