Summary
Long-term projections are an essential element of budget transparency and sustainability analysis. This report provides a comparison of long-term economic and fiscal projections prepared by Finance Canada and PBO in 2018.
Key points
- PBO’s projection of real GDP growth is slightly lower than Finance Canada over 2018-2023 and 2024-2055 due to our lower projected growth in labour productivity.
- Both PBO and Finance Canada project the federal budgetary balance (relative to the size of the economy) to increase over the long term—rising to a budgetary surplus of more than 1 per cent of GDP—as growth in program expenses lags growth in nominal GDP beyond 2030 while revenues grow broadly in line with nominal GDP.
- Relative to the size of the economy, PBO and Finance Canada project federal government debt to decline over the long term. These projected declines indicate that current federal fiscal policy is sustainable over 2018 to 2055.
- Based on Finance Canada projections, we estimate that over 2018 to 2055 the federal government could increase spending or reduce taxes by 0.7 per cent of GDP per year, while maintaining fiscal sustainability. This corresponds to $17 billion in 2018, increasing in dollar terms over time in line with nominal GDP. By comparison, PBO estimates that over 2018 to 2055 the federal government could increase spending or reduce taxes by 0.8 per cent of GDP per year ($18 billion in 2018 and increasing in dollar terms over time in line with nominal GDP).
- In recent analysis, PBO assessed that current fiscal policy for the consolidated provincial‑territorial government sector was not sustainable.[i] We estimated that tax increases or spending reductions amounting to 0.8 per cent of GDP annually would be required to achieve fiscal sustainability over a 75-year horizon.
- Despite a recommendation from the Auditor General in 2012, Finance Canada has not provided long-term projections or a sustainability analysis for the provincial‑territorial government sector.
[i]. The provincial‑territorial sector of government includes: provincial, territorial, municipal and aboriginal governments, as well as public sector entities such as school boards, hospitals and universities.
