| OTTAWA, Sept 26
OTTAWA, Sept 26 A move by Canada's federal
government to offload some healthcare costs onto the country's
provinces will leave provincial governments facing ballooning
debt unless they raise taxes or cut spending, the parliamentary
budget office (PBO)says.
The federal government is in good fiscal health after it
introduced broad spending cuts with the goal of eliminating its
budget deficit by 2015, the PBO said in a report on Thursday on
the long-term fiscal sustainability of Canada's various levels
The PBO, which was set up by the Conservative government in
2006, has a mandate to provide independent analysis of Canada's
finances to legislators.
"PBO's projection of net debt suggests federal debt is on
track to achieve the government's G20 (Group of 20) commitment
to a debt-to-gross domestic product ratio of 25 percent by
2021," the report said.
Prime Minister Stephen Harper announced the target at the
Group of 20 summit in St. Petersburg, Russia, earlier this
month. Canada ran 11 straight years of budget surpluses before
the 2008-09 financial crisis, and Harper is eager to balance the
books again before the next election, scheduled for October
CHANGE IN TRANSFERS
Ottawa expects a deficit in the 2013-14 fiscal year of
C$18.7 billion ($18.2 billion), or 1 percent of GDP.
But in a controversial move in 2011, the Conservatives
announced a change to the way the federal government transfers
funds to the provinces to cover the country's universal,
publicly funded healthcare system.
Transfers have been growing by 6 percent a year and will
continue to do so until 2016-17, but after that they will
increase in line with average growth in nominal gross domestic
product, which is expected to be lower.
The budget office said the change to the so-called Canada
Health Transfer "has transferred the fiscal burden to provinces
"PBO estimates that the debt path of other levels of
government is not sustainable and will continue to rise,
reaching 359.9 percent of GDP by 2087," it said.
The PBO defines a government's debt as sustainable if the
debt-to-GDP ratio is projected to return to its current level
over a 75-year horizon, taking into account pressures from an
aging population and other considerations.
The fiscal gap of other levels of government - lumping
together provinces, territories, municipalities and aboriginal
governments - is 1.9 percent of GDP, it estimated. That means
these governments combined would have to increase revenues,
reduce spending or a combination of both by C$36.2 billion this
year to set their finances on the right track, the report said.
A spokeswoman for federal Finance Minister Jim Flaherty
defended the transfer policy, saying Ottawa's payments would
continue to increase every year to record levels.
"Our government has announced long-term, stable funding
arrangements with the provinces that will see health transfers
reach historic levels of C$40 billion by the end of the decade,"
spokeswoman Kathleen Perchaluk said.
The PBO report did not single out individual provinces.
Ontario, the most populous provinces, is one of the most
indebted. Other major economic players Quebec, Alberta and
British Columbia have also been tackling deficits in recent
Ontario ran a deficit in the 2012-13 fiscal year of C$9.2
billion, according to the latest official figures. That is
expected to widen to C$11.7 billion in 2013-14. Ontario's
Liberal government has pledged to balance the budget by 2017-18.
Susie Heath, press secretary for Ontario Finance Minister
Charles Sousa, said provincial finances are moving in the right
direction and that total government spending decreased last year
for the first time since 1996.
"And we have exceeded all deficit reduction targets for the
last four years, the only jurisdiction in Canada to achieve this
level of success," Heath said.