Provinces taking on Ottawa's debt burden, budget officer says

A new report from Canada's budget officer says the federal government is on track to meet its debt reduction targets and even has room for tax cuts or more spending but says Ottawa's good fortunes are coming at the expense of all other levels of government.

Thursday's report from the Parliamentary Budget Officer (PBO) says the federal government will be able to slay the federal deficit by 2015 and reduce federal debt to no more than 25 per cent of GDP by 2021, as it has previously committed.

In fact, it said, the government even has some breathing room.

The PBO said the government could even reduce taxes or increase spending by almost $25 billion this year and the move would be absorbed over the long term.

However, the PBO says that Ottawa's good fortunes are coming at the expense of the provinces and municipalities.

Cut in health transfer

The PBO attributes the federal fiscal breathing room to changes in the Canadian Health Transfer (CHT).

In 2011, Finance Minister Jim Flaherty announced unilaterally that he was capping growth of the CHT to the provinces at the country's GDP growth rate. The provinces argued that formula ignores the rising costs of health care due to an aging population and new technologies.

Because of that move, the PBO estimates the federal government will be out of debt by 2044 but it says provinces, territories, municipalities and aboriginal governments will have a combined debt of 359.9 per cent of GDP by the end of the projection horizon in 2087.

The PBO's projections look 75 years into the future, a timeline many times longer than any government is willing to make promises.

However economists argue it's by looking that far down the road that allows governments today to set their course.

The PBO also looked at the Canada and Quebec pension plans, which it says are both on a sustainable track to meet their respective commitments in the future.