OTTAWA - Ottawa and the provinces face a long-term structural deficit if they keep following the fiscal path they're on, Canada's budgetary watchdog warned Thursday.
In his latest look at the long-term fiscal position in Canada, Kevin Page said Thursday that the federal and provincial governments have a combined deficit worth about 2.7 per cent of the country's gross domestic product.
Ottawa's deficit is equal to 1.2 per cent of Canada's gross domestic product and the provinces' combined deficit is 1.5 per cent of GDP, Page estimates.
To solve the problem, Page says Ottawa and the provincs would need to find $46 billion in today's money -- before adjusting for imflation and economic growth -- through spending cuts, higher taxes or a combination of both.
Page also cautions that the longer governments wait, the bigger the gap will become -- although he acknowledged there isn't an immediate crisis.
"A lot of people are saying Canada has a bit more time," Page said. "But the longer term issue is these (issues) need to be part of the conversation sooner rather than later, and today we do not have a sustainable fiscal structure."
The report does not directly deal with current government deficits, but on the underlying fiscal track of governments.
It assumes the governments will continue to maintain current spending programs and levels of revenue generation relative to the size of the economy.
As such, the report cautions that it is not predicting what will happen, only showing policy-makers what could happen if actions are not taken, or conditions don't change.
The last time Ottawa was in a negative fiscal track was in the 1970s and 1980s, before the Conservative government of Brian Mulroney introduced the goods and services tax and the Jean Chretien Liberals followed up with deep spending cuts.
Page doesn't dispute that Ottawa, and the provinces, could get to a balanced budget in four or five years as the economy recovers, although he says that's seems less likely with the current economic slowdown.
Rather, he argues that governments are proceeding along a track that is fundamentally unsustainable, given current spending patterns and expectations for economy's potential growth in the next 75 years.
The problem is that as the population ages, a smaller proportion of Canadians will be working and paying taxes, and a larger portion will be retired and collecting benefits, including health care.
To show how dramatic the shift is, the report notes that given current birth and immigration levels, the ratio of retired seniors to the general population rises from about 24 per cent in 2010 to 37 per cent in 2030.
Page agrees that Canada is still in far better position that many other advanced countries, whose fiscal gap approaches nine per cent.
But Canada should be prepared to tackle the problem, he says.
"The more we can deal with these proactively, the smaller the costs will be," Page said.
He notes that it does little good for Ottawa to download the problem to the provinces because the country's overall fiscal situation would not change.
Page's findings are little changed from a similar report he issued last year, but the latest analysis places a hard number on the fiscal gap and includes the provincial component.
In all, Canada's debt to gross domestic product stands at 57.9 per cent currently, with Ottawa responsible for about 34 per cent of that.
Page says the fiscal difficulties facing peripheral European countries like Greece, Spain, Portugal, Ireland and Italy, as well as the U.S., is an example of what happens when governments ignore fiscal fundamentals.
"It's a cautionary tale for Canada," he said.
