Finance Canada is excluding provincial numbers from new reports that will focus on whether government finances are sustainable over the long term.
The Conservatives first promised to produce a “fiscal sustainability” report in 2007, yet the document never appeared. The government nonetheless introduced major policies this year in the name of making Ottawa’s finances sustainable for generations. These moves included capping growth in health and social transfers to the provinces and gradually pushing back eligibility for Old Age Security from 65 to 67.
After the release of his latest audit, Auditor General Michael Ferguson called on Finance to produce reports for both federal and provincial finances that would show the state of Canada’s public finances as a whole.
The government said it will produce a report – but only with federal numbers.
One reason why the government might not want to produce both reports is because they will tell two dramatically different stories. While it is widely agreed that Ottawa’s finances are now on a healthy trajectory over the long term, it has also been noted that the provinces as a whole face a grim future of perpetual deficits and rising health-care costs.
It’s not in Ottawa’s political interests to draw attention to that contrast, said Geoffrey Hale, a political science professor with the University of Lethbridge who authored a book on the politics of taxation.
“If Ottawa produces such a report, it will be under enormous pressure to bail the provinces out,” he said. “Ottawa has enough trouble managing its own finances under the current uncertainties that they are dealing with [without] having to play sugar daddy to improvident provincial politicians.”
On Tuesday, the Auditor-General released a fall report that included a chapter calling on Finance Canada to report on the long-term sustainability of Canada’s public finances.
Instead, Finance Canada has produced one-off, internal assessments of the long-term impacts of specific policy such as this year’s changes to OAS and the Tax-Free Savings Accounts announced in the 2008 budget. However, the Auditor-General expressed concern with the timing of when these reports are presented to cabinet.
“For a given budget, the [Finance Minister] is not informed of the overall long-term fiscal impact until months after the budget measures have been approved,” the report states.
The audit report noted that while these long-term projections – which can show numbers decades into the future – are not firm predictions, they provide useful guidance. Mr. Ferguson said the financial impact of some policy decisions might not show up for years and would not be captured by the usual practice of limiting projections to the next five years.
“Certainly when they are analyzing the long-term fiscal sustainability, they need to – at least from time to time – make sure they understand what the impact of the provinces are as well, not just the federal government,” said Mr. Ferguson at a news conference Tuesday.
Finance Canada spokesman Jack Aubry said Ottawa will not report on the sustainability of Canadian government finances as a whole. “The provinces and the territories are better placed to provide an analysis of their long-term fiscal positions, and we would encourage them to do so,” he said.
Tuesday afternoon, Finance Canada released a long-term, fiscal-sustainability report that projects federal debt to GDP will be erased by around 2042 because of measures in the 2012 budget. There is no data in the report on provincial debt loads.
The Parliamentary Budget Office has long called on Finance to produce these reports on federal spending. The PBO has also published its own estimates of the sustainability of provincial debt loads. In September, the PBO said the debt-to-GDP ratios of provincial, territorial and local governments are on track to rise sharply over the coming decades.