Mind the Fiscal Gap

The Parliamentary Budget Office (PBO) looks at future trends of government revenue and the implications of budget decisions.  This office stands in the ‘Crow’s nest’ and watches for rocks and rough water ahead, while the federal Auditor General looks back at the wake of our “Ship of State”. 

In a recent report, the PBO estimated how much the economy will grow and the future cost of government for the long term.  They compared rising costs to potential tax growth and  the difference they call the ‘fiscal gap’.

Here are few of the important findings that Severely Normal Canadians should keep in the back of their mind:

  • The federal government’s future costs and revenue are forecasted to be pretty much in balance. But Canada’s growth rate will not be very robust, perhaps averaging less than 2% per year.
  • But most provinces are in greater trouble. All provinces have a ‘fiscal gap’ issue.
  • The culprits it seems…. are old people.  The report says budget balances in most provinces and the territories are projected to deteriorate over the long term as population aging puts downward pressure on revenue growth and upward pressure on health care spending. That’s because old people aren’t in the labor force and they need a lot of health care!
  • While Alberta spends more per capita than almost any other province on health care; we spend the least compared to the size of our economy. Our over age 65 population will nearly double to 40% in the next 25 years. We will also face lower revenue growth into the future. Thus, we will have a nasty “fiscal gap’ to manage.
  • Nor will federal transfer payments ride in to the rescue for Alberta. In the longer-term un-Equalization payments will flow to Quebec, British Columbia and New Brunswick because they will be have less capacity to fund services.

So in the future, our children and grandchildren won’t have the choice to keep Alberta taxes low and rely heavily on resource revenue to pay for services.  Taxes will have to go up…..

And service levels will likely go down.  I assume that means more pasta and luncheon meat at the old folks’ home.