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Provinces spiral towards debt crisis as Ottawa boasts of sound finances

Why the feds aren’t painting a full picture of government debt


 

Photo illustration by Sarah Mackinnon

Finance Minister Jim Flaherty likes to draw up comparisons with other advanced economies. Even when announcing in November that the federal deficit would come in at $26 billion, $5 billion higher than predicted in the 2012 budget, the minister couldn’t resist gloating: “Unlike many of Canada’s counterparts in the G7, we remain on track to return to balanced budgets over the medium term.”

But with provincial deficits swelling from coast to coast this year, and rising health care costs expected to ravage provincial coffers in the coming decades, federal figures are starting to paint an increasingly misleading portrait of Canada’s government debt situation.

Lower-than-expected revenues have dug a $4-billion hole in Alberta’s finances and inflated Newfoundland’s deficit to over $700 million (almost triple what was initially projected), adding resource-rich provinces, along with long-time offenders such as Ontario and Quebec, to the list of fiscally challenged jurisdictions.

The long-term forecast looks scarier still. Even assuming, as the Parliamentary Budget Office does, that Ottawa’s debt will steadily shrink and disappear around 2040, provincial, territorial and local governments are on track to swell Canada’s total public debt to the equivalent of 100 per cent of GDP by 2070.

You wouldn’t know by looking at government statistics. Ottawa doesn’t publish any of its long-term analyses that show how federal and provincial fiscal trends add up, a practice common among several industrialized countries and recommended by the Organization for Economic Development and Co-operation and the International Monetary Fund.

When Auditor General Michael Ferguson prodded Finance Canada last fall to make such comprehensive forecasts available to the public, the department politely declined, noting that “the federal government is not accountable for the fiscal situation of the provinces and territories.”

It’s easy to sympathize with that view. After all, provincial governments absorbed very little of the deficit-slashing lesson of Liberal prime minister Jean Chrétien. While Ottawa’s share of public sector debt shrunk from 62 per cent in 1991 to 33 per cent in 2011, the provinces and territories’ grew from 34 to 47 per cent, according to Statistics Canada. (The balance is made up of debt owed by local governments and the Canada and Quebec pension plans.)

Yet one might feel more lenient toward Canada’s provinces after considering that they shoulder the brunt of what is expected to become one of the heaviest burdens on government balance sheets across the industrialized world: health care costs. It’s the ever-higher medical bills of a rapidly aging population that are setting provinces on a path to fiscal ruin, according to the Parliamentary Budget Office.

Conversely, one of the reasons why the federal government’s fiscal trajectory looks so promising is that Ottawa “cleverly insulated itself” from such a long-term threat by capping health transfers to the provinces, according to economist Don Drummond. In December 2011, Ottawa moved away from six per cent annual increases in such transfers, pegging them instead to growth in non-inflation adjusted GDP beyond 2016. Those cost risks, though, might boomerang should a province’s debt become unsustainable and require a federal bailout, Drummond and others have warned.

That would be every taxpayer’s problem, and that’s why Canadians deserve to have a full picture of government debt—wherever it might be hidden.


 
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Provinces spiral towards debt crisis as Ottawa boasts of sound finances

  1. “provincial governments absorbed very little of the deficit-slashing lesson” — actually the canny Mr. Chretien (and his friend Paul) achieved some of their results by downloading to the provinces. National health care’s exploding costs have become a provincial problem with the capping of transfers.

    Flaherty’s statement that the provinces’ problems are of no concern to his government begs the question just who do the Cons represent? The Canadian people are all residents of one of those debt hobbled jurisdictions.

    • I make that very point in the article, did you read to the end?

      • I read all the way to the end and I thought the same thing as logicfan1. You say the provinces will bear the brunt of healthcare costs in the coming years, but you didn’t actually say that the Feds under Chretien offloaded to the provinces big time in the 90’s.

        • yeah, it reads that way to myself as well.

    • You want Flaherty to be setting the budgets for the provinces as well? Or are you suggesting that the provinces should make their own budgets, and the federal government should just fund them?

      • Do you find that dragging your hostility into problem solving is helpful, Rick?

        • Right-wing Rick’s at it again. A bi-polar advocate of back to partisan basics..

          • As my grandpappy used to say ‘You can take the Rick out of robocall, but you can’t take the robocall out of Rick’.

    • There is one tax payer. The provinces had years of growing revenues during the boom times and set up cost structures to suit. Then revenues dropped and they run into problems. The Federal gov’t did the same as well. Some provincial governments bought re-election by being generous to the public sector unions.

      Now reality has hit. And we hear moaning that some sugar daddy doesn’t show up to pay.

      • Nicely put

  2. I’m not sure why the feds need to consider or explain anything to do with provincial debt revenues or their budgets! Provinces are fully capable of doing that themselves – snd if they are not then it is the voters in each province to hold their feet to the fire not the feds!!!

    • Paul Martin happily downloaded billions of federal debt onto the provinces on the way to his smoke and mirrors budget.

  3. The feds are not responsible for the mismanagement of provincial finances, the McGuinty Liberals in Ontario were a prime example of what not to do and it doesn’t appear anything will change under the new premier there.

  4. Harper is downloading huge costs onto the provinces by cutting the Canada Health Transfer in half. This is far worse than the minor cuts to transfers made by the Liberals in the late 1990s. Harper said during the 2011 leaders’ debate that if the Liberals had managed the economy properly they wouldn’t have had to resort to cuts to transfers. The fact is our economy was much stronger back when the Liberals were in charge. All Harper has managed to do is squander the advantages he inherited, including a $14B surplus he wasted before the 2009 recession hit.

    • The Canada Health Transfer is not being cut in half, the rate of increase in the Health Transfer is being cut from 6% year over year to 3%, which was always planned by this government, the transfer had to be increased to 6% to make up for the cuts perpetrated by the Liberals under Chretien and Martin.

    • When the Liberals were in office we saw
      massive cutting of transfers to the provinces for Health, Education
      and Social Services, the raiding of the pensions of the Public
      Service, the RCMP and the Military, the illegal appropriation of some
      $54 Billion Dollars paid by workers and their employers into EI,
      myriad scandals involving graft and corruption by the Liberal Party,
      the most notable being ADSCAM, and one of the most infamous quotes
      coming from Justice Gomery saying of the Liberal Party, ‘they are
      criminally organized”.

      The Liberal Party is toast, there is no
      way back.

      And when will they pay back that
      missing $40 Million from ADSCAM?

      What about the $162 Million Taxpayer
      Dollars Paul Martin’s CSL received while he was Finance Minister?

    • Liberal Paul Martin wrote the book on downloading federal debt onto provincial laps

  5. And more amusingly, Canadians are among the most indebted people in the world. Last checked, an average of 68K in consumer debt. No, not including mortgages, that’s worthless junk that depreciates very fast.

    Way to go canada, you’re primed for the perfect storm. Keep racking up debt buying cars, boats, clothes, etc. You’ll find yourself not being able to afford cat food when the economy slows down and you lose your job, which is in the process of happening right now.

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