Federal government can spend $46B more a year and remain sustainable over long term: PBO report

The federal government can afford to increase spending by $46 billion, or cut taxes by that amount, every year until 2098 and remain fiscally sustainable, according to a report from the Parliamentary Budget Officer Yves Giroux's office.

This year's fiscal sustainability report also says that taken as a whole, Canada's provincial governments are sustainable but cannot collectively increase funding nor cut taxes over the same period.

Some provinces, namely Quebec, Saskatchewan, Ontario and Nova Scotia, do have room to increase spending or cut taxes. Alberta remains sustainable but breaks even, the report says.

The remaining provinces and territories must either raise taxes or cut spending in order to be able to remain sustainable until 2098, however.

The annual report's objective is to look at the growth of an economy over the long term and decide if fiscal policy changes are required in order to avoid accumulating unsustainable debt levels.

«From the perspective of the total general government sector, that is federal and subnational governments and public pension plans combined, current fiscal policy in Canada is sustainable over the long term,» the report published Wednesday said.

When the report says a government's fiscal position is «sustainable» over time the PBO means the size of the debt held by a government does not «grow continuously as a share of the economy.»

Sustainable growth means that while the debt continues to grow in size, so does the economy, so the debt doesn't become such a large portion of an economy that a government can no longer pay it.

Where the provinces stand

The fiscal flexibility that a government has to expand spending or cut taxes and remain sustainable is called the fiscal gap. The $46 billion