PBO says federal government can spend more — but it’s running out of room to manoeuvre

The parliamentary budget officer says the federal government has leeway to add billions more in permanent spending before its finances become unsustainable.

Based on the budget officer’s calculations, the government could increase spending or reduce taxes — or pursue a combination of the two — to the tune of $19 billion and still reduce the debt-to-GDP ratio over time to pre-pandemic levels.

That figure is down substantially from the $41 billion limit the budget officer calculated in February before the COVID-19 pandemic.

Yves Giroux’s report says the news isn’t as good for some provinces, the territories, local or Indigenous governments, whose current spending levels would see debt growing continuously as a share of the economy.

He estimates permanent tax increases or spending cuts totalling about $12 billion and growing in line with gross domestic product over time would be needed to stabilize the finances of those governments.

Only three provinces have finances that are considered sustainable in Giroux’s view — Quebec, Nova Scotia and Ontario, each of which have varying levels of room to bump up permanent spending.

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