Fraser Institute forecasts Canada won't see balanced budgets for next three decades

Red ink for 30 years

Even before Wednesday's throne speech sent a clear signal that Ottawa won't be reining in spending, Vancouver's Fraser Institute forecast Canada won't see balanced budgets again for the next 30 years.

The think-tank predicts the federal government – regardless of political party – will operate in the red for the next three decades as a result of historically high spending and an aging population.

The institute notes these conditions existed before the COVID-19 pandemic.

Before any new spending, "Ottawa is facing decades of red ink that will inevitably weaken Canada’s federal finances and place a real burden on future generations,” says economist Jake Fuss, co-author of the report Canada's Aging Population and Long-Term Projections for Federal Finances.

The study estimates deficits ranging from 2.6 per cent to 3.1 per cent of GDP between 2021 and 2050 based on conservative assumptions, including no recession and both inflation and interest rates remaining low.

Federal debt is estimated to increase from 49.1 per cent of GDP in 2020 to 69.6 per cent by 2050.

“It’s important to recognize that we’re on track to accumulate federal debt at a level higher than existed in the early 1990s when the country faced a near debt and currency crisis,” Fuss says.

The main driver of the deficits is Canada’s aging population.

The share of the population over 65 has already risen to 18 per cent and is expected to reach 24.1 per cent by 2050.

“The aging of the population means more government spending on programs like Old Age Security and health care at the same time that there’s fewer people (as a proportion of the population) working to pay taxes,” explained Fuss.

Study co-author Steven Globerman, professor emeritus at Western Washington University, adds: “The imbalance we’re already seeing between Ottawa’s spending and revenues is only going to get worse as Canada’s population continues to age."

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