Canada federal finances in good shape, provinces not -watchdog

OTTAWA, July 21 (Reuters) - Canada's federal finances are in
a solid long-term position but the provincial and municipal
government picture is far less rosy, the country's parliamentary
budget watchdog said on Tuesday.
The office of the Parliamentary Budget Officer (PBO), which
has a mandate to provide independent analysis to lawmakers,
issued the report as Canada prepares for an Oct. 19 election.
The federal Conservative government's stewardship of the
economy has become a central issue as the election approaches,
with the finance minister pledging to eke out a budget surplus
this year despite a hit from weaker prices for oil, a major
Canadian export. ID:nL1N1001FU
"Federal government net debt is on a sustainable path and
will be eliminated entirely in 35 years," said the PBO report,
based on the assumption that current trends hold.
This would mean running budget surpluses eventually, which
it projects as possible without tax hikes or cutting spending.
In practice, however, Canadian federal governments have
tended not to run large surpluses over the long haul, opting
instead to cut taxes or boost spending.
The Conservative government has moved to curb long-term
spending with a plan to limit increases in transfers to the
provinces for health care to the nominal rate of growth in the
economy.
But health spending by the provinces is widely expected to
rise faster than that level as the baby-boomer generation
retires and lifespans lengthen.
"Subnational governments cannot meet the challenges of
population aging under current policy," the report said.
It estimated that "permanent policy actions" amounting to
1.4 percent of gross domestic product will be needed to put
subnational government debt on a sustainable path. These actions
could entail higher provincial or municipal taxes or spending
cuts elsewhere, or higher transfers from Ottawa.