Watchdog warns Canada governments of fiscal crunch

The finances of Canada's federal government and its 10 provinces are unsustainable over the long term and they will need to either raise taxes or cut spending, in part because the population is aging, the country's budget watchdog said on Thursday.

"Fiscal sustainability requires that government debt cannot ultimately grow faster than the economy," Kevin Page, the parliamentary budget officer, said in a report that looked at likely trends over the next 75 years.

Page's team projected government debt relative to the size of the economy over the long term in the light of current spending and taxes as well as projected demographic and economic trends.

"(Our) debt-to-GDP projection indicates that the current federal and provincial-territorial fiscal structure is not sustainable over the long term," he wrote.

"Addressing this fiscal gap and restoring sustainability to public finances would require permanent policy actions of 2.7 percent of gross domestic product, either to raise taxes, reduce overall program spending, or some combination of both."

Page said slower labor force growth caused by an aging population would reduce annual average real gross domestic product growth from the 2.6 percent observed over the 1977-2010 period to 1.8 percent over the 2011-2086 period.