The outlook for the Canadian economy is one of very weak economic growth at a time where there is slack in the economy. I think you can make a case that when private sector demand is weak, some targeted fiscal stimulus can have a beneficial impact. At the same time, you have to be fiscally responsible. In my mind, fiscal responsibility in this context means charting a path as to how you will eventually return to balance.
When I think about Canada in the longer term and I look at long-term projections, I am concerned about where Canada is headed fiscally. Primarily, my concern is at the provincial level. When I look at projections of economic growth and income growth in the economy, what I can see is that health care expenditures are going to far outstrip fiscal capacity. While some provinces today have fiscal challenges and others have fewer, any long-term projection of the provincial fiscal situation basically leads you to a conclusion that you're going to see very large deficits at the provincial level for quite a long period of time.
This raises the question of how we are going to deliver health, education, and other social programs at the provincial level and have them be affordable. Obviously, one approach would be to look at the fiscal capacity of the federal government in terms of the ability to transfer tax points to the provinces.
When the question comes up about education and health care being provincial responsibilities, one of the observations would be that perhaps the federal government should be looking for ways to transfer fiscal capacity to the provinces or, alternatively, looking for ways of channelling fiscal room. At the same time, as I said, these are long-term pressures, so if we run up a lot of debt now, we are going to lose scope and the room to manoeuvre to meet the fiscal pressures that are going to come down the road.
