Long-Run Fiscal Gaps

About this tool and how to use it

This tool projects federal and provincial finances over the next century and asks how much each government would need to adjust its budget, permanently and starting now, to keep its net debt from growing faster than the economy. By default it uses Statistics Canada's medium-growth population projection, a 4% interest rate, 1% annual labour productivity growth, and health costs growing 1 percentage point faster than inflation (plus the effect of an aging population).

To use it, change the assumptions on the left. The fiscal gaps, debt paths and table update instantly, and Copy link saves your scenario to share. For background, see Tombe (2020), “Provincial Debt Sustainability in Canada” in the Canadian Tax Journal.

Population projection

Statistics Canada's 2025-based projection scenarios. What differs? →

Economy

Interest rate

Average nominal borrowing rate for provinces. The federal rate is 1 point lower.

Labour productivity growth

Annual growth in real output per worker.

Health and transfers

Health cost growth above inflation

Extra annual growth in health costs per person, on top of inflation and population aging.

Faster Canada Health TransferAdds 1 percentage point a year to CHT growth through 2032/33. Off: the legislated path. Details →

Provincial revenue

Revenue keeps pace with GDPOff: income and sales taxes grow with GDP, while other revenue (fees, investment income, fuel and tobacco taxes, resource royalties) follows its own drivers. On: all provincial own-source revenue grows with GDP.

Time horizon

Number of years

All provinces: fiscal gap

Federal government: fiscal gap

Largest provincial gap

Loading projections…

What is a fiscal gap?

The fiscal gap is the immediate and permanent change in a government's primary balance (revenue minus program and capital spending, as a share of GDP) needed to bring its net debt back to its share of GDP by the end of the time horizon. A positive gap means revenue increases or spending cuts of that size are needed; a negative gap means there is room to cut taxes or spend more. The adjustment is the same share of GDP in every year, starting in .

The gaps are not forecasts. They show what current policies imply under the stated assumptions, so readers can see how much depends on each one. Use these results with more than a few grains of salt: small differences in long-run assumptions compound over decades.

Net debt paths

Net debt is gross debt minus financial assets, as a share of GDP, measured at the end of each fiscal year. The paths show what happens if current policies continue with no adjustment. Financial assets are held fixed in dollar terms (their income is part of revenue), so they shrink relative to the economy over time. With the gap closed, the primary balance is higher by the fiscal gap every year from , which returns net debt to its share of GDP at the horizon.

Assumptions and controls

Population projection: Population by age, sex and province follows Statistics Canada's 2025-based projection scenarios (Table 17-20-0003), reproduced with a cohort-component model using the same fertility, mortality, immigration, emigration, non-permanent resident and interprovincial migration assumptions. The medium scenarios (M1–M6) differ only in their interprovincial migration patterns; low and high growth, slow aging and fast aging change the other components too.
Interest rate: A constant average nominal interest rate on provincial debt. The federal government borrows at a rate 1 percentage point lower. The rate affects only debt costs, not revenue or spending.
Labour productivity growth: Annual growth in real output per worker. Nominal GDP in each province grows with its population, the share of that population aged 15 to 64 (so aging slows growth), 2% inflation, and labour productivity.
Health cost growth above inflation: Provincial health spending grows with inflation, population and each province's changing age structure, plus this extra annual rate per person.
Canada Health Transfer: The legislated path: 5% growth a year through 2027/28, then growth with a three-year moving average of nominal GDP, with a 3% floor. The faster option adds 1 percentage point a year through 2032/33.
Provincial revenue: By default, personal and corporate income taxes, sales taxes and payroll taxes grow with provincial GDP. Other own-source revenue follows its own drivers: fees and other revenue with inflation and population, investment income with inflation, fuel taxes with real GDP, tobacco taxes with inflation, and resource royalties with Canada Energy Regulator projections to 2050 and GDP after that. These tend to fall as a share of GDP. The alternative grows all provincial own-source revenue with GDP. Federal transfers follow their own formulas in both cases.
Other assumptions (not adjustable here): Inflation is 2% a year. Equalization follows its legislated formula, including the fiscal capacity cap. Federal defence spending rises from 2% of GDP in 2025/26 to 3.5% by 2035/36. Federal direct program spending is held flat to 2030 (Budget 2025), then grows with inflation and population. Atlantic Accord payments to Newfoundland and Labrador continue to 2056. The territories are not included in “All provinces”.

Methodology

The projections come from the Finances of the Nation debt sustainability model, which projects each province's revenue by source and spending by function, federal revenue and spending, and federal transfers (including equalization) to , starting from data. The approach follows Tombe (2020), “Provincial Debt Sustainability in Canada”, Canadian Tax Journal 68(4), updated with current data and policies. The model was run for every combination of the population, productivity, health, transfer and revenue settings (480 runs). Because interest rates affect only debt costs, the fiscal gaps and debt paths for any interest rate and horizon are calculated in your browser from each run's primary balances, using the same formulas as the model. The fiscal gaps match the full model to within 0.0001 percentage points.

Changes from the earlier version

The interest rate and time horizon can now be set to any value in their range (), rather than a few fixed steps.
New net debt paths for each government, with the option to show the path with the gap closed and to pin a scenario for comparison.
A data table and CSV downloads, and shareable links to any scenario.

Data sources

Statistics Canada, Canadian government finance statistics (Tables 10-10-0016, 10-10-0017, 10-10-0024 and 10-10-0005) and non-financial capital stocks (Table 36-10-0450).
Statistics Canada, population estimates (Table 17-10-0005) and components of growth, and population projection assumptions (Table 17-20-0003).
Canadian Institute for Health Information, National Health Expenditure Trends (health spending by age).
Finance Canada, federal transfers to provinces and territories.

How to cite

Questions or comments? Contact Trevor Tombe at ttombe@ucalgary.ca.

Licence

The underlying source data remain subject to their own licences: the Statistics Canada Open Licence, CIHI's terms of use, and the Open Government Licence – Canada.