Earlier this summer, before the election began, Canada’s Parliamentary Budget Officer (PBO) released its annual fiscal sustainability report. While the report garnered scant media attention, it actually revealed a remarkable deterioration in the state of government fiscal health since the 2020 report. Indeed, when you combine the federal government and the provinces, Canada’s government finances have clearly become unsustainable.

First a point of clarification. The PBO report uses the term “sustainability” with a specific technical meaning. If a jurisdiction’s debt-to-GDP ratio (a crucial measure of government indebtedness) is on track to remain steady or fall over the long term, that jurisdiction’s finances are determined to be sustainable. Conversely, if this ratio is projected to rise, finances are unsustainable.

So what’s changed?

Last year’s report in February showed that while Canada’s provinces were, taken together, fiscally unsustainable, a somewhat brighter long-run forecast on federal finances meant that the combined debt-to-GDP ratio of Canada’s two levels of government would decline slowly in the decades ahead without any policy change.

But this year’s report shows that, thanks primarily to a major deterioration in federal finances—including forecasted federal budget deficits until 2070—the combined provincial and federal outlook is now bleak.

Specifically, according to PBO projections, combined debt levels (relative to the size of the economy) will hover near current levels, which have been elevated by the pandemic, in the near term. After that, things are on track to get worse. The report projects that as Canada’s aging population puts more pressure on government budgets, the combined federal and provincial level of indebtedness (again, relative to the size of the economy) will continue to grow.

This turnaround in one year is alarming. The PBO official responsible for the report, Yves Giroux, summed up the issue clearly, stating that the combined unsustainability of Canada’s two senior levels of government represents “the big elephant in the room that nobody seems worried about or wanting to address.” Anyone watching the major party candidates on the campaign trail will likely agree with this assessment.

But the PBO report (and Giroux’s incisive comments) should be a wakeup call for policymakers. All else equal, a rising debt-to-GDP ratio means that interest costs (relative to the size of the economy) will rise, which will put further pressure on government budgets and siphon off revenue to pay debt interest that could otherwise be used for government services or tax relief.

If there’s any good news, it’s that the PBO projections are just that—projections, about how debt will evolve absent any policy change. There’s still time for Canadian governments, including the next federal government, to address these fiscal challenges. During this election season and beyond, a key question remains answered. Will our governments take the PBO report’s warnings to heart and act now to put Canada’s finances back on a path to sustainability? Or simply kick the can down the road and leave even bigger challenges for their successors and a bigger burden on future generations of Canadians?