06/28/2016 01:04 EDT | Updated 06/29/2016 03:59 EDT

Canadian Provincial, Municipal Debt Is Unsustainable, PBO Warns

Sub-national debt is forecast to spike 200 per cent in the next 75 years.

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Canadian, Provincial and Territorial flags.

OTTAWA — The federal budget watchdog is sounding the alarm about the growing level of net debt being accumulated by Canada's provinces, territories and local governments.

The parliamentary budget office says at the combined net debt of Canada's so-called subnational governments — currently at 32.5 per cent of GDP — is projected to rise to more than 200 per cent over the next 75 years.

The new analysis also says the subnational outlook has worsened since last year, due to increased spending projections for health care and public sector administration.

The Parliamentary Budget Office sees large increases in the cost of health care spending in Canada this century, putting pressure on provincial budgets. (Chart: Parliamentary Budget Office)

On the other hand, the budget office says that while the sustainability of Ottawa's fiscal outlook has deteriorated since 2015, federal net debt remains manageable and will be eliminated in 50 years.

The report says the federal outlook has declined due to weak economic growth and temporary spending measures, such as the Liberal government's decision to move old age security eligibility back to 65 years old, from 67.

The office says some combination of higher federal transfers, spending cuts and revenue increases would be necessary to improve the subnational outlook.

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