OTTAWA—Canadians face a stark choice of program cuts or tax hikes as Ottawa confronts the rising costs of an aging population, aging infrastructure and the effects of climate change, Auditor General Sheila Fraser warns.

And Fraser made a passionate appeal to improve “unacceptable” living conditions on First Nations’ reserves across the country, saying it’s “unbelievable” such conditions exist in a country as rich as Canada.

For 10 years, the respected silver-haired accountant has safeguarded the public purse, ratting out the Liberals with revelations on the sponsorship scandal, exposing financial mismanagement in the office of former privacy commissioner George Radwanski, and using dozens of other audits to hold bureaucrats and politicians to account.

But Fraser — who is retiring as Ottawa’s financial watchdog — used her farewell speech Wednesday to deliver a blunt warning, saying that Canadians need to better understand the financial hurdles ahead. She’s urging Ottawa to begin producing long-term financial projections.

“Without them, we cannot begin to understand the scale and complexity of our financial challenges and the implication of policy choices, especially those related to spending, taxation or debt reduction,” she said in a luncheon speech.

At a news conference later, Fraser suggested that the status quo is unsustainable and bad news for the Conservatives and their agenda of tax cuts.

“It could be an increase in taxes. It could be a reduction in programs,” Fraser said.

“There’s only really two areas that you can work on to be able to balance the budget, unless we decide that we’re going to leave debt for our children and grandchildren,” she said.

She said the aging population has potentially profound implications: fewer people in the work force means reduced economic growth and lower tax revenue.

“At the same time, we can expect people will need more health care services and will be drawing on public pensions. Obviously, balancing these fiscal pressures will be a major challenge,” Fraser said.

Also, federal infrastructure is old and needs billions of dollars’ worth of upgrades. And she said the effects of climate change are already “readily apparent” in Canada’s north.

“Melting permafrost is undermining roads, buildings and pipelines . . . and climate change could also affect key economic sectors such as forestry, mining, fisheries and agriculture,” she said.

She challenged the Conservatives to create a “national long-term climate change strategy — one that will allow us to mitigate and adapt to changes.”

Fraser sounded a more personal note on the plight of First Nations peoples, saying it is “unacceptable” they are deprived of the basics.

She noted that students on reserves fare worse in school, that half of the drinking water systems pose a health threat, and that many live in overcrowded homes without enough sleeping space.

“Those sorts of conditions I find are just unbelievable in a country as rich as Canada,” she said.

“What’s truly shocking, however, is the lack of improvement,” said Fraser, who in 2001 became the first woman to serve as auditor general.

Fraser is perhaps best known for the 2002 probe into the Liberal sponsorship scandal. Its damning findings — and her indictment of federal officials who “broke every rule in the book” — set a police inquiry in motion and started the Liberals on a slow slide out of government.

But today, Fraser suggests, there are too many rules that get in the way of bureaucrats’ good judgment. “I think fewer rules actually lead to better management.”

Don’t expect Fraser to keep up much of a public profile once she packs up the pencil and calculator.

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“I think auditors general ought to fade away,” she said with a laugh.

New Democrat Leader Jack Layton praised Fraser’s tenure, saying she did the job with “impeccable integrity.”

“Sheila Fraser has done an enormous service to this country,” Layton said, “oftentimes taking positions against a government that is all too ready to attack anyone who criticizes its policies.”

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