Ontario will have to raise taxes dramatically or slash spending to meet its long-term financial targets, the province’s fiscal watchdog warns.

In a 65-page report to the Legislature released Thursday, the financial accountability office (FAO) warned that Ontario’s aging population will put a squeeze on provincial coffers.

“Over the next three decades, as the baby-boom cohort transitions from working age to retirement and eventually into old age, Ontario will experience significant changes in its population and economy,” said J. David Wake, the acting financial accountability officer.

“Without government action, these demographic changes will slow revenue growth and increase spending, leading to large and rising budget deficits,” he said at Queen’s Park.

“The baby-boom generation, accounting for over one-quarter of Ontario’s population, will be between 55 and 75 years old by 2020 and in the process of gradually transitioning out of the labour force. This transition is expected to lead to slower growth in employment and overall income,” Wake’s report noted.

“As the baby-boomers continue to age, they will require more resources from Ontario’s health care system, increasing pressure on government spending.”

Wake said Ontario’s current net debt-to-gross domestic product ratio of about 40 per cent will skyrocket to 63 per cent by 2050-51.

That’s far in excess of the Liberal government’s target of a net debt-to-GDP ratio of 27 per cent.

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The FAO estimated that to meet that target, Queen’s Park would have to fill an annual hole of about $6.5 billion.

“This . . . is roughly equivalent to removing funding for about 40 per cent of the province’s hospitals, or raising the harmonized sales tax rate by 2 percentage points or a 25-per-cent increase in federal government transfers to Ontario,” the office said.

Finance Minister Charles Sousa conceded, “The FAO is correct in recognizing that changing demographics will have an impact on the Ontario economy.

“This is a reality that is faced by many other jurisdictions, including most OECD countries. That’s why we took a leadership role in negotiations with the federal government to enhance the Canada Pension Plan and to increase health care transfers in order to transform our province’s health care system to better respond to the evolving needs of the people of Ontario.”

But Sousa pointed out that Ontario’s GDP grew by 2.7 per cent last year, “better than all the G7 countries and almost twice the rate of growth of Canada.

“Balancing the budget has added stability to Ontario’s finances and positions the government to better respond to demographic challenges and unexpected global economic shocks that the province may face in the future,” he said.

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“We will continue to manage any global economic challenges that arise along the way.”

But Progressive Conservative MPP Vic Fedeli (Nipissing) said the FAO’s report paints “a bleak and stark long-term budget outlook for Ontario.”

“The government continues to insist they’re on track even though they use the same data the Financial Accountability Officer used. The FAO clearly stated, ‘without an adjustment to Ontario’s fiscal policy,’ we will see increasing budget deficits and higher levels of debt,” said Fedeli.

“Perhaps worst of all, the FAO says continuing on this course will unfairly shift the fiscal burden from baby boomers to younger Ontarians.”