OTTAWA -- Canada's budget watchdog says recent cost-costing will put the federal government in a sound financial position in the long-term, but provinces and cities are not doing so well.

The federal Parliamentary Budget Office says overall debt at the three levels of Canadian government is similar to what's happening in some European countries -- although the situation is years away from becoming critical.

The head of the watchdog agency, Kevin Page, says government revenues are projected to keep dwindling while expenses for such things as health care and public pensions keep climbing.

However, most of those increased costs are falling on provinces and territories, not on the federal government in Ottawa.

Page says the federal government has put itself into a sustainable fiscal position with recent moves to limit health transfers to provinces, slash direct program expenses and increase the age of eligibility for Old Age Security to 67 from 65.

He says there's time to adjust, however, because the impact of aging and policy measures won't be felt for some time.

For instance, on current estimates, he expects total government sector debt as a percentage of gross domestic product will fall to 31.9 per cent in the next 20 years from the current 53.5 per cent.

But afterwards, it will start rising, peaking at 195 per cent in 2086 -- assuming current policies remain intact.

All of that debt will be at the provincial, territorial and municipal level, he says, while Ottawa will actually be in surplus.