Liberals' Budget Deficit Won't Be As Big As They Predict, Budget Watchdog Says

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OTTAWA — The parliamentary budget office projects federal deficits in each of the next five years won't be as deep as those in Ottawa's forecasts.

A new report by the budget watchdog also contests the Liberal government's estimate that the public books will show a shortfall for 2015-16.

The analysis says Ottawa will run a $700-million surplus in 2015-16 as opposed to the $5.4-billion deficit projected in last month's federal budget.

justin trudeau bill morneau

Prime Minister Justin Trudeau and Finance Minister Bill Morneau speak to media during a post-budget press conference in Ottawa on Wednesday, March 22, 2016. (Canadian Press photo)

The report says the federal books are on track to add a total of $90.8 billion to the public debt over the next half-decade — lower than the federal government's projection of $113.2 billion over the same period.

The budget office is expecting Ottawa to show a $20.5-billion deficit this year, which is $8.9 billion smaller than the Liberal government's prediction.

The Liberals have been accused of deliberately lowering expectations in their fiscal outlook by including larger-than-usual risk adjustments of $6 billion per year.

Finance Minister Bill Morneau has argued that incorporating the thicker layer of prudence in the budget is necessary because forecasters have been wrong in recent years

The parliamentary budget office expects the federal debt-to-GDP ratio to start falling in 2017-18, which it says indicates the federal fiscal structure is sustainable over the long term.

The office also projects Canada's real gross domestic product — a common measure of economic growth — to expand 1.8 per cent this year, 2.5 per cent in 2017 and average 1.6 per cent between 2018 and 2020.

economic outlook canada

The PBO sees Canada's economy growing 1.8 per cent this year and 2.5 per cent in 2017, before slowing down to a pace of 1.6 per cent in the following two years. (Chart: Parliamentary Budget Office)

By comparison, the federal budget predicted real GDP to grow 1.4 per cent in 2016 and 2.2 per cent in 2017 — numbers based on an average of private-sector forecasts.

Last week, the Bank of Canada projected real GDP to expand by 1.7 per cent in 2016, up from its January expectation of 1.4 per cent. The central bank said the rosier prediction was due in part to billions of dollars in fiscal measures announced by Ottawa for projects like infrastructure.

Even with the additional government spending, the central bank lowered its 2017 growth projection to 2.3 per cent from 2.4 per cent. That's because it doesn't expect non-resource exports, while strengthening, to be as robust as previously thought due to the recent increase in the dollar.

Earlier this month, the parliamentary budget office said the federal budget was less transparent than those of the previous Conservative governments.

Among its concerns with the budget plan, the watchdog said the government shortened the traditional time horizon for the detailed estimated costing of the government's individual budget measures — to two years from five years.

The Liberals responded to the criticism a couple of days later by releasing the details for the five-year period.

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