POLITICS
04/23/2018 11:30 EDT | Updated 04/23/2018 13:31 EDT

PBO: Liberal Deficits Over Next 2 Years To Be Billions Bigger Than Anticipated

The analysis conflicts with the feds' projections from February budget.

Chris Wattie / Reuters
Finance Minister Bill Morneau receives a standing ovation as he arrives to deliver the budget in the House of Commons on Feb. 27, 2018.

OTTAWA — The Trudeau government is on track to run deficits nearly $8 billion deeper than expected over the next two years, the federal budget watchdog said Monday in a new report.

The parliamentary budget officer estimated the Liberals will post a $22.1-billion shortfall this fiscal year, which would be $4 billion more than the projection of $18.1 billion in the federal government's February budget.

For 2019-20, Jean-Denis Frechette's team predicted a $21.4-billion deficit, $3.9 billion higher than the government's forecast of $17.5 billion.

"We believe that the deficit is going to rise somewhat above what the government was assuming in the budget," Mostafa Askari, the deputy parliamentary budget officer, said in an interview.

The report's release comes two months after the Liberal government introduced a budget that predicted deficits across the planning horizon, until 2022-23, with no timetable to return to balance. During the 2015 campaign, the Liberals had vowed to keep annual deficits at no more than $10 billion and to balance the books by 2019.

Finance Minister Bill Morneau has argued the shortfalls will help Canada make investments to raise long-term economic growth.

No path to black

Any hope of returning to the black any time soon are remote, the budget office said Monday. It predicted there's approximately a five per cent chance the federal budget will be balanced or will show a surplus in 2020-21.

The blows to the federal bottom line will come from several sources, the independent budget office said.

"Our higher deficit forecast largely reflects our higher projections for public debt charges, direct program expenses and children's benefits," the PBO wrote in its report.

Earlier:

The analysis predicted the government will spend a total of $19.5 billion more than it had forecasted in the budget to service the federal debt between 2017-18 and 2022-23. Askari noted the discrepancy between the estimates is mostly due to the fact the PBO used a higher projected interest rate for its calculation than the budget predicted.

The government's fiscal position is also expected to take a hit -- a total of about $1 billion over the next five years -- from a higher-than-anticipated cost for its budget commitment to expand benefits for the working poor, through its Canada Workers Benefit. The details were included in a separate report also released Monday by Frechette's office.

The federal budget projected the Canada Workers Benefit, a rebranded version of a program introduced by the Harper government, to have a fiscal impact of about $831 million between 2018-19 and 2022-23. The PBO believes Ottawa has underestimated the program's cost and that it will come in at $1.84 billion over that period.

Most of the extra cost, the PBO said, will come from the government's effort to make more people eligible for the benefit and a change to allow the Canada Revenue Agency to automatically enrol those who qualify. That tweak alone is expected to add 300,000 more workers.

Carbon tax to hit GDP

The PBO also predicted the federal government's forthcoming carbon price tax would lower the country's real gross domestic product by 0.5 per cent, or $10 billion, in 2022.

The carbon price is set to rise from $10 per tonne per year until it reaches $50 per tonne in 2022.

"Implementation of the federal government's carbon pricing levy will generate a headwind for the Canadian economy over the medium term," Frechette's report said.

To make its assumption, the budget office based its estimate on an analysis by the Ecofiscal Commission.

"The carbon levy will generate significant revenues over the medium term," the PBO said. "As has been noted by the Ecofiscal Commission, the impact on the economy will depend on how those revenues are used."

Among Monday's projections, the PBO also predicted that over the next five years, Canada would generate about $70 million less in revenue from cannabis taxation than the federal government is expecting.