Feds to post deficits $8 billion bigger than expected over next two years: PBO report

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.

Any hope of returning to the black any time soon is remote, the budget office said Monday. It predicted there’s approximately a 5% 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.

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, would have a fiscal impact of about $831 million between 2018-19 and 2022-23. The PBO believes otherwise, saying 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 to allow the Canada Revenue Agency to automatically enrol those who qualify. That tweak alone is expected to add 300,000 more workers.

The PBO also predicted the federal government’s forthcoming carbon price tax would lower the country’s real gross domestic product by 0.5%, 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.

Conservative finance critic Pierre Poilievre called the PBO’s findings ”damaging” for the government, citing the impact of larger deficits, higher debt payments and a carbon tax that he says will erase at least $10 billion per year from the national economy by 2022.

”In other words, we will be spending — under this government’s plan — more for nothing,” Poilievre said in Ottawa.

”More debt interest, higher taxes and smaller GDP. That is the Liberal plan. It is a failed plan and we need a change.”

A spokeswoman for Morneau disagreed, saying that since the Liberals came to office, the economy has created more than 600,000 jobs and the unemployment rate has been near its lowest level in about 40 years. On the PBO reports, Chloe Luciani-Girouard said in an email that findings can vary because they’re sometimes based on different methodologies.

Morneau told reporters Monday that while he respects the work of the PBO, the financial expectations remain the same as those laid out in the budget.

”We’re in a very positive situation economically, with more Canadians working, with a strong level of growth, and we’ll continue to have an approach to fiscal conservatism that shows a declining debt-to-GDP over time,” said Morneau.

He defended the government’s carbon-pricing plan as the right approach to ensuring Canada has both a good economy and a healthy environment over the long term.