Federal deficits won’t be as deep as Liberals predict: budget watchdog

The federal deficits projected by the Liberal government in each of the next five years will likely be smaller than forecast, Canada's budget watchdog says.

OTTAWA — The federal deficits projected by the Liberal government in each of the next five years will likely be smaller than forecast, Canada’s budget watchdog says.

A new report Tuesday by the parliamentary budget office also challenges the Liberal government’s estimate of a shortfall for 2015-16, saying Ottawa will instead have a $700-million surplus in 2015-16, rather than the projected $5.4-billion deficit.

Overall, the analysis 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, $8.9 billion smaller than the Liberal government’s $29.4-billion prediction.

Critics say the Liberals have deliberately lowered their fiscal outlook by including larger-than-usual risk adjustments of $6 billion per year in order to help the government beat expectations down the road.

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.

Earlier this month, the parliamentary budget office called the risk adjustment “excessive” and said it eroded the independence of government’s traditional practice of basing its projections on an average of private-sector economic forecasts.

On Tuesday, the PBO again questioned the need for the government to use such a big cushion in its predictions.

“PBO’s forecast of the budgetary balance is $4.5 billion higher than budget 2016, on average, over the outlook,” the document said.

“The average difference is roughly in line with the budget 2016 planning adjustment.”

The report also estimated the cost of a Liberal commitment to cancel a Conservative policy that, starting in 2023, would have gradually increased the eligibility age for old age security to 67 from 65.

The Tories argued the system was unsustainable, while the Liberals pledged during the campaign to reverse the move.

The PBO predicts the Liberal reversal will cost the public treasury $11.2 billion in 2029-30 — the first full year after the Tory plan would have been completely phased in.

“Had the age of eligibility change not been reversed, federal debt would be eliminated by 2057-58 — seven years earlier than under the current policy,” said the report, which predicted the debt to be completely paid off by 2064-65.

The budget office said the federal fiscal structure is sustainable over the long term and the debt-to-GDP ratio expected to begin falling in 2017-18.

The office also projected 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.

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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