Grits inflating deficit size by billions: PBO
OTTAWA • The Trudeau government inherited a surplus before plunging the federal balance book deep into red ink, says a new report from the parliamentary budget watchdog that also concludes the Liberals are inflating the projected size of their deficits in coming years by billions of dollars.
The Parliamentary Budget Officer’s economic and fiscal outlook, released Tuesday, also costs some key Liberal promises. For example, it estimates the decision to return the eligibility age for Old Age Security to 65 from 67 will cost more than $11 billion a year.
The PBO also questions the government’s projection that budget measures will create or maintain 100,000 jobs by fiscal 2017-18, instead forecasting the creation of 60,000 jobs.
The Liberal government can point to some good news in the report, with the PBO anticipating the billions of dollars in new spending promised in Budget 2016 will bolster the Canadian economy, and the broader federal fiscal structure is sustainable over the long term.
The PBO’s forecast of the budgetary deficit is, on average, $4.5 billion lower than what was projected in the March federal budget between 2016-17 and 2020-21.
For 2016-17, the PBO projects the deficit will be $20.5 billion, nearly $9 billion less than the $29.4 billion the Liberal government forecast.
Notably, it expects a small $700-million surplus in 2015-16, once numbers are finalized — far better than the $5.4-billion deficit projected in the budget.
The PBO report reinforces the Opposition Conservatives’ argument the Harper government left the Liberals with a surplus.
Most of the average difference between the PBO and Liberal deficit forecasts can be tied to the government’s decision to include a $6-billion annual contingency, by lowering nominal gross domestic product projections by $40 billion a year. (Nominal GDP is the broadest single measure of the tax base.)
Overall, between 201516 and 2020-21, it projects the government will rack up deficits of about $90 billion, compared to the Liberal budget forecast of more than $118 billion.
Speaking Tuesday to the House of Commons finance committee, Parliamentary Budget Officer Jean-Denis Fréchette said Finance Canada and the federal government are being “overly cautious” with their economic and fiscal projections.
“It’s good to exert a certain amount of caution, but too much caution is not a good thing either because it can create expectations or it can create a certain longterm perspective,” he said.
“Yes, it’s important to be careful, but being excessively careful is not a good thing either. The measures that we have … seem to reflect a normal level of caution.”
Finance Minister Bill Morneau said the PBO’s report reinforces the government’s argument that measures announced in the budget will help the economy.
“We were pleased the parliamentary budget officer concluded that our investments are going to make a difference in growth in the economy,” he said.
But New Democratic Party finance critic Guy Caron said the government is inflating deficit projections so it can then beat the low expectations.
“We’re talking about a deliberate strategy to change people’s expectations and say that we’re going to have a very large deficit and we’ll have to be careful with what we do, and at the end of the year we’ll have a result that will be much better than what was put forward originally, which will cause a certain amount of relief and make the government look good,” Caron said at the finance committee.
The PBO report says the government’s decision to return the OAS eligibility age to 65 (reversing the Conservative government’s decision to increase it to 67) will delay eliminating the federal debt by seven years until 206465, instead of 2057-58, had the Tory policy remained in place.
The budget officer forecasts the Liberals will be able to hold to a key promise to continue lowering the debtto-GDP ratio, something the government labels a “fiscal anchor.”
The PBO says the federal debt, as a percentage of GDP, will slowly decline from 31 per cent in 2016-17 to 29.4 per cent in 2020-21. Its outlook for the global economy has deteriorated since the fall update, including downgrading projections on the price of crude oil.
However, the PBO forecasts the economy will rebound to grow by 1.8 per cent in 2016 and 2.5 per cent in 2017.
BEING EXCESSIVELY CAREFUL IS NOT A GOOD THING.