BUDGET OFFICER DOUBTS DEFICITS
Finds Liberals inflated figures, inherited surplus
OTTAWA• The Trudeau government inherited a surplus before plunging federal finances deep into red ink, says a new report from the parliamentary budget watchdog that also concludes the Liberals are inflating by billions of dollars the projected size of their deficits in the coming years.
The Parliamentary Budget Officer’s economic and fiscal outlook, released Tuesday, also estimates the government’s decision to return the eligibility age for Old Age Security to 65 from a planned increase to 67 will cost the treasury more than $ 11 billion a year in 2029-30.
The PBO also questions the government’s projection that budget measures will create or maintain 100,000 jobs by 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 that 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 the current fiscal year, the PBO projects the deficit will be $ 20.5 billion, nearly $9 billion less than the $29.4 billion the Liberal government forecast.
Notably, the PBO expects the federal government will post a small $700-million surplus in the 2015-16 year that just ended, once numbers are finalized — far better than the $5.4-billion deficit the Liberals projected in the budget.
The PBO report reinforces the Opposition Conservatives’ argument that the former Harper government left the Liberals with a surplus.
The Conservatives seized on it in the House of Commons.
“The Liberal budget does not add up,” interim Conservative Leader Rona Ambrose said in question period. “Good news, Conservatives did leave a surplus.”
But Finance Minister Bill Morneau doubled- down on the government’s claims that the Conservatives left the Liberals a deficit, despite what the PBO report says.
“In the last month of the year, revenues go down, expenses go up. The Conservatives left us with a deficit, as we will see,” Morneau said.
Speaking earlier to reporters, Morneau said the government is simply “being prudent” with its forecasts, even though critics say the government is deliberately lowballing its fiscal projections in order to beat expectations.
Most of the average difference between the PBO and Liberal deficit forecast scan be tied to the government’s decision to include a $ 6- billion annual contingency by lowering nominal GDP projections by $ 40 billion a year. ( Nominal GDP is the broadest single measure of the tax base).
Overall, between the 201516 and 2020-21 fiscal years, the PBO projects the government will rack up deficits of approximately $ 90 billion, compared to the Liberal budget forecast of more than $118 billion. The PBO says its office and Finance Canada use different economic models and assumptions, which contributed to the drastically different forecasts.
But NDP finance critic Guy Caron said the Liberal government is deliberately inflating deficit projections so it can then beat the low fiscal 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 also slaps a price tag on the government’s decision to return the eligibility age for Old Age Security to 65 from 67, estimating it will cost $ 11.2 billion in 2029- 30, the first full year the phase-in was to have occurred.
Assuming the continuation of current fiscal policy over the long term, the PBO says the Liberal decision to move OAS eligibility back to 65 ( reversing the Conservative government’s decision to increase it to 67) will delay eliminating the federal debt by seven years until 2064- 65, instead of 205758 had the Tory policy remained in place.
Fréchette forecasts the Liberals will be able to hold to a key promise to continue lowering the debt- to- 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.
The budget officer’s 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 1.8 per cent in 2016 and 2.5 per cent in 2017.
“Despite this weaker external outlook, we anticipate that the combination of fiscal measures in Budget 2016 and accommodative monetary policy will help bolster the Canadian economy,” Fréchette told the committee.