PBO: DEFICIT EVEN WORSE THAN FORECAST

Program spending, debt charges mount

• A year of sluggish growth and a significantly bigger deficit from Ottawa are the latest projections from the parliamentary budget officer.

The Parliamentary Budget Office released its economic and fiscal outlook Tuesday, just a day after Finance Minister Chrystia Freeland announced she would be presenting her 2024 budget on April 16. The PBO forecasts that the government will run a $46.8-billion deficit this year, higher than the $40.1 billion the Liberals forecast in the fall. Last year’s deficit was $24 billion.

The PBO also predicts deficits will be higher than Liberal projections for the next several years as a mixture of higher program spending and higher debt charges mount on the government’s books.

Parliamentary Budget Officer Yves Giroux said he doesn’t see balanced budgets in the near future, although he said the government appears to be moving gradually in the right direction over the next five years.

“It certainly does not suggest that we are returning to balanced budgets, probably smaller deficits than what we have seen. Although, again, it’ll depend on how much new spending is in the government’s budget when it’s tabled next month,” he said.

Giroux said his estimates also don’t account for spending on the national pharmacare legislation the government announced last week or the new Canada Disability Benefit, which has passed the House of Commons. Nor does it account for any increase in defence spending, which the government is under increasing pressure to fund.

Giroux’s assessment also predicts slow economic growth in the next year of less than one per cent, before growth picks up again in 2025. He said there are many factors that could change that economic outlook. But he said the most likely scenario is lower economic growth, but short of a recession.

“Sluggish economic growth, I think is our best estimate, at this point with the information that we have right now, but there could always be surprises,” he said.

One of those potential surprises could be unexpected moves on interest rates. Giroux’s forecast envisions the Bank of Canada beginning to make cuts to interest rates beginning in April, but that may not happen.

“If the bank is delayed or takes more time, before it starts to decrease the rate, that could act as a drag on economic growth,” he said.

Giroux said higher interest rates for longer would also increase the cost of the government’s borrowing. Economic analysts have been split on when the Bank of Canada will start lowering rates with some predicting April and others expecting a pause until June.

Giroux said a delay until June would add further economic drag than predicted in the forecast.

“Delaying that to June, for example, would be a headwind for the Canadian economy, but it wouldn’t be super strong so it wouldn’t not be sufficient in and of itself to put the Canadian economy in a recession.”