Federal deficits to be larger than promised: PBO report

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Finance Minister Bill Morneau is underestimating the cost of some of his new budget measures and is facing larger deficits than promised, says a report from Parliamentary Budget Officer Jean-Denis Fréchette.

The PBO released an analysis of 10 items in Mr. Morneau’s February federal budget and concluded that their combined cost to the federal treasury will be $1.4-billion – or 7-per-cent – higher over five years than what the government had forecast.

The 10 items reviewed by the PBO include budget changes to Employment Insurance parental benefits, tobacco and cannabis taxation rules, interprovincial trade changes and incentive programs for corporations.

The report also states that the federal plan to impose a $50 a tonne levy on carbon emissions by 2022 could shave 0.5 per cent from economic growth. The report notes that if provinces and territories were to use carbon-levy revenues to lower taxes, the economic impact would be “significantly lower.”

The PBO’s economic and fiscal outlook report aims to provide an independent second opinion for MPs to consider as they assess the government’s financial projections.

Monday’s PBO report estimates that the deficit for 2017-18 will come in at $18.8-billion, representing a slight improvement over the $19.4-billion estimate in the budget. However, the PBO expects the 2018-19 deficit will be $4-billion larger than the $18.1-billion estimate in the budget and the 2019-20 budget will be $3.9-billion larger than the government’s $17.5-billion projection.

The annual differences from this year onward are even larger when considering the fact that the government’s numbers include a $3-billion adjustment for forecasting risk and unforeseen events, while the PBO’s numbers do not.

The PBO’s numbers for the 2020-21 to 2022-23 period are largely in line with the government’s estimates. According to the PBO, its main reason for projecting larger deficits over the coming years is higher assumptions for costs related to public debt, direct program expenses and children’s benefits.

While the PBO projects higher deficits, it notes that Ottawa is still on track to lower the size of the federal debt when measured as a percentage of economic growth.

The Liberal government pledge to reduce the federal debt-to-GDP ratio is Mr. Morneau’s preferred measure of Ottawa’s fiscal health. A Liberal Party campaign pledge to erase the deficit by 2019 has been abandoned and the government has not announced a new target date for returning to balance.

Chloé Luciani-Girouard, a spokeswoman for Mr. Morneau, responded to the PBO report by noting that projections over the future cost of government programs can vary because they are sensitive to the types of assumptions and projections that are used.

“I would point out that the PBO and our government both come to the same conclusion when it comes to our fiscal health, showing that the debt-to-GDP ratio – the size of the country’s debt relative to the strength of the overall economy − remains the best in the G7, and continues on a downward track,” she said in a statement.

Conservative finance critic Pierre Poilievre told reporters that the government should release its own internal estimates of how its carbon price plan will affect economic growth. He also said the government’s debt-servicing costs are increasing, which leads to real consequences for taxpayers.

“It means that more and more of our tax dollars will go to fund wealthy bond holders who lend money to the government and less and less of it will be available for vital services that Canadians rely upon,” he said. “In other words, we will be spending, under this government’s plan, more for nothing. More debt interest, higher taxes, a smaller GDP. That is the Liberal plan.”