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Parliamentary budget watchdog expects federal deficits won't be as deep as Liberals' outlook

The parliamentary budget office projects federal deficits in each of the next five years won't be as deep as those in the Liberal government's forecasts, with the watchdog also projecting a small surplus for the 2015-16 fiscal year.
Mostafa Askari, assistant deputy parliamentary budget officer, on PBO forecast of smaller deficits than Liberals predicted 5:37

The parliamentary budget office is expecting the string of projected federal deficits in each of the next five years to be smaller than those in Ottawa's forecasts.

A new report Tuesday by the budget watchdog also contests the Liberal government's estimate that the public books will show a shortfall for 2015-16. It expects Ottawa to run a $700-million surplus in 2015-16 as opposed to the $5.4-billion deficit projected in last month's federal budget.

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.

The Liberals have been accused of deliberately lowering their fiscal outlook by including larger-than-usual risk adjustments of $6 billion per year. The move, critics have said, will help the government beat expectations down the road.

Questions over budget cushion

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.

Finance Minister Bill Morneau speaks to reporters about the Parliamentary Budget Officer's analysis of the 2016 Budget 1:34

The parliamentary budget office's report raised more questions as to whether the government needs such a big cushion in its projections.

"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 parliamentary budget office expects the federal debt-to-GDP ratio to start falling in 2017-18, which it says indicates the federal fiscal structure is sustainable over the long term.

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.

MPs Wayne Easter Lisa Raitt and Guy Caron discuss the government and the PBO's conflicting budget projections 12:27

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.

"We were pleased that the parliamentary budget officer concluded that our investments are going to make a difference in growth in the economy," Morneau said following a cabinet meeting Tuesday in Ottawa.

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.

The Power Panel discusses the PBO's deficit projections and why they're lower than the government's numbers 9:24

with files from CBC News

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