Bigger deficits than expected on the horizon, but there’s a silver lining: PBO

The federal budget watchdog says the Trudeau government is on track to run deficits nearly $8 billion deeper than expected over the next two years.

A new analysis by the parliamentary budget officer estimates Ottawa will post a $22.1-billion shortfall this fiscal year, which would be $4 billion more than the government’s projection of $18.1 billion in its February budget.

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For 2019-20, Jean-Denis Frechette’s team predicts a $21.4-billion deficit, $3.9 billion higher than the government’s forecast of $17.5 billion.

The report says the more-substantial deficit projections are mainly caused by higher than expected costs for the government from public debt charges, direct program expenses and children’s benefits.

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The budget office also estimates there is approximately a five per cent chance the federal budget will be balanced or will show a surplus in 2020-21.

The report, however, does contain some figures that are more positive than Ottawa’s projections, including smaller-than-expected deficits for 2017-18, by $600 million, and for 2022-23, by $1.7 billion. There’s still a very small chance of returning to balance, however, if nothing changes.

“We estimate that there is approximately a 5 per cent chance that the budget will be balanced or in surplus in 2020-21,” the PBO concludes.

Tweet This Click to share quote on Twitter: "We estimate that there is approximately a 5 per cent chance that the budget will be balanced or in surplus in 2020-21," the PBO concludes.

The PBO also makes some predictions linked to interest rates.

“We assume that the Bank of Canada will maintain its policy interest rate at 1.25 per cent until May, with policy rate increases of 25 basis points each quarter until the policy rate is returned to its (nominal) neutral level of 3.0 per cent by the first quarter of 2020,” the report states.

– With files from Global News