Parliamentary Budget Officer expects smaller deficits than Liberals forecast

The federal government is on track topost smaller deficits in the coming years than the Liberals are currently forecasting, Canada's non-partisan parliamentary budget watchdog said on Monday.

The Parliamentary Budget Officer said in a report Monday it expects Ottawa to post a deficit of just over $22 billion this year. That's slightly higher than what the watchdog was expecting in April, but still almost $7 billion below what the governing Liberals forecastin their March budget.

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By 2021-2022, the PBO expects the deficit to shrink to $10.6 billion. The March budget was expecting a deficit of $14 billion by then.

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"We continue to project that the deficit will decline over the medium term, falling from $22.4 billion in 2016-17 to $9.4 billion by 2021-22," the PBO said."Compared to our April report, we are now projecting slightly larger deficits in 2016-17 and 2017-18 but smaller deficits thereafter."

The Liberals are set to update their numbers next week the first time they have done so since their budget came out.

ThePBO report doesn't factor in two recent policy moves that are likely to impact Ottawa's spending plans in the near future: the recent carbon tax proposal, as well as changes to the housing market which were outlined earlier this month.

The costs and benefits of both of those have the potential to have a significant impact on Ottawa's bottom line over the long term.

GDP forecast

There's one aspect of the economy, however, where the PBO is more pessimistic. The PBO says it expects real GDP to grow by 1.2 per cent this year. The budget, meanwhile, was forecasting 1.4 per cent growth but that document came out before the devastating wildfires around Fort McMurray knocked the Canadian economy off track.

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The budget was expecting real GDP to grow by 2.2 per cent in each of the next two years. The PBO largely agrees with that assessment, predicting 2.3 per cent growth next year and 2.2 per cent in 2018.