Federal Finance Minister Bill Morneau says a more pessimistic view of economic growth portrayed in a report by the Parliamentary Budget Office only reinforces the government's belief that investments promised in the Liberal election platform are needed.
Morneau said he expects to issue a fiscal update before the end of the year to give Canadians an idea of how the government plans to address the economy.
The PBO report released Tuesday suggests the new government will have to contend with bigger-than-expected baseline deficits in the coming years as it starts rolling out the large spending plans that helped the Liberals win power.
The PBO downgraded economic projections for Canada in the report, blaming the gloomier forecast on weaker growth, low commodity prices and shrinking revenues.
Morneau told reporters Tuesday the government was not surprised that the PBO downgraded its outlook from its last report.
The updated figures released by the PBO suggest it will be tougher for the Liberals to fulfill their election promise to balance the books by 2019-20, a goal they have said will follow three years of deficits.
But even those annual shortfalls are on track to grow bigger than expected, the report said.
For example, the Liberals pledged to run deficits of no more than $10 billion in each of the next two years by basing their forecasts on calculations made by the PBO in July.
Morneau said it's too soon to say whether the slowdown, coupled with the government's spending plans, will translate into bigger deficits.
The budget office crunched those July numbers by updating government projections from April's budget by recalculating them using downgraded Bank of Canada growth forecasts.
The latest PBO numbers, however, suggest the government's fiscal starting point will be billions of dollars lower in those two years — by $3.6 billion in 2016-17 and by $6.9 billion in 2017-18. By factoring in the Liberal spending pledges, it could mean deficits of more than $13 billion in 2016-17 and more than $16 billion in 2017-18.
The Liberals have also said they would run a $5.7-billion shortfall in 2018-19 before delivering a $1-billion surplus in 2019-20 — but those projections are based on a combination of April's Finance Department forecasts and the party's own predictions.
