November 10, 2015 / 4:17 PM / in 2 years

Canada budget watchdog sees bigger deficits excluding government plan

OTTAWA (Reuters) - Canada was set to run bigger deficits in coming years even excluding fresh spending pledged by its new Liberal government, the country’s parliamentary budget watchdog warned on Tuesday in a report showing a worse than expected fiscal situation.

The office of the Parliamentary Budget Officer (PBO), which has a mandate to provide independent analysis to lawmakers, issued its forecast without the economic measures promised by the Liberal party, but said it would update once it has those details.

The Liberal government, elected last month, plans to run three years of deficits of up to C$10 billion ($7.53 billion) each to invest in infrastructure spending to boost the flagging economy, before returning to a balanced budget in the 2019-20 fiscal year.

But the PBO report suggests they will be starting from a weaker-than-expected base.

Working from the plans of the previous Conservative government, the PBO anticipates larger deficits over the medium term than it had forecast in April.

It now sees a deficit of C$3.0 billion for fiscal 2016-17, compared with April’s expectation of a balanced budget, and a deficit of C$4.7 billion in 2017-18, steeper than the previous forecast of a C$2.6 billion deficit.

The report forecasts the government would continue running deficits through the PBO’s projection horizon of 2020-21. For the current fiscal year 2015-16, it sees a slightly bigger surplus of C$1.2 billion from C$1.1 billion.

Figures released in September showed Canada posted a budget surplus in 2014-15, a year earlier than the Conservatives had expected.

The PBO also downgraded its forecast for economic growth to 1.1 percent this year from its earlier expectation of 2.1 percent. Growth next year is seen picking up to 2.0 percent, though that is still weaker than the previously anticipated 2.3 percent.

The Canadian economy was in a mild recession in the first half of the year as it was hit by the shock of cheaper oil prices, but growth is expected to have picked up in the third quarter.

($1 = 1.3281 Canadian dollars)

Editing by Phil Berlowitz

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