Canada budget watchdog sees smaller deficits than government expects

OTTAWA (Reuters) - An economic rebound as stimulus measures take hold will help keep Canada’s budget deficit in check, the nation’s parliamentary budget watchdog said on Monday, once again projecting smaller deficits than the Liberal government has forecast.

Residential and commercial buildings are pictured in Vancouver, British Columbia June 20, 2011. REUTERS/Jason Lee

The Parliamentary Budget Officer, which has a mandate to provide independent analysis to lawmakers, forecast the budget deficit for the fiscal year ending in March 2017 at C$22.4 billion ($16.78 billion). That is C$1.9 billion larger that it had projected in its last report in April due to lower expected income tax revenues, particularly from companies.

Both forecasts are well below the deficit of C$29.4 billion that the Liberal government anticipated in its budget released in March. The PBO said the disparity was roughly in line with the C$6 billion adjustment for risk that the government made in each year of its budget projections.

For fiscal 2017-18, the PBO expects the deficit to widen to C$24.9 billion, although that is also smaller than the government’s projection of C$29.0 billion.

The PBO’s deficit forecast for 2016-17 to 2020-21 is on average C$4.8 billion lower than the projections in the government’s budget.

The government will update its fiscal position next week.

Some believe lackluster economic growth will mean larger-than-anticipated deficits. Economists at Toronto-Dominion Bank recently said the deficit was on track to hit C$34 billion in the current fiscal year.

The economy has struggled to regain sustainable momentum after a drop in oil prices and recent wildfires in Alberta. The one-year-old Liberal government came to power on a promise to stimulate growth through spending.

Those measures from the government, along with ongoing low interest rates from the Bank of Canada, will help economic growth rebound from 1.2 percent this year to 2.3 percent in 2017, the PBO said.

The Finance Department has forecast 2.2 percent growth for next year, while the Bank of Canada expects just 2.0 percent.

The PBO sees growth averaging 1.8 percent annually from 2016 to 2021, unchanged from its April report.

($1 = 1.3348 Canadian dollars)

Reporting by Leah Schnurr; Editing by Lisa Von Ahn