The federal budget watchdog estimates that the Liberal government’s deficit will reach a whopping $46.8 billion this year.
“Based on our analysis, the government will not meet its fiscal commitment to keep the deficit below $40 billion in 2023-24,” said Parliamentary Budget Officer Yves Giroux in his latest Economic and Fiscal Outlook report.
However, it won’t be until Giroux publishes the PBO’s annual public accounts report later this fall that the government’s deficit will be fully accounted for.
Finance Minister Chrystia Freeland vowed to keep the deficit capped below $40 billion last year, stating in her spring budget that the government was on track to keep their promise.
“As bad as the budget was, the independent budget watchdog is showing federal finances are in even worse shape,” said Franco Terrazzano, federal director of the Canadian Taxpayers Federation in a statement.
“The Trudeau government continues to mismanage our finances and that means more money wasted on interest charges, higher taxes and more debt that Canadians’ kids and grandkids have to pay back.”
After seeing an increase from Budget 2024’s deficit of $39.8 billion, the CTF is calling on the federal government to “immediately cut spending” now that the deficit is already $6.6 billion over budget.
“The government must cut spending,” said Terrazzano.
Freeland’s pledge to keep the budget under $40 billion was part of an effort to detract from the narrative that the government was overspending, which is at odds with the Bank of Canada’s quantitative tightening practices to reduce inflation.
“Compared to our March 2024 outlook, we project budgetary deficits that are $4.1 billion higher, on average, over 2023-24 to 2028-29,” reads the report. “This increase is largely due to new spending measures announced by the Government.”
A spokesperson for Freeland released a statement on Thursday following the news of the financial spillover, however, she failed to acknowledge whether further increases would continue.
“Our federal government is making historic investments in the priorities of Canadians — in housing, affordability, and economic growth — and we are doing this in (a) fiscally responsible way,” said Katherine Cuplinskas on Thursday.
The PBO report estimates that if no further measures are announced, the federal deficit may decrease slightly to $46.4 billion for the 2024-25 fiscal year.
However, the PBO noted that economic growth will likely remain tepid through 2024 before potentially rebounding next year as Canada’s central bank cuts interest rates to stimulate spending and investment.
“PBO projects growth in the Canadian economy to remain tepid in 2024. Interest rates will continue to restrain growth in consumer spending and business investment,” reads the report.
“We expect real GDP growth will rebound to 2.2 per cent in 2025, as lower borrowing costs provide a boost to consumer spending and business investment, and exports pickup.”
Additionally, it estimates a steep decline in the temporary resident population as a result of the federal government’s recent policy changes but still believes it will fall short of its 5% of the population target.
According to Statistics Canada, there were around three million non-permanent residents in Canada as of July 1, which represented about 7.2% of the population.
The PBO report also forecasts that the Bank of Canada will continue cutting interest rates until its policy rate reaches 2.75% in the second quarter of next year.
The central bank’s next rate announcement is scheduled for Wednesday.
The PBO noted that taxpayers will be on the hook for paying $52.8 billion in interest on the deficit this year and nearly 11% of the government’s revenue will go to paying interest on the debt.
“It’s 2024, the pandemic is over, so it’s ridiculous and unacceptable for the government to be running a $40-billion deficit,” Terrazzano said. “Massive deficits for years mean debt interest charges now blow a $1-billion hole in the budget every week.”