No real surprise here: Canada's Parliamentary Budget Officer, a sort-of-independent fiscal watchdog. believes that federal budget deficits in the next few years will be significantly lower than Finance Minister Bill Morneau projected in last month's budget. The PBO even believes that the budget will show a small surplus in the current (2015/16) fiscal year, rather than the deficit Morneau claims to expect. See? Those nice Tories were telling the truth all along.
Like just about everyone else who's taken the time to peek under the hood, the PBO sees a couple of key reasons why deficits will fall short of Morneau's projections. First, he (the PBO's name is Jean-Denis Frechette) expects GDP growth to be way higher than the miserable 0.4 percent per annum assumed in the budget. Second, the contingencies built in to the budget are huge, at C$ 6 billion per year. These contingencies originated in the Paul Martin budgets of the mid-1990s at $ 3 billion per year, but by the later years of the Harper government they had been pared back to just $ 1 billion per year, as the government desperately sought ways to meet its promise of a balanced budget by election time.
It's highly unlikely that Morneau is surprised about any of this. His spin on the PBO's report is to declare himself gratified that the watchdog agrees that the measures in the recent budget will boost GDP growth. The real question is what Morneau and his boss, Justin Trudeau, will choose to do if and when the data show the deficit coming in much lower than expected: bask in the glory of beating their fiscal targets, or take the opportunity to goose spending on their pet projects a little further? A mix of the two, most likely, but the more the Liberals opt for higher spending, the more likely it becomes that deficits will become entrenched for much longer than the life of the current parliament.
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