Federal deficit estimated to hit $46 billion in 2024-25: PBO
The Parliamentary Budget Officer estimates the federal deficit will hit $46 billion in the 2024-2025 fiscal year because of better-than-expected revenues.
The PBO expects the deficit to be $4.3 billion lower than its estimate in its election-costing report and $2.3 billion lower than what was estimated in the fall economic statement , according to its updated economic and fiscal monitor report released Thursday.
“The revision to our estimated deficit reflects a $5.2-billion increase in our estimate for revenues in 2024-25, somewhat offset by a $1-billion increase in our estimate for expenses,” the PBO said.
The higher revenues are mainly due to higher corporate income tax revenues and customs import duties from the retaliatory tariffs on goods from the United States.
The federal government currently has tariffs on nearly $60-billion worth of U.S. goods. In April, the Liberal Party estimated the federal government could receive up to $20 billion in revenue from the retaliatory tariffs, according to its election-costed platform.
But a recent report by Oxford Economics Ltd. this month said 58 per cent of the U.S. imports hit by levies are eligible for exemption.
The PBO also said the average Canadian family will save $280 on their taxes next year because of the federal government’s planned income tax cut to 14.5 per cent from 15 per cent on the first $57,375 of taxable income.
Canadian economic growth came in higher than expected during the first quarter at 2.2 per cent, but the PBO expects it to be flat in the second quarter due to a slowdown in exports and business investment.
The federal government has not committed to providing a spring federal budget. Instead, Prime Minister Mark Carney said the government will provide an update of Canada’s finances in the fall. He has also said he will split operational and capital spending into two separate budgets, with a promise to balance the operational budget within three years.
The PBO said the government has committed to new fiscal anchors in the operating budget by “cutting waste, capping the public service, ending duplication and deploying technology to improve public sector productivity” and reducing the spending growth to two per cent each year from nine per cent.
The Liberal Party platform has promised $130 billion in net new spending over the next four years, which will put the deficit at $62.3 billion for the 2025-2026 fiscal year. Economists estimate the deficit will be higher after taking into account the announcement last week to increase defence spending.
“Unlike the previous fiscal anchor, the government has not defined how the new operating budget targets will be measured,” the PBO’s report said. “Specifically, there is no commonly accepted definition of what is defined as ‘operating’ or ‘non-operating/capital’ spending.”
The PBO said it will be difficult for it to assess whether the government is on track in meeting its fiscal objectives under this new budget set-up.
“PBO also notes that the government could fulfill its operating budget goals, and yet at the same time the federal debt-to-GDP ratio could grow because of additional borrowing for non-operating spending (for example, new acquisitions of weapons systems for the Canadian military),” it said. “This means that the government could achieve its fiscal objective and yet be fiscally unsustainable.”
• Email: jgowling@postmedia.com
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