An economic slowdown this year will lead to a temporary increase in the size of the federal deficit before it resumes a downward trajectory, according to new projections from the Parliamentary Budget Officer.
Finance Minister Chrystia Freeland is due to release the 2023 federal budget in the coming weeks and Thursday’s report from Yves Giroux provides an independent guide as to the state of federal finances.
The PBO’s economic and fiscal outlook report projects that the deficit for the current fiscal year will be $36.5-billion – down from $90.2-billion the previous year. The PBO projects the deficit will then rise to $43.1-billion in the fiscal year that begins April 1, before declining steadily in future years.
However the PBO’s figures show the federal government will still have a deficit of $8.7-billion in 2027-28. Ms. Freeland’s fall economic update had projected a $4.5-billion surplus that year, though it also said it could be an $8.3-billlion deficit under a “downside scenario” of weaker economic growth.
The PBO’s numbers do not attempt to account for new spending that will be announced in the 2023 budget.
Economists expect the economy to stall or even slip into a minor recession in 2023 because of the lagging impact of the Bank of Canada’s efforts to cool inflation with a series of interest-rate hikes over the past year.
Bill Curry