The Parliamentary Budget Officer (PBO) says the deficit will be smaller than predicted but the Liberal government’s lack of clarity on fiscal planning has left Yves Giroux’s office unable to determine if the government’s spending plans are sustainable.
The Economic and Fiscal Monitor released by Giroux’s office Thursday morning says that the deficit for 2024-25 will be $46 billion — $4.3 billion lower than it had predicted during the election and $2.3 billion lower than was estimated in the fall economic statement.
“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 report said.
The PBO said that while it predicted the Canadian economy would only grow by 1.8 per cent in the fourth quarter of 2024 and 1.6 per cent in the first three months of the year, real gross domestic product actually grew at an annualized rate of 2.1 per cent and 2.2 per cent.
The report said the improved fiscal position of the federal government can be explained by stronger than expected corporate income tax revenues and the money collected from Canada’s counter-tariffs on U.S. goods.
Improved growth in the first three months of the year, Giroux’s office said, can be partly explained by companies rushing to buy inventory before tariffs were imposed.
The PBO is predicting that real GDP growth in the second quarter of 2025 will likely remain flat, with an expected decline in exports acting as a drag on the economy.
“Business investment is also expected to remain subdued due to elevated uncertainty,” the report said.
Fiscal sustainability
During the election campaign, Prime Minister Mark Carney announced his plan to separate “operational spending” — the day-to-day running of government programs and departments — from “capital spending,” which is anything that builds an asset the government holds.
The Liberal platform pledged that it would cut the growth of government spending from nine to two per cent by eliminating waste, duplication and deploying technology to balance operational spending by 2028.
But the PBO says the Liberal government has complicated its ability to track that fiscal anchor by not fully explaining how it will define operating and capital spending.
“Hence the PBO is unable to assess whether the Government’s recent fiscal policy initiatives presented in Parliament … are consistent with achieving its new fiscal objective,” the report said.
Because of the lack of clarity, the government’s spending plans could be fiscally unsustainable, Giroux’s office said.
“Parliamentarians may wish to seek additional clarity regarding how the government plans to measure its fiscal anchor and how it will ensure federal finances remain sustainable.
