The Canadian government’s leeway to balance its budget is quickly diminishing amid a slumping economy triggered by an oil price shock, according to the country’s fiscal watchdog.
The Parliamentary Budget Officer published a report Wednesday showing the government’s forecast surplus of C$1.4 billion ($1.1 billion) this fiscal year was now on pace to be a small deficit.
The PBO projected a deficit of C$1.0 billion in 2015-2016, with lower GDP forecasts offset by higher GDP inflation and lower projected interest rates. With all revisions, the PBO estimated a C$0.6 billion surplus in 2016-2017 and a C$2.2 billion surplus in 2017-2018.
It’s the latest development in the debate over Prime Minister Stephen Harper’s pre-election budget, released in April. His Conservative government has regularly maintained its surplus forecast even as the Bank of Canada slashed its growth forecast for the Canadian economy.
Separately Wednesday, Finance Minister Joe Oliver’s office released its Fiscal Monitor report showing a surplus of C$3.9 billion in April and May, compared to a C$1.1 billion deficit the year before.
The Fiscal Monitor report had been due no later than July 31, while the budget officer announced Tuesday it would release its report Wednesday morning. Oliver’s department then released its Fiscal Monitor an hour before the watchdog’s report.
The watchdog’s report represents a swing of C$3.4 billion, which eliminates the projected C$1.4 billion surplus, exhausts the C$1 billion contingency included in the budget and leaves Oliver with a C$1 billion deficit to account for.
Previous Canadian budgets included a C$3 billion contingency. Oliver was able to forecast a surplus this year by reducing that to C$1 billion in his April budget.
Oliver spoke at a funding announcement in Toronto late Wednesday morning, but did not address the PBO report or take questions from reporters.
In a written statement Wednesday, the prime minister’s office said “we remain on track for a balanced budget,” though it did not specify whether the government would take any new measures to do so.
On Tuesday, Oliver told reporters he’s “very comfortable that we will achieve a budgetary surplus this year.”
This month, the Bank of Canada downgraded its growth forecast for the year to 1.1 percent, from 1.9 percent, and said it now expects the Canadian economy contracted in the first half of the year.
The PBO report came after requests from the finance critics of both main opposition parties, Scott Brison of the Liberals and Nathan Cullen of the New Democratic Party.
Economic estimates have “changed dramatically” since April, when the federal budget was released, Brison wrote. “I, and no doubt many other Canadians, would be very interested to know what the effects of the new GDP growth projections” from the Bank of Canada in July are, Brison said in a July 16 letter.
The Bank of Canada’s revised growth forecast “is likely to have a significant impact on the fiscal projections” in the government’s budget, Cullen wrote in his July 18 letter to the PBO. He asked the watchdog to handle the matter as quickly as possible.