There is only a one in 10 chance that the Conservative government will meet its current pledge to balance the books by 2014-15, Parliamentary Budget Officer Kevin Page concludes in a new report.
The PBO’s fall Economic and Fiscal Outlook projects Ottawa will still be $18.7-billion in the red by the time the current target year arrives. It further projects deficits of $13.1-billion in 2015-16 and $7.3-billion in 201617.
Mr. Page’s report is an update of his last projections from June. The independent office has revised its estimates for growth in the economy downward, largely in line with similar downward revisions announced last week by private-sector economists.
Finance Minister Jim Flaherty is preparing his fall economic update, which will be based on an average forecast from 15 private sector economists. As he released that latest private sector forecast last week, Mr. Flaherty declined on several occasions to state that 2014-15 remains the government’s target for balancing the books. Instead he said the government plans to erase the deficit in the “medium term” and that details would be outlined in the fall update.
Mr. Flaherty’s March 2011 budget outlined a plan to erase the deficit by 2015-16, but Prime Minister Stephen Harper announced during the ensuing election campaign that the books would be balanced a year earlier. That 2014-15 target was listed in the Conservative Party election platform.
The PBO report says there is a 25 per cent chance the budget will be balanced in 2015-16 and a 40 per cent chance it will be balanced in 2016-17.
TD Economics issued a forecast last week that projected a deficit of $5.2-billion in 2014-15 and $1.8-billion in 2015-16, however the bank argued that such relatively small projected deficits to not warrant a change in policy course at the moment.
The PBO update takes a grimmer view than the private sector economists when it comes to future unemployment. The watchdog estimates the unemployment rate will climb from 7.4 per cent in 2011 to 8 per cent for 2012 and 2013. The average private sector forecast released last week estimated 7.2 per cent unemployment for 2012 and 7 per cent for 2013.
Mr. Page’s report includes new updates on the issue of a structural deficit, the PBO’s concern that there is a permanent gap between revenues and expenses that will continue even after the downturn in the economy subsides.
Pointing to a decrease in expected debt servicing costs, the government’s efforts to keep growth in program expenses at 2.8 per cent and $11-billion a year in new Employment Insurance premium revenue by 2016-17, the PBO estimates that the structural deficit will ultimately shrink to near zero.
However Mr. Page warns that closing the structural deficit does not erase the long term cost crunch looming on the horizon due to demographics, as the government will need to boost revenue and/or lower expenses in order to cover the cost of an ageing population at a time when the number of working age Canadians will shrink as a percentage of the population.