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Minister of Finance Bill Morneau, right, is accompanied by Prime Minister Justin Trudeau as he makes his way to deliver the federal budget, March 22, 2016.Sean Kilpatrick/The Canadian Press

Reversing the Conservative plan to raise the eligibility age for Old Age Security to 67 will ultimately cost the federal government an additional $11.2-billion a year, but federal finances will remain healthy over the long term, Parliament's spending watchdog says.

A new independent analysis from Parliamentary Budget Officer Jean-Denis Fréchette, released Tuesday, takes a closer look at the first federal budget to be released under Liberal Prime Minister Justin Trudeau.

Over all, the Parliamentary Budget Office repeats its concern about the "excessive" Liberal decision to assume $6-billion a year less in revenue as a form of fiscal prudence. It forecasts that annual deficits will be $4.5-billion smaller than the budget forecasts, on average, through to 2020-21.

The PBO report projects that the fiscal year that ended March 31 will show a small surplus of about $700-million, which is contrary to claims by Finance Minister Bill Morneau, who insisted on Tuesday that the final numbers will show a deficit. "We want to make sure that Canadians understand that we're being prudent as we come up with estimates of how the economy will do," he told reporters in response to the PBO report's criticism.

The PBO also weighed in on the long-term sustainability of federal finances, including the impact of eliminating the Conservative plan to gradually raise the eligibility age for OAS and the Guaranteed Income Supplement to 67 from 65 starting in 2023 and ending in 2029-30.

Unlike the Canada Pension Plan, which is paid for by payroll contributions from workers and employers that are then managed independently, OAS payments come from the federal government's general revenue.

Former prime minister Stephen Harper announced in 2012 that Ottawa would raise the OAS eligibility age over time in response to concerns about the impact of demographics on federal finances as Canadians live longer and employers face shortages of labour in some sectors. The decision was controversial in light of the fact that the move was not part of the Conservatives' election platform.

The Liberals promised during the 2015 election campaign to reverse the move and the decision was confirmed in the 2016 budget.

The PBO forecasts that the reversal will cost the federal government $11.2-billion in the first full year of implementation, or 0.35 per cent of gross domestic product. In spite of this, the PBO says Ottawa's finances are sustainable over the long term under either scenario.

With a higher OAS eligibility age, the federal debt as a percentage of GDP is scheduled to be erased entirely by 2057-58. By keeping the eligibility age at 65, the federal debt would be eliminated seven years later, in 2064-65. "Our projection shows the federal debt-to-GDP ratio declining continuously over the long term with federal debt eliminated within the next 50 years. This indicates that the federal fiscal structure underlying Budget 2016 is sustainable over the long term," the report states.

During a committee appearance on Tuesday, PBO officials said the cost of maintaining the current OAS eligibility age would shrink "very quickly" after 2030 as the demographic impact of the baby-boom generation fades.

The PBO says it will provide a more thorough analysis of the sustainability of government finances in Canada in an upcoming report.