The Parliamentary Budget Officer is challenging the Liberal government's assessment of federal finances, warning that returning to surplus will be more difficult than Ottawa suggests.
The PBO's latest report takes a critical look at Finance Minister Bill Morneau's Nov. 20 fiscal update, which simply recalculated the previous government's budget projections based on the latest available spending and economic data.
The fiscal update did not include promises from the Liberal platform, which will lead to deeper deficits over the coming three years.
For the most part, the PBO said it agreed with Finance Canada's numbers in the near term: between 2015-16 and 2018-19, the department projects deficits averaging $2.7-billion a year while the PBO projects deficits averaging $2.9-billion.
However the two projections are at odds when it comes to the outlying years. In 2019-20 – when the Liberals promise to record a surplus – the fiscal update shows a $1.7-billion surplus. The PBO projects a $4.6-billion deficit. The following year, Finance Canada's numbers show a $6.6-billion surplus, while the PBO projects a $4.2-billion deficit.
For the purposes of comparison, the PBO presents Finance Canada's forecasts before annual contingencies are added.
"In PBO's judgment, the government's outlook for the economy and federal budget over the medium term is optimistic," states Tuesday's report from Jean-Denis Fréchette, the Parliamentary Budget Officer.
Mr. Morneau issued a response Tuesday afternoon, defending his department's fiscal update. He noted that Finance Canada followed the regular practice of relying on an average forecast provided by private sector economists.
"In the government's view, the forecasts generated by private sector economists, along with historical and year-to-date results, remains the best basis for economic and fiscal planning," he said in a statement.
The Liberals campaigned on a platform that included deficits of nearly $10-billion a year for two years, followed by a smaller deficit in the third year and a surplus in its fourth year of the mandate.
Now in government, the party has yet to say how its election promises will fit into this new framework of lower-than-expected federal revenues.