Slowing economy will mean more red ink and debt costs for Carney’s budget, PBO says

OTTAWA — The Canadian economy will slow to a crawl over the coming months, which will lead the Carney government to increase both its borrowing and interest payments more than what was expected just four months ago, Ottawa’s fiscal watchdog said Tuesday in a new report.

With the federal budget scheduled for Nov. 5, the Parliamentary Budget Office (PBO) added to the government’s fiscal squeeze by projecting that the Canadian economy will grow this calendar year by just 0.9 per cent and 1.5 per cent in 2027, down from the 1.1 per cent and 1.6 per cent that were forecast just four months ago. The slower growth is primarily a function of the Canada-United States trade war escalation that started in June.

The PBO’s Economic and Fiscal Outlook also said that the federal deficit for this year is projected to be $59.3-billion, climbing to $83-billion by 2030-31, in part because of increased borrowing and higher rates on accumulated debt. Projected deficits are now expected to be an average of $3-billion higher per year than what was expected just four months ago.

That will mean that federal debt charges, the budget’s fastest-growing expense, are projected to more than double from $24.5 billion in 2021‑22 to $59.3 billion during this fiscal year, and are projected to reach $83.0 billion by 2030‑31.

The PBO report said that Ottawa has been raking in more revenue than what was expected last spring, due largely to inflation and higher prices for oil and other commodities. But that additional spending of $10.5-billion a year will more than use up that windfall over the coming years.

Ottawa continues to swim in an increasingly large pool of red ink. The federal government has now accumulated $1.27-trillion in total debt, almost half of which has been added over the last five years. Using the PBO’s new figures, Ottawa is expected to add $333.3-billlion in additional debt over the next five years, a 26.2 per cent increase in the government’s total debt.

Meanwhile on Tuesday, Finance Minister François-Philippe Champagne told the House of Commons that the federal budget will be held Nov. 5.

The PBO report will only add pressure on the Carney government to reduce its annual deficit, while still investing in infrastructure and other projects designed to improve the productivity of the economy.

The government has already said that it’s identified $60-billion in savings over the next five years, which will help pay for some of the additional spending on infrastructure, defence, tax cuts and other priorities.

The PBO said that the success of those productivity efforts will go a long way in determining Canada’s economic future. “Over the longer term, Canada’s economic and fiscal outlook will depend heavily on whether recent capital budget investments can translate into stronger productivity, economic capacity and prosperity.”

But many economists continue to warn about the dangers of escalating debt charges.

Franco Terrazzano, federal director of the Canadian Taxpayers Federation, said the federal government has no plan to stop borrowing money. “Debt interest payments continue to spiral out of control because government spending continues to spiral out of control,” he said in a release.

The PBO says federal debt charges are now projected to climb next year to $1,419 per Canadian, up from $640 in 2021-22, and on track to reach $1,952 per person in 2030-31. And according to PBO figures, Ottawa’s debt per capita will rise from $29,811 in 2021-22 to $33,436 in 2026-27 and reach  $39,191 in 2030-31.

National Post

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