Canada budget office predicts bigger deficits

OTTAWA (Reuters) – Canada’s parliamentary budget office forecast on Wednesday the government would not be able to eliminate the federal deficit by 2014-15 as planned due to higher projected operating expenses.

The Parliamentary Budget Officer (PBO) issued a report providing the office’s own economic growth forecasts for the first time, rather than using the consensus private sector forecasts published by the government.

Its fiscal outlook excludes new measures announced by the government in its March budget, which was never adopted because of the general election. The Conservatives, who won a majority on May 2, will present another budget on Monday, which they say will be largely the same as the previous proposal, with some minor tweaks.

The PBO sees a budget deficit in 2011-12 of C$26.1 billion, slightly below Ottawa’s latest projection of C$27.8 billion.

While the Conservatives predict a return to balance in roughly 2014-15, the PBO sees a shortfall of C$13.3 billion that year and C$7.3 billion the year after.

“PBO’s estimate of the structural deficit does not mean that the government’s budget will not return to balance or that its fiscal structure is not sustainable,” the report said.

“Rather, it suggests that policy actions to increase revenues and/or reduce spending would be required to ensure that the budget is balanced once the economy returns to its potential.”

Gross domestic product will grow 2.9 percent this year, the PBO estimated, in line with government forecasts. Growth in 2012 and 2013 will be below government forecasts at 2.2 percent and 2.3 percent, respectively.

Finance Minister Jim Flaherty will present the budget on Monday.