Congressional budget officials said Thursday that the federal government likely was unable to keep last year’s budget deficit below the promised $40 billion limit.
In its latest economic and fiscal outlook, the budget watchdog estimates the federal government will run a $46.8 billion deficit in the 2023-24 fiscal year.
The final tally of last year’s deficit will be confirmed when the government releases its annual public accounts report this autumn.
“Based on our analysis, the government will not be able to meet its fiscal commitment to keep the budget deficit below $40 billion in 2023-24,” Yves Giroux said.
Finance Minister Chrystia Freeland promised a year ago to keep the deficit cap at that level and said she would keep that promise in her spring budget.
The new fiscal guardrails were part of an effort to quell concerns that large government spending would spur prices higher and conflict with the Bank of Canada’s efforts to curb inflation.
A spokesman for Freeland did not say whether the federal government still expected to meet the fiscal guardrails on Thursday.
“Our federal government is making historic investments in Canadians’ priorities like housing, affordability and economic growth, and we’re doing it in a fiscally responsible way,” said Kathryn Kaplinskas. he said in a statement.
Assuming no new measures are announced, the PBO projects the federal deficit will decline slightly to $46.4 billion in fiscal year 2024-25.
Meanwhile, the PBO expects economic growth to remain weak this year but pick up in 2025 as Bank of Canada interest rate cuts stimulate consumption and business investment.
The report projects real gross domestic product (GDP) to grow 2.2% in 2025, up from an expected 1.1% in 2024.
PBO’s economic forecast assumes a significant decline in the transient population, taking into account recent federal policy changes.
But the budget watchdog assumes the federal government will fall short of its goal of reducing the temporary resident population to 5 percent of the population.
Statistics Canada estimates that as of July 1, there were approximately 3 million non-permanent residents in the country, representing approximately 7.2% of the population.
The PBO report also provides an outlook for interest rates, predicting that the People’s Bank of China will continue to cut interest rates until the policy rate reaches 2.75% in the second quarter of 2025.
Economists are bracing for the possibility of a huge rate cut, with the Bank of Canada’s next rate announcement scheduled for Wednesday.
Earlier this week, Statistics Canada reported that annual inflation fell to 1.6 per cent in September, below the Bank of Canada’s 2 per cent target.
Lower-than-expected inflation spurred speculation that the central bank might choose to cut interest rates by half a percentage point next week instead of the usual quarter-point cut.
The central bank’s main interest rate is currently 4.25%.
This report by The Canadian Press was first published Oct. 17, 2024.
