By Canadian Press

Parliament’s budget watchdog raises flags over Liberals’ fiscal wiggle room

Dec 19, 2019 | 11:33 AM

OTTAWA — Parliament’s spending watchdog says the government’s updated fiscal outlook raises questions about whether the Liberals can keep their pledge to manage the national debt — or deliver on their campaign promises.

The Liberals have argued the debt-to-GDP ratio is a better way to measure the health of federal finances than the annual deficit.

The parliamentary budget officer says in a new report that the Liberals won’t see a decline in debt-to-GDP ratio this year unless there are spending cuts, greater revenues or faster economic growth before the end of March 2020, when the fiscal year ends.

The budget office says the situation could become more acute if the economy slows.

The report also suggests parliamentarians look for more details about a Liberal pledge to find $1.5 billion annually in savings.

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The figures released Monday showed the Liberals’ projected deficit of $19.8 billion for this fiscal year is now slated to hit $26.6 billion.

And next year’s deficit is expected to be $28.1 billion, before accounting for promises the Liberals will unveil in their 2020 budget.

The Liberals’ election platform projected four years of deficits of more than $20 billion, including almost $27.4 billion in 2020-21.

The Liberals have run deficits between $18 billion and $28 billion during their time in office, which the budget office says “may act as an implicit fiscal anchor.”

The watchdog also added a warning about using the debt-to-GDP ratio, which Liberals’ preferred fiscal measure, known as the debt-to-GDP ratio, which tracks the amount of debt as a percentage of a country’s gross domestic product.

“Deficits in this range permit limited fiscal flexibility in the event of an economic downturn to maintain a declining debt-to-GDP (ratio), and limited fiscal room to implement additional electoral commitments in the near term,” the report says.

The Finance Department said the deeper deficit is largely driven by changes to how employee pensions and benefits are calculated — a hit that grows when interest rates are low but could drop sharply when interest rates rise.

This report by The Canadian Press was first published Dec. 19, 2019.

The Canadian Press