MNI BRIEF: Canada Budget Office Sees Broken Fiscal Anchor

MNI (OTTAWA) - Canada's parliamentary budget office on Thursday projected a federal deficit of CAD46.4 billion for the current fiscal year, which would come in higher than Finance Minister Chrystia Freeland's fiscal anchor of limiting the shortfall to CAD40 billion. 

The estimated deficit would amount to 1.5% of GDP, also out of line with the government's pledge to move the deficit to 1% or less of the economy's annual output. The budget office assessment is also based on an assumption there will be no new fiscal measures coming, something former officials have told MNI is doubtful with Justin Trudeau's Liberals facing a snap election after a fiscal update due in coming weeks. (See: MNI INTERVIEW: Trudeau Deficit Cap Strained By Election Threat)

The budget office said debt servicing costs are rising even with the BOC seen cutting borrowing costs from today's 4.25% to a neutral rate of 2.75% in the second quarter of 2025. "Compared to our March 2024 outlook, we project budgetary deficits that are $4.1 billion higher, on average, over 2023-24 to 2028-29. This increase is largely due to new spending measures" the report said. (See: MNI INTERVIEW: Trudeau Must Resist Bloc Budget Demand- Manley)