Budget watchdog forecasts deeper deficits than Ottawa projected in spring update

The parliamentary budget watchdog says Ottawa has less than a one per cent chance of maintaining the fiscal anchor of shrinking the deficit as a share of the economy every year.

Parliamentary Budget Officer Annette Ryan on Thursday released her office’s first economic and fiscal update since she assumed the role in April.

The budget watchdog predicts annual deficits will average $4.6 billion higher than Ottawa projected in its spring economic update.

The budget office expects the deficit for this fiscal year will edge down slightly to $71.8 billion — about $6.5 billion higher than Ottawa’s spring projection.

Ryan argued in the report that annual deficits will be deeper than Ottawa expects, mainly because of lower income tax revenue and higher program expenses. Lower public debt charges are expected to offset those pressures somewhat.

One of the Liberal government’s fiscal anchors is maintaining a declining deficit-to-GDP ratio over the forecast horizon.

The PBO’s outlook does see the federal government’s deficit-to-GDP ratio falling from 2.2 per cent in the last fiscal year to 1.5 per cent by 2030-31.

But after “stress testing” that outlook based on historical shocks, the report estimates the odds of Ottawa showing a decline in the deficit-to-GDP ratio every year at less than one per cent.

The PBO’s outlook for the economy is also weaker than the office’s last forecast in September 2025.

The office now sees real gross domestic product rising 1.1 per cent this year and 1.6 per cent next, a couple of ticks lower than the fall projections. The budget office’s outlook assumes all tariffs between Canada and the United States currently in place will be permanent over the horizon.

The state of the economy has been a hot topic on Parliament Hill this week after Statistics Canada reported a second consecutive contraction in the economy to start the year. Many economists are pushing back against using the “recession” label to describe the marginal declines in GDP.

The Conservatives are laying the blame for a “full-blown recession” at the feet of the Liberal government. Prime Minister Mark Carney has acknowledged “weakness” in the economy but argues federal policies are setting Canada up for long-term growth.

By Craig Lord