PBO vs Federal Budget: Bigger Deficit, Slower Growth

Beth Graddon

The Parliamentary Budget Officer (PBO) released a post-budget economic and fiscal outlook last Thursday, on the same day the April 19, 2021 budget passed its second reading.  It was a timely move, as the report focused on the impact of the $142.9 billion in new measures proposed – a number which excludes pandemic related support. It suggests Canada’s long-term economic outlook may be more expensive and less rosy than the budget estimated.

The PBO expects that we’ll see increases in GDP growth in both 2021 and 2022 – by 0.6 and 0.3 percentage points - while Canada’s employment opportunities will increase by 89 thousand new jobs. This is positive news but it does differ from the GDP growth the government estimate in the April 19, 2021 budget, which indicated a 1.6% increase in fiscal year 2021-22.

Table 2-1: Economic Impact Assessment of Budget 2021

Sources: Statistics Canada and Parliamentary Budget Officer

This economic recovery will lead to a rise in interest rates: an increase of half a percentage point is expected in the second half of 2022 and up to 2.25% by the end of 2022. Individuals and business owners will find mortgages and loans are affected, and this “will dampen the stimulative impact” of the federal budget, leading to less revenue to pay for new measures as costs to pay down the government debt  rise.

According to PBO Giroux, the budget deficits over the next five years is estimated at $117.1 billion, contributing to a total government deficit of $370.9 billion which is even higher than the $354.2 billion estimated in the budget for the last fiscal year that ended in March.

But there is some good news: the PBO estimates that the government may see more revenue than estimated as a result of the taxation of digital platforms and anticipates that the proposed hiring credit will cost less than estimated.

Knowledge Bureau Report will keep you posted as further details of the implementation of all proposed provisions from the April 19, 2021 federal budget are available. 

This month’s poll question also focuses on one of the federal budget provisions, and we’d appreciate your thoughts!

Tell us: “In your view, is the reduction of the Canada Recovery Benefit to $300 a week next month premature?”

Additional educational resources: For a guided update of the federal budget, the Advanced Retirement & Estate Planning course as featured in the May 20 Virtual CE Summit is still available. Enrol today!