The government’s economic and budgetary forecasts involve a very high level of uncertainty, concludes an analysis by Auditor General Guylaine Leclerc, which suggests a drop in the deficit expected next year due to an increase in revenues in the coffers of the state.
This observation was made following his review of the Pre-Election Report on the State of Public Finances prepared by the Minister of Finance, Eric Girard. The document sets out the government’s forecasts in terms of economic growth in addition to specifying its expectations regarding revenues and expenditures.
As such, several revisions appear compared to the data unveiled in last March’s budget, in particular for the deficit expected during the current fiscal year 2022-23. According to the Department of Finance data reviewed by the auditor, which was established as of July 8, the expected deficit would increase from $6.5 billion to $730 million.
This improvement in the portrait of public finances is based on a substantial increase of $2.3 billion in government revenue from personal income tax, compared to what was forecast in March.
Income from corporation tax is also up $1 billion since the last budget.
“Between the budget that was prepared on March 31, 2022 compared to the pre-election report, the inflationary shock has a lot to do with it, among other things for own-source revenue,” said Ms. Leclerc on Monday at a press conference.
Ms. Leclerc formulated her assessment on Monday as to the probabilities of the forecasts put forward in Mr. Girard’s document, from which the electoral promises will be established. According to the auditor, the assumptions used are “plausible” for fiscal years 2022-23 to 2024-25.
In their analysis document, Ms. Leclerc and her team note that “uncertainty surrounding these forecasts is however very high, particularly given the surge in inflation which is leading to the tightening of monetary policies both globally and internationally. across Canada, the war in Ukraine and the lingering effects of the pandemic across the globe.
Additional surplus
Because of this context of “unusually high” uncertainty, Ms. Leclerc considers that it would have been useful to present an alternative scenario taking into account the potential impact of current risks on the government’s financial framework. The auditor pointed out that the federal government did this.
Ms. Leclerc and her analysts have notably estimated that an additional surplus could emerge in 2023, which would further reduce the deficit established at 730 million according to the most recent data after payment to the Generations Fund and use of the stabilization reserve.
The Ministry of Finance forecasts real gross domestic product growth of 3.4% in 2022, which will then slow to 1.5% in 2025. As for inflation, it expects a return to 2024 at the rate of 2% targeted by the Bank of Canada.
More details will follow.