Ottawa’s fiscal wiggle room squeezed by rising debt costs, watchdog says

The Liberal government is facing a tough fiscal position heading into the 2024 budget, according to new projections from the Parliamentary Budget Officer.

Ottawa is simultaneously dealing with rising debt costs and a slowing economy, both of which are fuelled by decades-high interest rates from the Bank of Canada as it works to tame inflation.

The PBO said in a report released Tuesday that it expects the federal government’s deficit will come in at $46.8 billion for the current fiscal year, $6.8 billion more than Ottawa’s latest estimates in the fall economic statement.

That’s because of higher expenses — the PBO projects $8.1 billion in spending was announced between the FES and Feb. 1 — and lower revenues coming in from Canada’s cooling economy.

Statistics Canada said last week that the national economy eked out annualized real gross domestic product growth of around one per cent in the fourth quarter, skirting a technical recession.

But that slowing economy means less money to spend while higher debt obligations leave the Liberals less fiscal wiggle room ahead of the 2024 budget, which Deputy Prime Minister and Finance Minister Chrystia Freeland is set to table on April 16.

She teased that the forthcoming plan would try to speed up building homes, make life more affordable and create jobs for Canadians.

“This plan will unlock pathways to a good middle-class life for the next generation — because Canada is stronger when everyone has an equal chance to succeed. Together, we are going to unlock and build a brighter, more prosperous future,” she said in a statement.

Internal government polling obtained by Global News last year found nearly 60 per cent of Canadians believe Ottawa should balance the budget.

The polling, which