Budget office sees higher deficit than Liberal government's forecast

The parliamentary budget overseer is predicting a budget deficit in the current fiscal year that's almost $2 billion higher than was forecast in the government's fall fiscal update last week.

The latest report from the parliamentary budget officer says the deficit this year will be $20.2 billion, while Finance Minister Bill Morneau's last prediction was $18.4 billion.

(Morneau's economic update also included a $1.5 billion "risk adjustment," which has previously been called a contingency fund, bringing his total forecasted deficit for this fiscal year to $19.9 billion.)

Both numbers are well below the $25.5-billion deficit projection in last spring's budget.

• Liberals 'double down' on deficit spending
• Focus of fall economic statement on middle class

The budget office says it expects to see the federal deficit decline gradually, falling to $9.9 billion in 2022-23.

It says lower direct program spending accounts for most of the reduction in the deficit over the period.

In the 2016 budget, Morneau committed the government to reducing the federal debt to-GDP ratio to 31.0 per cent in 2020-21, while the budget office predicts that ratio will actually fall to 29 per cent by that date.

"As such, the government has flexibility within its current fiscal plan to reach its medium-term debt-to-GDP target," the report said.

The report says economic growth will slow over the next few years as consumer spending moderates and residential investment declines with higher borrowing rates and lower gains in disposable income.

"We project real GDP growth to slow from 3.1 per cent in 2017 to 1.9 per cent in 2018 and then to 1.8 per cent in 2019 before averaging 1.7 per cent annually over 2020 to 2022."

The budget watchdog said it sees little chance that the budget will be balanced, or in a surplus position, over the medium term.

It offered a 10 per cent chance of a balanced or surplus budget in 2019-20, with the odds rising to 30 per cent in 2022-23.