Federal Fiscal Forecast: The Road to Higher Debt Is Paved with Good Intentions

A lot of announcements have been made and new data released since Budget 2023 was published. They haven’t meant much individually, but together they reinforce the narrative that the federal fiscal outlook is headed in the wrong direction.

Specifically, despite some movement under the topline budget balance, the monthly data for the 2022–23 fiscal year was broadly a wash for the forecast. And the outsized move in real GDP growth to start 2023 should provide a bit of a tailwind to the current fiscal year. But that’s where the good news ends. Notably, the wage increases resulting from the federal public service strike and new industrial subsidies will add to the deficit in the current and subsequent fiscal years.

Taken together, these factors would result in a debt-to-GDP forecast that is broadly in line with that published in Budget 2023. However, this assumes the federal government is able to garner the revenues and find the savings it hopes to. Given past experience, we believe this is unlikely. As a result, we expect the rise in the debt-to-GDP ratio to exceed the outlook in Budget 2023.