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OTTAWA — As the Liberal government opens the fiscal taps to combat the economic fallout from COVID-19, the federal budget watchdog is urging Ottawa to ensure that recent spending hikes do not lead to “structural and permanent deficits” after the virus has retreated.

In a report on Friday, the Parliamentary Budget Officer projected that the Liberals would post a $112.7-billion deficit in 2021, not including another $25 billion announced earlier this week to expand employment insurance benefits. Wage subsidies for small businesses were also expanded to cover up to 75 per cent of payroll, adding to the fiscal weight load.

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The spending measures are widely seen as necessary as Canadian economic activity evaporates. But they also run the risk of getting into the budgetary water supply after the broader economy returns to health, Parliamentary Budget Officer Yves Giroux warned.

“There will be tremendous pressure on the government to extend these programs,” he said.