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Their way of handling it is to sharply downgrade estimates for productivity growth out to 2020 so that GDP growth between now and then would mimic the short-term forecast. The growth rate of GDP reverts back to the original projection for the following 30 years, but at a level somewhere between 5 and 6 per cent lower than projected in 2014. Since government revenues are roughly proportional to GDP, they are also revised downward by a similar amount.

Finance’s analysts have their hands tied, and this kludge is perhaps not the worst way of splicing the long-term projection to the short-term forecast. But the information that has come available in the last 24 months can hardly justify a downward revision of the future paths of GDP and revenues by 6 per cent for the next 35 years.

The other important change in the outlook is on the spending side: federal expenditures in the 2016 scenario are set to be roughly 4 per cent higher (the equivalent of about 1.3 per cent of GDP, or $25 billion in today’s terms) throughout the projection horizon than they were in the 2014. The Conservatives’ 2014 projection left a lot of fiscal room — for instance, the federal debt was projected to be paid off by 2040 — and the Liberals have moved to occupy it.

Others have pointed out that the projection doesn’t make provisions for the expected surge in health expenditures as the population ages, that provincial debt-GDP ratios are increasing, and that there’s always the risk that a recession will blow public finances off course. These risks are manageable, not least because the outlook for revenues is probably brighter than what the projections suggest.

But the news is in the revision, not the projection. And once again, the news is that the Liberal government is planning to spend more, run larger deficits, and to balance the budget even later than it had previously planned. This pattern of ever-worsening projections is more worrisome than the projection itself.

National Post

Stephen Gordon is a professor of economics at Université Laval.