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Prime Minister Justin Trudeau’s fiscal update Monday was so stained with red ink that it may increase pressure on the Bank of Canada to act in the event of a downturn, according to Doug Porter, chief economist at Bank of Montreal.

The projections from Finance Minister Bill Morneau show the nation is on track to run a $26.6 billion deficit this year and a $28.1 billion gap in 2020, higher than what was outlined in the spring budget. Morneau said lower interest rates forced the government to revalue what it needs to put aside for future pension obligations — adding about $28 billion in spending over five years.

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Given the higher deficits are a result of pension revaluations rather than actual stimulus, the end result may be to place more of a burden on the central bank. “If the federal government can’t offer much more on the fiscal front, the onus will fall more heavily on the bank, should the economy soften more than expected in 2020,” Porter said in a note to investors.

While the fiscal update does take into account new personal income tax cuts that come into effect in January, it doesn’t include any of the new spending measures Trudeau promised during the fall election campaign. The Liberals had pledged to cap deficits at C$27 billion next year — a level they have already surpassed.

Bloomberg.com