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OTTAWA, Feb 3 (Reuters) - Canada's budget watchdog forecast on Friday that the government will have a smaller-than-expected deficit in the current fiscal year, largely as a result of higher revenue from corporate income taxes and a lag in planned infrastructure spending.
Canada will see a deficit of C$20.5 billion ($15.74 billion) in fiscal 2016-2017, the Parliamentary Budget Officer (PBO) said, smaller than the deficit of C$25.1 billion the government forecast in its fiscal update last November.
The report is based on data up to the end of January. The fiscal year ends in March.
PBO forecast revenue of C$293.7 billion, exceeding the government's forecast of C$291.1 billion. While revenue from personal income taxes has lagged the watchdog's projections, it has been offset by higher-than-expected revenue from corporate income taxes and other sources.
Canada's Liberal government, which is expected to release its latest budget in the coming months, has forecast deficits for the next several years as it spends on infrastructure in order to boost the economy.
Elected in 2015, the government has been criticized by the opposition for not having a plan to balance the budget.
The PBO report forecast slightly lower total expenses of C$314.2 billion, compared to the government's expectation of C$316.1 billion. Program expenses in the first eight months of the fiscal year have been weaker than expected due to delays in implementing new infrastructure investments, the report said.
PBO said it does not expect the government will spend all the money for housing and infrastructure investment it had anticipated. The watchdog on Thursday said the government has found projects for only a small amount of its planned infrastructure spending.
PBO also forecast the Canadian economy grew 1.3 percent last year, slightly higher than the government's forecast for 1.2 percent growth. The improvement was due to Statistics Canada's upward revisions to figures on exports and government spending in the first half of 2016. ($1 = 1.3028 Canadian dollars) (Reporting by Leah Schnurr; Editing by Paul Simao)