OTTAWA - The federal government may need two more years to balance
its budget than it originally predicted, says a new analysis that takes
into account weakening economic conditions.
During this spring's
election campaign, the Harper government announced it would be able to
balance the budget in 2014-15, thanks to a new cost-cutting initiative
intended to find $11 billion over four years.
But the TD Bank's
analysis taking into account new, more subdued growth projections for
the economy suggests that even if Ottawa books all the savings from
departmental cuts, it likely won't be enough.
calculated that Ottawa is likely to still be $5.2 billion in the hole
in 2014-15, and will record a $1.8-billion deficit the following year.
The surplus in 2016-17 will be an equally tiny $2.5 billion.
private sector consensus is for a more modest economic profile for
Canada relative to where things stood,” at the time of the budget, the
“In the absence of any new fiscal restraint measures,
there is a risk that the federal government will return to budgetary
balance in 2016-17, two years later than previously estimated.”
The TD bank paper came two days after Finance Minister Jim Flaherty's
meeting with economists earlier this week, and a couple of weeks before
the minister is due to issue the fall economic update on the fiscal
fudged when asked directly this week if the 2014 date was still the
government's target, choosing instead to say Ottawa was on track to
balance “in the medium term,” which could incorporate a delay of a few
meets the hard target may be more a political prerequisite than an
economic necessity, given that at the end of the planning horizon the
annual shortfalls in the TD calculations represent a mere 0.3 per cent
and 0.1 per cent of the size of the economy, respectively. By
comparison, the 2009-10 deficit was 3.6 per cent of GDP.
size of the deficit is so small as a share of the economy, it really is
not a source of concern and so there is not need to introduce
additional fiscal restraint,” said TD's chief economist Craig
Alexander, who met with the minister earlier in the week.
analysis assumes that the government will stick to the spending
restraint plan it outlined in the updated June budget, including cuts
to the public service and limiting program expenditure growth to about
two per cent annually. It makes allowances for the fact the actual
deficit recorded in the just past fiscal year was $2.8 billion to the
good of what Ottawa had expected.
It also builds in an
additional $2.3 billion in total savings in mortgage payments on the
national debt over five years because of expectations interest rates
will stay low longer.
But it notes that expected lower growth
will carve about $3 billion from Ottawa's treasury next year, and
because such losses are cumulative, the revenue shortfall will total $8
billion by 2015-16. The consensus forecast is now for growth that is
seven-tenths of a point lower this year and next over what the
government had counted on.
The only way to make up for the
difference is through additional spending cuts - which will be
difficult to realize - or higher taxes, with Flaherty has explicitly ruled out.
The TD paper said the government should do neither.
that the “miss ” is small, “investors and markets should remain
confident that a medium-term plan is firmly in place to return to
surplus,” the bank said.
The economists added that this doesn't
mean the government should stop worrying about the deficit, either,
saying the “bar should be set fairly high” in deciding to increase
stimulus if it throws Ottawa's fiscal plans off track.
said it is important for Ottawa to get back on a sustainable fiscal
path as quickly as reasonably possible because by the mid-point of the
decade, the government will be facing a new challenge - an aging
workforce that will limit growth and government revenues while
increasing demands on the public purse.