Federal government headed for $150 billion in deficits over next 5 years: TD Bank

OTTAWA – An analysis by certainly one of Canada’s biggest banks says the us government is on track to operate $150 billion in budgetary deficits within the next five years.

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The TD Bank report also estimates Ottawa’s current fiscal path means it will require greater than a decade to create the budget back into balance – unless the federal government raises taxes or cuts spending.

The bank says it produced the numbers after re-calculating Ottawa’s predicted shortfalls to account for the Liberal government’s electoral spending vows and TD’s below-consensus outlook for economic growth.

The Liberals are projecting a shortfall with a minimum of $18.4 billion the coming year – a deficit that’s widely likely to climb nearer to $30 billion in the March 22 budget.

Ottawa’s recent fiscal projection didn’t factor in billions in Liberal spending commitments – a sizable chunk of which is likely to fund infrastructure projects that can help raise the struggling economy.

The Liberals had vowed to cap upcoming deficits at $10 billion and also to balance the books in 4 years – a pledge they have been backing away from while citing the sliding economy.

In releasing a monetary update a week ago, Finance Minister Bill Morneau insisted the government’s starting point was “much further back” compared to Liberals thought.

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Morneau’s calculations, primarily based on the estimates of private-sector forecasters, included one more $6 billion per year for economic prudence that the government argued was essential to account for risk.

The government’s update showed the fiscal outlook for the next two years, while the TD report broadened the projection period to five years.

“Our estimates show deficits remain somewhat persistent, largely the result of our conservative view on long-term growth rates,” reads the report, co-authored by TD economists Derek Burleton and Brian DePratto.



“A key takeaway from our analysis is the fact that absent additional revenues or adjustments to spending in accordance with things as they are, the government deficit is poised to stay stubbornly elevated within the medium term.”

The authors the study also factors within the positive growth advantages of stimulus spending.

The report also warned that the current trajectory has also put another key Liberal election vow – to reduce Canada’s debt-to-GDP ratio from about 31 percent to 27 percent in 4 years – at risk. The ratio, also known as your debt burden, represents a government’s capacity to repay debt.

TD projects the debt-to-GDP ratio to develop to 36.1 per cent by 2020-21.

“This underscores the need for a reputable long-term anchor on spending and revenue that helps keep the budget on a sustainable track inside a low-growth world.”