Deficit to increase, says TD report

Canadians can expect to see larger and more persistent federal budget deficits, says a report from TD Economics. The major culprit? Slow economic growth, which is worse now than when the budget was released in March.

Read: Canadian economy more vulnerable than in 2007-2008

Highlights of the report:

• The deficit is on track to reach $34 billion this fiscal year (1.7% of GDP), about $5 billion higher than was shown in the budget.
• This fiscal erosion extends through the entire five-year horizon, leaving the cumulative deficit at $16.5 billion more than forecasted.

Read: Quebec’s public sector debt growing rapidly: MEI

• Despite this deficit upgrade, prospects for a modestly growing economy would likely cap the federal debt-to-GDP ratio close to its current level of 31-32% through fiscal 2020/2021.
• The government will face growing calls for further stimulus, while pressure from the provinces will build for additional health transfers.
• Lowering the deficit at the expense of maintaining fiscal wiggle room isn’t warranted in light of the unusually high uncertainty for Canada’s economy and housing market.

Also read: Feds post narrow $1-billion deficit in 2015-16

Staff

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