The federal government will incur a fiscal deficit of $51 billion in 2009-2010 and will continue to post sizeable double-digit deficits in the four years that follow, according to the latest fiscal forecast from TD Economics.
In the wake of Finance Minister Jim Flaherty’s recent announcement that this year’s fiscal deficit would be at least $50 billion, TD Economics released an updated five-year federal fiscal forecast. The bank has boosted it deficit projection from $39.2 billion in its last forecast earlier this year, to $51 billion, after taking into account a cost of $8 billion to $10 billion for the auto industry bailout.
In 2010-2011, TD expects the government to face another hefty deficit of $45.3 billion, followed by $28.3 billion in 2011-2012, $23.1 billion in 2012-2013 and $19.4 billion in 2013-2014.
By 2013-2014, federal debt will surge to $629.9 billion, or 34.6% of GDP, according to TD.
The bank’s projections are based on expectations of a 2.4% decline in real GDP growth this year, followed by growth of 1.3% in 2010-2011 and growth of 3.3% in 2011-2012.
In order for the government to return to a balanced budget in the medium to longer term, it would have to restrain annual program spending growth to 2% beginning in 2012-2013, according to TD. Under such a scenario, the government would return to surplus territory in 2015-2016, with a surplus of $5.7 billion.
Spending will not likely decline prior to 2012 since economic conditions are expected to be “sub-par” in the next few years, according to TD. “Spending in FY 11-12 is already poised to come under pressure from the expiration of a number of temporary measures put in place in budget 2009,” the report explains.
A more rapid return to surplus would require the government to freeze spending in nominal terms beginning in 2012-2013, in which case it could achieve a surplus of $11.9 billion in 2014-2015.
Such spending constraint would be a marked contrast from recent years, according to TD. “Annual program spending growth has been run at a trend rate of 6-8% per year since the late 1990s,” the report points out.
IE
Federal debt forecast to hit $629.9 billion in five years: TD Economics
Auto bailout will boost federal deficit to $51 billion this year
- By: Megan Harman
- June 2, 2009 June 2, 2009
- 15:00