Economists with TD Bank say that Finance Minister John Manley faces a huge challenge as he prepares his first federal budget.

Ottawa is now preparing its autumn agenda. A throne speech is expected on September 30. It will then be followed by the federal government’s Innovation Summit on November 6. The federal budget will be brought down in the late fall or early winter.

TD says that the modest surpluses projected over the near term suggest that, “Manley will be limited in his ability to introduce new programs with a major price tag over the next few years. What;s more, if the government chooses to incorporate its usual level of fiscal prudence into its budget-planning framework — while targeting a zero deficit — then there is no room for net new measures until 2005.”

TD says that Manley faces a major test, “arguably the most daunting since the Liberal government took office in 1993. Now, Minister Manley is confronted with huge spending pressures, when Canada still has work to do on both the debt and tax fronts.”

TD predicts that for fiscal 2001-02 the year-end surplus will come in around $7 billion, quadruple the $1.5 billion surplus that the government had estimated at the time of its December 2001 budget. “Assuming the government sticks to its program-spending plan of 4.7% growth set in its December 2001 budget, look for the underlying surplus to narrow to around $3.5 billion this year.”

The government has an ambitious agenda though, with 10 key areas possibly calling for new spending. TD flags the environment, urban infrastructure and innovation as priorities. To meet these spending needs, it suggests the government could: lessen the room set aside for fiscal prudence in its budget plan, generate internal savings by cutting back in non-priority areas, or raise taxes. TD suggests that any new taxes be pushed towards consumption taxation, and away from income taxation.