Canada's Finance Minister Jim Flaherty could miss his target for a balanced budget by two years, Toronto-Dominion Bank says.
But TD economists Derek Burleton and Sonya Gulati rule out the need for more restraint measures because deficits would be small in the final two years and the markets should take solace that a "medium-term plan" is still in place.
Flaherty himself hinted earlier this week that he could delay his target of 2014-2015 when he delivers his fall update, though he wouldn't pinned down.
"Unless new fiscal restraint measures are announced and 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," Burleton and Gulati said in a report today that bases their projection on economic forecasts that have dimmed of late.
"However, with small deficits forecast in the last two years of the revised timetable (0.1% to 0.3% of GDP), additional fiscal restraint, above what has already been announced, need not be pursued."
The economists project that economic growth this year will be 1.6 percentage points below the last budget forecast, which would mean $3-billion less for the government. They see that reality-to-forecast gap narrowing in the 2013-2015 period, to about just 0.2 to 0.4 of a percentage point.
"Because each revenue hit is cumulative in nature, an $8-billion revenue wedge is ultimately created by 2015-2016," the economists said.
They look at the spending side of the ledger, along with deficit service savings from lower interest rates, and come to the conclusion for the two-year time lag.
"The extended deficit profile brings with it greater public debt burdens $5.6-billion more debt over five years) than originally forecast," they added.
