The number crunchers at the TD Bank are out this morning with a report [PDF] that says, among other things, that the federal government's deficit for the current year will likely be $5.9 billion less than what Finance Minister Jim Flaherty predicted in the fall economic update. We'll still be $39.5 billion in the hole but that extra deficit headroom could give Flaherty a little more freedom to move when he tables the 2011 on March 22.
The assumption underneath the TD forecast is a “status quo” situation at the federal level. In other words, if there are no major tax changes or spending items, the deficit is $5.9 billion better this year and a whopping $8.1 billion better for the fiscal year that ends March 31, 2012.
Now: Does Flaherty spend a little bit of that on, say, some NDP demands to win their support of the budget. Or does it mean that spending cuts everyone agrees he has to make to bring us back to balanced budgets on his timetable will be less painful?
TD deputy chief economist Derek Burleton and senior economist Sonya Gulati have this cautionary paragraph in their report [PDF]:
Despite this improved leeway, the government faces significant medium-term fiscal challenges. For one, the government’s minority status in Parliament will likely necessitate some additional spending that will erode off a bit of the fiscal room. We discuss some of the speculated announcements and their costs in the final section of this report. Second, since the government continues to rule out tax increases, the revenue line can only inch up so much. To achieve budgetary balance then, the medium-term fiscal plan hinges on its ability to wrestle annual program spending growth down to an average 1.1% per year through FY 15-16. Such a feat would represent one of the most prolonged periods of federal fiscal restraint in the Post War era and coincides with a time when age-related spending pressures are intensifying. As such, providing more detail as to how the medium-term plan will be achieved – and especially how government will achieve its spending targets – is encouraged.