Bloomberg News

TD Says Slowing Growth Will Delay Canadian Budget Balance

October 27, 2011

(Updates with TD economist comments in fourth and sixth paragraphs.)

Oct. 27 (Bloomberg) -- Canadian Finance Minister Jim Flaherty will probably miss his goal of balancing the federal budget by 2014 as slower-than-expected growth curbs revenue, Toronto-Dominion Bank said in a report.

Canada’s federal government will generate C$8 billion ($8.1 billion) less in revenue through the fiscal year that ends in March 2016, according to a report today by Toronto-Dominion Bank economists Derek Burleton and Sonya Gulati. That means the country won’t run a surplus until the 2016-2017 budget year without additional measures, and hold C$5.6 billion more debt than planned over five years, it said.

Flaherty said Oct. 26 that he’ll cut growth projections when he updates his fiscal plan in coming weeks, without saying how that will impact his fiscal plan. The government is still aiming to balance the budget “in the medium term,” Flaherty told reporters, declining to answer specific questions on whether the government still planned a balanced budget by 2014.

“Unless they introduce new tax and spending measures to eliminate that gap, they are on track to balance two years later,” Burleton said in a telephone interview.

Flaherty’s office released estimates this week that showed economists forecast Canada’s economy will generate C$83 billion less in output between 2011 and 2015 than the government projected in June. Flaherty surveys economists for predictions on indicators such as growth and interest rates for his fiscal planning.

‘Likely Tinkering’

“Flaherty has been preparing Canadians and investors for a likely tinkering of his fiscal plan, putting the emphasis now more on balancing the medium-term,” Burleton said, adding the budget discrepancy as a share of the economy “is pretty small.” He added his bank’s estimates are below consensus in the government’s forecast.

Burleton also encouraged Flaherty to resist pressure to stimulate the economy further as growth slows, which he said could impose larger debt burdens, put the country’s credit ratings in jeopardy and undermine confidence.

“There are short-term economic benefits to stimulating in terms of injecting money into the economy, but that needs to be balanced off against the longer-term costs and they can accumulate quite quickly,” Burleton said.

--Editors: Paul Badertscher, Kevin Costelloe

To contact the reporter on this story: Theophilos Argitis in Ottawa at

To contact the editor responsible for this story: Christopher Wellisz at; David Scanlan at

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