TD cites fiscal headwinds
Canada stacks up well in a fiscal
comparison to its peers, and cutting the combined federal-provincial
deficit in half over the next two years appears well within reach,
Toronto-Dominion Bank economists say. But "the harder part will be
getting to zero deficits from there," deputy chief economist Derek
Burleton and senior economist Pascal Gauthier said in a report today.
"On balance, government budget plans - which are based on private-sector forecasts - have generally assumed relatively lacklustre long-term economic and baseline revenue growth," they said. "What's more, debt-service costs are projected to rise steadly over the next five years. These forces have put the onus on longer-term budget plans to hold program spending growth to about 2 per cent on average post-[fiscal year] 2011-12. Even then, the pace of deficit reduction slows dramatically."
They list three "gale-force headwinds" impeding longter-term planning:
- Modest recovery, lower trend growth: Private sector forecasters are wary about the fiscal challenges of Canada's major trading partners, tougher financial rules, a strong dollar and continuing restructuring among manufacturers. There are also demographic pressure.
- Faster age-related spending: Canada's aging population will continue to push up costs such in areas such as health care and seniors benefits, a particular issue for the provinces. "Health care has been growing by about 6 per cent to 7 per cent per year across the provinces, and given an aging population, little let-up in health expenditures on a status-quo basis can be expected."
- Rising interest costs: "These will go up as interest rates rise and debt accumulates. Under the latest budget plans, and based on private sector forecasts for interest rates, this would translate into an increase in the costs of servicing the debt from $51-billion in [fiscal year] 2009-2010] to $71-billion in [fiscal year] 2013-14. These higher costs are almost equally spread across the federal and provincial levels of government."