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Looking Ahead to the 2011 Federal Budget
in line with the private sector consensus average. This is important as it is this latter measure that the government uses in its fiscal planning process. Relative to the numbers included in the federal fiscal update, upgraded growth projections, particularly nominal GDP, should translate into additional revenues for the government’s coffers. These benefits are indeed noted in the year-to-date Fiscal Monitor numbers. These show revenue gains across most categories, particularly personal and corporate income tax receipts.
Aside from the boost generated from economic growth, the FY 10-11 revenue tally should be improved by some recent events. First, Daimler reached a tax settlement in March with the federal, Ontario and Alberta governments in the amount of $1.5 billion. A breakdown of allocations for each government was not provided, but a sizeable portion should be directed towards federal coffers and would likely be applied to FY 10-11. Second, the General Motors Initial Public Offering (IPO) that took place in November resulted in a $600 million revenue gain for the government, according to Fiscal Monitor estimates.
Based on the first nine months of the fiscal year, as presented in this same publication, spending appears to be mostly on track. When combining both sides of the ledger then, the deficit tally for FY 10-11 is estimated to be $39.5 billion or 2.4% of GDP. This would be $5.9 billion better than what was estimated last fall. The FY 10-11 accumulated deficit is also improved and should represent 34.5% of GDP. All told, the government has a better starting point with which to plan its 2011 budget.
Moderate Medium-Term Economic Prospects With respect to the near-term outlook, we expect economic growth to moderate, particularly after 2012. This is evident from the table on the next page comparing our current forecasts to those included in the fall fiscal update. Admittedly though, TD’s projections have tended to be on the low side relative to the private sector average in 2013 and onwards. That said, the moderation in growth is slated to come as a result of several domestic headwinds including the impacts of a high Canadian dollar, dampened housing activity and high household debt levels. Headwinds abroad also remain on the horizon some of which include the repercussions of inflation control measures in emerging markets and possible debt restructuring in parts of Europe.
But Deficit Reduction Timetable Remains Unchanged In generating our status quo forecast, we use our economic assumptions to derive budgetary revenues. For federal-provincial-territorial fiscal arrangements, we have assumed that current legislated growth rates prevail beyond FY 13-14. Overall, the revenue profile is helped by the economic lift generated in the recovery phase, but this boost wanes over the medium-term.On the expenditure front, we have decreased year-overyear program expenditures by $7.3 billion or 3.0% in FY 11-12. This is slightly less than the spending cut reported.
This report is provided by TD Economics for customers of TD Bank Group. It is for information purposes only and may not be appropriate for other purposes. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. The report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.
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