Ottawa may have wiggle room in budget, TD Bank says

Thu Mar 10, 2011 2:30pm EST
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OTTAWA (Reuters) - Canada's future budget deficits may be smaller than anticipated, a major bank said on Thursday, which would give the government more scope to include measures demanded by opposition parties and avoid an election.

The minority Conservative government will present its budget on March 22 and many observers are betting the three opposition parties will unite to bring down the government in Parliament over the plan and force an election.

"With the higher-than-expected economic growth numbers for 2010 and 2011, the government appears to have more wiggle room to listen to the demands being made," economists Derek Burleton and Sonya Gulati at Toronto-Dominion Bank unit TD Securities wrote in a special report on the upcoming budget.

After a decade of budget surpluses, Ottawa sank into the red during the global financial crisis due in part to a massive spending plan to designed soften the recession's blow on Canadians.

After a record C$55.6 billion ($57.3 billion) deficit in the 2009-10 fiscal year, the government aims to eke out a small surplus by 2015 by restraining spending, even as it cuts corporate taxes further.

That plan will be more credible if Finance Minister Jim Flaherty explains in his budget precisely what steps he will take to cap spending, TD and other experts say.

TD's fiscal outlook for the next six years, excluding any possible new measures that might be in the budget, is more upbeat than the government's last outlook in October.

Stronger-than-expected economic growth and gains from General Motors Co's initial public offering are among the items that underpin TD's forecasts.

It sees a deficit for 2010-11 of C$39.5 billion, compared with the government's estimate of C$45.4 billion. It predicts a surplus of C$7.1 billion by 2015-16 versus Ottawa's C$2.6 billion surplus forecast.   Continued...