TORONTO – TD Bank is predicting the federal government’s deficit this fiscal year will be about $5 billion higher than Ottawa predicted in its March budget due to the sluggish economy.
The bank says based on its calculations, the deficit is on track to hit $34 billion this year.
Over a five-year span, the cumulative deficit is likely to be $16.5 billion higher than forecasted in the last budget.
TD (TSX:TD) says the higher-than-expected deficit would soak up the $6-billion annual cushion and then some that the government built in to its finances to protect against unforeseen events.
However, the bank notes that despite the larger deficit, modest economic growth would likely cap the debt-to-GDP ratio at its current level — about 31 to 32 per cent — through fiscal 2020-21.
When asked about the TD report, Finance Minister Bill Morneau said the government is “pleased” that it made the right decision by building in the $6-billion cushion, given that the global economic environment has been challenging.
“Our prudent risk planning was clearly appropriate based on the status of the economy today,” Morneau told a news conference Thursday following a meeting with private sector economists.
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