Economy & Markets

The federal government could devote between $23 billion and $39 billion to either new spending, or tax relief, and still meet its debt targets for 2017

By James Langton |

Powered by stronger than expected economic growth, the federal government's finances are in better shape than expected, says a report published Wednesday by TD Economics. However, the report calls on the government to remain prudent in anticipation of fiscal pressures to come.

Ahead of the government's fall fiscal update, the outlook for the government's finances has "significantly improved" on the back of robust economic growth, the report says. Assuming no major changes to tax or spending policy, the report projects a deficit of $16.2 billion for fiscal 2017-2018.

"This estimate, which includes a $3 billion ‘risk adjustment', represents an improvement of more than $12 billion relative to the government's budget 2017 outlook," the report says.

This revised fiscal forecast suggests that the government could devote between $23 billion and $39 billion to either new spending, or tax relief, and still meet its debt targets for 2017, according to the report. However, it suggests that the government should remain cautious to maintain fiscal flexibility, and to accommodate longer-term uncertainties.

Looking ahead, the annual deficit will likely remain in the $15 billion to $16 billion range through fiscal 2021-2022, "as economic growth slows" and spending promised in last year's budget rolls out, the report says.

"The fall fiscal update or budget 2018 will provide an opportunity for the government to credibly recommit to a fiscal anchor, such as a reduction of the debt-to-GDP ratio over a five year horizon, consistent with our ‘business as usual' fiscal forecast," the report concludes.