Trudeau Finance Chief Poised to Beat Deficit Forecast

(Bloomberg) -- Finance Minister Bill Morneau probably received good news when he met with private sector economists Thursday to discuss the state of the Canadian economy ahead of his budget update.

The finance department's latest survey of economist forecasts, which will be used in the fall update, paints an improving picture for national income and revenue that all but guarantees deficits will come in well below projections for the current fiscal year. That gives Morneau plenty of wiggle room to ramp up spending, or run smaller-than-projected deficits, or both.

“It's highly likely to see a much lower number, if they wanted to,” said Craig Wright, chief economist at Royal Bank of Canada.

In the March budget, the government projected a deficit of C$25.5 billion ($20.3 billion) for the current fiscal year that started April 1 -- excluding the C$3 billion risk cushion that now won't be needed. The forecast for 2018 is for a C$24.4 billion deficit, excluding the cushion.

Another reason to be optimistic about this year's numbers is that the starting point is better than expected. The government recorded a C$17.8 billion shortfall last year, beating Morneau's projection by C$5.3 billion.

The finance department's monthly data indicates a strong year for revenue. In the first four months of this fiscal year, the government has raised 33.3 percent of its full-year target. That's up from 32.5 percent and 32.8 percent in the previous two years.

Better Situation

“What the consensus in the room was this morning was that the economic situation we find ourselves in is better than we might have expected just not that long ago,” Morneau told reporters in Toronto. The fiscal update will be released in coming weeks, he said.

While the department didn't release the results of its survey, Bloomberg gathered forecasts independently from Canada's five biggest banks. Here are some of the results:

• Compared with forecasts they gave for the March budget, the economists project about C$30 billion more in nominal output, the best indicator of revenue, in each of the next two years.
• The economists, who had estimated nominal GDP of C$2.11 trillion in 2017 and C$2.19 trillion in 2018, now forecast output of C$2.14 trillion and C$2.23 trillion.
• Using the finance department's assumptions that revenue will total 14.4 percent of output, the government is looking at revenue between C$4 billion and C$5 billion more each year than forecast. The final impact on the deficit however depends on how the faster growth affects expenses and interest costs on debt.

The finance department holds as many as four economist surveys a year that in turn form the basis of its own forecasts. The latest poll is the final one before the fall fiscal update. The list of economists surveyed and the most recent budget projections can be found here.

(Corrects to say first four months of fiscal year in sixth paragraph.)

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net.

To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Chris Fournier, Greg Quinn