Canada’s economic performance could be getting worse in the coming years, but the country is getting a better bargain for it, says a new report from TD Securities.
The TD report said that the federal government could spend more money in the next budget and still come out ahead.
The study estimates that a balanced budget could be achieved by 2019, though it said that it doesn’t believe Ottawa would be able to achieve a surplus this year, unless it dramatically increased the size of the public sector.
The federal government already announced an additional $1.4 billion in spending for the next fiscal year.
While the report said the federal budget was expected to be balanced, it said there was room for further spending increases.
“There are ways to go in the short term, but if you are going to go into the future with $1 billion in revenue coming out of the federal treasury, you would need to be very bold about it,” said Michael Ferguson, president of TD Securities Canada.
“We think that will be difficult.”
The TD study also said that Ottawa would have to pay an additional 1.3 per cent to businesses and the federal and provincial governments to offset the expected $1,000 billion deficit in the federal balance sheet by 2019.
While most of the deficit is expected to fall as the economy improves, there is also a $300 billion shortfall in the corporate sector.
This is due to the fact that corporations and their workers have been paying lower wages and the companies are not able to borrow.
As a result, the federal deficit will likely increase as the government spends more money to pay down its debt.
“The government will have to make more in the future, but they need to make it with the kind of discipline that the private sector has, with the discipline that they need in the economy,” Ferguson said.
The report did find some positive signs in the private and public sectors, though.
While private companies are continuing to contract, the government has made progress in the recovery of the economy.
The private sector is still recovering, the economy is growing and unemployment is lower than it has been for some time.
In fact, unemployment has fallen to its lowest level since 2008.
TD says the private economy is expected the economy will grow at a rate of 1.4 per cent this year and 2.0 per cent next year.
“So, for now, at least, the private-sector outlook looks pretty positive, even if it is not quite what we had hoped for,” said Ferguson.
But the government could still be doing a better job of making good on its commitments to increase public sector spending and invest in the infrastructure of the country.
“It’s a real challenge in the budget to get to where the private sectors need to get,” said Paul Martin, senior economist at TD Securities in Toronto.