New forecast could mean billions for feds

OTTAWA — If economic growth surges in line with the Bank of Canada’s latest predictions, experts say the feds will enjoy a multibillion-dollar bump on their balance sheet.

After several months of surprisingly strong economic data, the central bank raised its 2017 growth projection this week to 2.6 per cent, up from its January call of 2.1 per cent.

In comparison, the federal government released a budget less than a month ago containing fiscal numbers based on a growth forecast for this year of 1.9 per cent.

Experts who crunched rough estimates using the bank’s upgraded forecast predict it will add between $1.5 billion and $3 billion to the 2017-18 federal bottom line.

The federal government is on track to run a deficit this year of $28.5 billion, including a $3-billion reserve set aside for emergencies. Ottawa has also projected shortfalls of $27.4 billion in 2018-19 and $23.4 billion in 2019-20.

Randall Bartlett, chief economist for a University of Ottawa think tank, said if the economy grows as the bank predicts, he expects the government to add between $1.5 billion and $2 billion in each of the next three years, starting in 2017.

He noted that the increase is a “conservative” estimate.

“It certainly provides them with a little more revenue over the next three years, which is very positive,” said Bartlett of the Institute of Fiscal Studies and Democracy.

The potential cash infusion could have important timing for the Trudeau government, as it faces considerable economic uncertainty related to its biggest trading partner.

There are widespread concerns in Canada about the possible economic impacts of proposed changes to U.S. policies on trade and taxation under the Trump administration.

The federal books, however, do have wiggle room.

In addition to the possible fiscal boost from unexpectedly strong growth, the budget set aside $3 billion a year for contingencies.

The government’s baseline projections in the late-March budget did come into question because they were calculated using weaker forecasts from December.

Heading into the budget, some thought Finance Minister Bill Morneau’s decision to base the federal outlook on months-old predictions was an attempt to lower expectations. His department traditionally uses a survey of private-sector forecasters to determine its baseline projections, but those numbers are usually delivered only a few weeks prior to the budget.

Bank of Canada governor Stephen Poloz reiterated his concerns about the potential impact of the U.S. proposals. The bank says this “significant source of uncertainty” has already had a negative impact on economic activity in Canada as firms here remain wary.

The economy still found a way to surpass the bank’s expectations — in large part due to the country’s red-hot housing sector.

Poloz told a Senate committee Thursday that 0.4 percentage points of the bank’s 0.5 increase in its 2017 growth projection was due to the faster-than-expected acceleration of the real-estate market.

“It obviously surprised us on the upside,” Poloz said.

If Canada indeed hits 2.6 per cent growth in 2017, TD senior economist Brian DePratto believes the federal books could see as much as $3-billion boost.

“A 2.6 — should we actually see that — is a very significant improvement,” DePratto said.

Bartlett noted the central bank’s updated projections aren’t out of line with the current consensus forecasts.

“We don’t know what’s going to happen with Trump, but certainly so far the news is very good,” he said.


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