The TD Bank report also estimates Ottawa's current fiscal path means it will take more than a decade to bring the budget back into balance — unless the government raises taxes or cuts spending.
The bank says it produced the numbers after re-calculating Ottawa's predicted shortfalls to account for the Liberal government's electoral spending vows and TD's below-consensus outlook for economic growth.
Finance Minister Bill Morneau and Prime Minister Justin Trudeau leave Ottawa on Nov. 13, 2015. (Photo: Sean Kilpatrick/CP)
The Liberals are projecting a shortfall of at least $18.4 billion next year — a deficit that's widely expected to climb closer to $30 billion in the March 22 budget.
Ottawa's recent fiscal projection didn't factor in billions in Liberal spending commitments — a sizable chunk of which is likely to fund infrastructure projects that will help boost the struggling economy.
The Liberals had vowed to cap upcoming deficits at $10 billion and to balance the books in four years — a pledge they have been backing away from while citing the sliding economy.
In releasing a fiscal update last week, Finance Minister Bill Morneau insisted the government's starting point was "much further back" than the Liberals thought.
Finance Minister Bill Morneau. (Photo: Marta Iwanek/CP)
Morneau's calculations, primarily based on the estimates of private-sector forecasters, included an additional $6 billion per year for economic prudence that the government argued was necessary to account for risk.
The government's update showed the fiscal outlook for the next two years, while the TD report broadened the projection period to five years.
"Our estimates show deficits remain somewhat persistent, largely the result of our conservative view on long-term growth rates," reads the report, co-authored by TD economists Derek Burleton and Brian DePratto.
"A key takeaway from our analysis is that absent additional revenues or adjustments to spending relative to the status quo, the federal deficit is poised to remain stubbornly elevated over the medium term."
The TD Bank tower in Toronto. (Photo: Roberto Machado Noa/LightRocket via Getty Images)
The authors say the study also factors in the positive growth benefits from stimulus spending.
The report also warned that the current trajectory has also put another key Liberal election vow — to lower Canada's debt-to-GDP ratio from about 31 per cent to 27 per cent in four years — at risk. The ratio, also known as the debt burden, represents a government's capacity to repay debt.
TD projects the debt-to-GDP ratio to grow to 36.1 per cent by 2020-21.
"This underscores the need for a credible long-term anchor on spending and revenue that helps keep the budget on a sustainable track in a low-growth world."
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Andy Blatchford, The Canadian Press
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