Well, Tuesday March 22nd is Federal Budget Day. If you are a movie buff, Oscar night is your big fiesta. If you are a CFL fan, it’s the Grey Cup. If you are an economist (with a public finance background) then Budget Day is when you clear your day, make some popcorn and gather family and friends around for some entertainment and analysis. What is a budget without at least one pre-budget forecast?
So here it is. What is my best guess as to what the federal deficit for the 2010-2011 fiscal year will come in at? According to the Fiscal Monitor, for the first nine months of the 2010-11 fiscal year – three quarters of the way through – the budgetary deficit was $27.4 billion. This suggests to me that the final deficit for 2010-11 could be about $35 billion. So, what is your best guess for the 2010-11 budget deficit?If you feel more daring, how about 2011-12?
Worthwhile Canadian Initiative 
Livio,
I agree that “Oscar Day” for Public finance has finally arrived. However, I would like to see your analysis of Finance’s deficit forecast vs PBO and why you think they are different and which forecast is more credible. A lot of keystrokes were struck in the last year, especially in the Globe concerning this issue. So, it must be analysis-worthy.
Staying with the theme of govt indebtedness, the CFIB’s Chief Economist released a less than sanguine analysis suggesting provincial indebtedness is near the “tipping point”.
Elliot Management hedge fund founder Paul Singer, who predicted the subprime financial crisis before anyone else, is now arguing that we are in for hyper inflation, due to Fed and ECB monetary policies (see today’s WSJ, http://online.wsj.com/article/SB10001424052748703899704576204594093772576.html?mod=WSJ_Opinion_LEADTop
Even if he is only partially correct e.g. 5% – 10% inflation, surely interest rates will rise significantly. Can the provincial govts (or the EU South) finance heavy debt to GDP at e.g. 10% or will the bond vigilante hounds – the most important innovation in democratic countries to ensure fiscal accountability – be attacking those govt bonds in the capital market, when it is realized that the Premier (and Governor) emperors have no clothes?
Ian
2010-11: $29.7B
2011-12: $19.7B
Put me down under optimist, I guess.
Ian: I did do a couple of posts on my other blog some time ago on the sustainability of federal spending and provincial debt and spending that you might find of interest. You can track then down on the links at WCI under “Posts on Other Blogs That You May Find of Interest.” Long and short – federal spending is not currently sustainable and really has not been for some time.
Livio, I don’t have any guess on the numbers. What I’m wondering about is what this year’s “announcables” will be.
I’m betting on a reduction in the rate at which funds have to withdrawn from RRIFs (as advocated by the CD Howe institute).
I didn’t realize that the budget deficit for this year was so low. This is good news, as it means that total government debt as a percentage of GDP is stable.
On March 17, Harper claimed that the deficit will be 25% smaller next year, so I’m going with…
2011/12 $26.5 billion
2012/13 $14.7 billion
I’ll let you know where to send the prize.
The U.S. government’s deficit is expected to exceed $1.6 trillion, or about 11% of GDP.
The little problem the japanese encouters a few days ago means rough seas ahead for 2011-12. Braced yourselves, it can turn ugly for interest rate and inflation. Do not forget the chineses are also less warm with the US bonds
Marc Labbe:
At around 200% annual GDP, the sustainability of the Japanese federal debt appeared to be based on the premise that “nothing will go seriously wrong.”
Well, something just went seriously wrong.
“This suggests to me that the final deficit for 2010-11 could be about $35 billion. So, what is your best guess for the 2010-11 budget deficit?If you feel more daring, how about 2011-12?”
Harper gave a speech last week in which he suggested the budget would decline by 25% this year. Now, last year’s deficit was originally projected to be $50 billion, which would put this year’s figure at $38 billion, if that was the base he was using (there were some accouting adjustments to the final 2009-10 deficit figured which kicked it up to $56 billion, but a 25% reduction from that level doesn’t make sense in light of the actual deficit numbers over the first 12 months).
As for next year, I’d look for a significant drop, what with all the one-time stimulus spending coming off the books. My bet is that we’ll actually see a deficit for 2011-12 of approximately $20 billion (about $10 billion and a year ahead of their forecasts). Whether they’ll forecast it to be that low is another question. On the one hand, I can see why they might want to do that, since it would allow the government to say that they’re a year ahead of their deficit reduction strategy. On the other hand, given the likelihood that the next government will also be a minority, there’s no upshot to be too aggresive with your forecast and potentially missing it (besides, if you’re too aggresive, no one will believe you). Plus, going into an election, they might want to use some of that money to buy some votes, so I’m betting that we’ll see a deficit forecast for 2011-12 of $24 billion.
As for announcables, KPMG has published it’s best guess/wishlist of what will be the big tax related budget annoucements (http://www.kpmg.com/Ca/en/IssuesAndInsights/ArticlesPublications/TNF/Pages/tnfc1105.htm). Adjustments to the TFSA and RRSP contribution limits are plausible, though I wouldn’t look for much beyond adjustments for inflation (i.e., all those financial planners who are dreaming about getting retroactive TFSA room back to when their clients turned 18, keep dreaming). I think Frances is right that we’ll see adjustments to the RRIF rules (probably a good idea). On the corporate tax side, well, the tax cuts are already enacted, so they’ll be nothing new in the budget, although we’ll probably some tweeking around the edges. I can’t see any sizeable increase to the thresholds for the top income brackets (much less a reduction in the top marginal rate), the tax cost far outweights whatever political benefits they might get – that’s just KPMG dreaming in living technicolour.
I’ll let you know when I get out of lock up tomorrow.
Low risk prediction: announcement of cost savings from elimination of inefficiency and waste in Ottawa.
High risk prediction: privatization/contracting out of some major elements of federal program delivery e.g. contracting out of Statistics Canada data collection activities or employment insurance services.
Frances: “Low risk prediction: announcement of cost savings from elimination of inefficiency and waste in Ottawa”.
Sure, but that’s up there with predicting that the budget document will contain a comma. On the high risk prediction, I’d put Canada post at the top of that list.