Everything in Jim Flaherty’s 2010 budget hinges on his forecasts. The finance minister’s plan to shrink the deficit from a staggering $49.2 billion this year to a pesky $1.8 billion in just five years depends on steady economic growth. He’s often challenged for projecting five consecutive years of growth of around five per cent, including inflation. But Flaherty has a great comeback: he’s using the average of 15 respected private forecasts. He’s been known to rhyme off the forecasters’ names, as he began to in question period last week—“TD Bank, BMO, CIBC, RBC, Scotiabank…”—before the Speaker cut him off.
That roll call, though, may sound weightier than it really is. Of those 15 firms, Flaherty’s department told Maclean’s, six don’t attempt to project as far out as 2013-14 and 2014-15—the crucial years in his deficit-busting narrative. Of the remaining nine, some are less than ringingly conﬁdent about the numbers they offer. Take BMO Capital Markets, whose outlook is a touch more optimistic than the forecast average used in the budget. “We generally do not publish our long-range economic forecasts,” said Douglas Porter, BMO’s deputy chief economist, “and I would view these more as ‘assumptions’ than as ‘forecasts.’ ” Don Drummond, the chief economist at TD Bank Financial Group, is somewhat more pessimistic than the forecast average. Still, Drummond isn’t dismissive. “It is not as though they dreamed up a scenario biased to the optimistic,” he said. He views the budget assumptions as “credible,” although “the economy and revenues could certainly underperform.”
Yet Flaherty doesn’t build in any cushion against such potential disappointments. In his 2009 budget, he adjusted the private-sector forecast down just to be prudent—but not in 2010. Gone, too, is the old Liberal practice of setting aside contingency reserves. For Flaherty’s deficit-fighting plan to work, there can be no unpleasant surprises.