The federal government should be able to eliminate the annual budget deficit by 2015, a year ahead of schedule, the Conference Board of Canada said Thursday.

A report by the think-tank said it all depends on the government sticking to its promises to constrain spending.

The Conference Board is predicting the economy will grow 7.2 per cent this year, much stronger than the budget forecast of 4.9 per cent. (Canadian Press)

"A more positive fiscal outcome now appears to be unfolding," chief economist Glen Hodgson said in a commentary co-written with senior economist Matthew Stewart.

In its February budget, the federal government projected a budgetary shortfall of $54 billion in 2010 but said annual deficits should be eliminated through spending cuts by 2016.

In its report, the Conference Board predicted that nominal growth in the economy this year will be 7.2 per cent — much stronger than the budget forecast of 4.9 per cent — and that should mean higher-than-forecast increases in revenue from personal and corporate income tax.

On July 23, the government reported its deficit during the first two months of the fiscal year was a $4.4-billion, a sharp improvement over the same period in 2009, when the shortfall in April and May was $7.5 billion. That was mainly the result of higher-than-expected revenue from personal income taxes and the goods and services tax.

Provinces struggle with health costs

It's not the same story for some of the provinces, however. The report suggested Ontario especially will have a challenge to bring its annual deficit down as health-care costs continue to mount.

"Some provincial governments will have difficulty re-balancing their books in the foreseeable future," it said.

Taken together, the provinces have estimated their collective deficits will be almost $34 billion by 2010, with only a slight reduction the following year. "Provinces are now facing some hard choices to regain fiscal health," the report said.

"Structural changes will be needed in how services are delivered, given the health-care demands of an aging population and the impact of those same demographics on revenues," it said.