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Finance Minister Joe Oliver speaks in Ottawa on Dec. 15, 2014.

CHRIS WATTIE/REUTERS

Updated forecasts by TD Economics project that the Conservative government will be in deficit for two years longer than originally planned due to the sudden drop in oil prices and the impact of tax cuts announced in the fall.

Rather than a $1.9-billion surplus in 2015-16 as outlined in Finance Minister Joe Oliver's fall fiscal update, TD Economics is projecting a $2.3-billion deficit, followed by a $600-million deficit the following year. The return to surplus would be pushed back to the 2017-18 fiscal year.

However, the report cautions that the government has put aside $3-billion a year for unforeseen events and that amount could still be enough to post slim surpluses in the coming years. It would not be enough, though, to allow the government to announce major new spending in the 2015 federal budget.

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"The conclusion is unambiguous. In the absence of new measures to raise revenue or cut spending, TD is projecting budget deficits in fiscal 2015-16 and 2016-17 as opposed to the surpluses expected at the time of the update," states the report authored by TD senior economist Randall Bartlett.

The government's November fiscal update made downward revisions to revenue forecasts based on the fact that the price of North American crude had slipped from $98 (U.S.) a barrel to $81. Oil was trading near six-year lows Tuesday of around $45.

The latest TD forecasts assume that oil prices will rise from current levels to average $67.50 per barrel in 2015 and $80.25 in 2016.

Should oil fall to $40 and remain at that price, TD Economics said the deficit could be as large as $4.7-billion in 2015-16 and $2.4-billion in 2016-17.

The report from TD is the latest in a series of statements from private sector economists questioning the government's assurances that federal finances will return to surplus in 2015. The government, however, insists the target will be met.

Mr. Oliver issued a news release through Finance Canada on Jan. 2 titled "Harper Government to balance budget in 2015." Similarly, Prime Minister Stephen Harper said last month that there is "no doubt" that the books will be balanced.

Treasury Board President Tony Clement added a touch of nuance on the topic last week in an interview with The Globe and Mail.

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"I think that we continue to be on track," he said. "The Prime Minister has made that clear as well as the Finance Minister, but one doesn't declare 'mission accomplished' until you accomplish the mission."

The finance minister is standing by his surplus projections.

"While threats to the global economy loom – including falling oil prices – our Conservative government's plan for the economy is working. We will continue our unrelenting focus on jobs, growth and long-term prosperity and we will balance the budget in 2015," said Mr. Oliver in a statement released by his office Tuesday.

Parliamentary Budget Officer Jean-Denis Fréchette has stated that federal finances are sustainable over the long term and economists generally say that whether Ottawa is in a small deficit or surplus is not very significant as long as overall trends are moving in a positive direction. However the TD report notes that because 2015 is an election year, "great political weight has been put on the fortunes of the economy and returning to surplus following years of deficits."

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