Ottawa will run deficits until 2015, two years longer than thought: Flaherty
Dirk Meissner, The Canadian Press
Published Thursday, September 10, 2009 7:26PM EDT
VICTORIA - Canadians can now expect five years of federal budget deficits -- two more years than originally promised -- and those deficits will be deeper than originally forecast, Finance Minister Jim Flaherty said Thursday.
As well, he said the deficit for this year will be over $5 billion more than originally thought, moving up to a projected $55.9 billion from $50.2 billion.
Flaherty's financial downgrade comes as the Bank of Canada reported the Canadian economy is bouncing back from the recession stronger than previously believed despite ongoing worries about the impact of a strong dollar.
It also came as speculation of a fall federal election continues to circulate.
Last winter, the Tories forecast a return to surplus by 2013, but despite recent tremors of positive economic movement, it's not enough to pull Canada out of deficits until at least 2015, Flaherty said.
The Conservatives have revised their forecasts and now set a goal of moving towards a balanced budget in the 2014-2015 budget year, but achieving that is not a guarantee because it depends on the state of the volatile economy, Flaherty told a Greater Victoria Chamber of Commerce luncheon.
"Even during the course of this year, downward revisions of private-sector economic forecasts have meant that our deficit projections have had to be revised as well, including today's revision of our deficit," he said.
He said the shaky state of the economy is reflected in the wide range of opinions the government is getting from the economists it consults to help shape its economic forecasts.
Private forecasters surveyed by the Department of Finance last month provided budget differences in the $100 billion range over the next five years, Flaherty said.
The federal deficit is projected to be down to $5.2 billion for the fiscal year 2014-15 and the books are to be balanced the following year.
The new estimates means the government will have added $170 billion in debt -- about double the $85 billion predicted in the January budget -- bringing the total national mortgage to $628 billion in the fiscal year 2014-15.
Economists said Flaherty's new timeline for reaching a balanced budget is achievable, assuming the economy grows predictably for the next six years and the government can drastically reduce its appetite for spending.
In order to achieve his targets, Flaherty would need to keep spending growth at about three per cent per year for the outgoing four years of his projection and that's not enough to cover expected inflation and population growth.
"It's implying a lot of restraint," said Paul Ferley, assistant chief economist with the Royal Bank. "That was an issue with the budget in January, and it is still a problem." "
In a recent assessment, Toronto-economist Dale Orr said the government would need until 2017-18 to grow out of deficit with reasonable spending restraint, adding to achieve the target further, Ottawa would likely need to raise taxes.
At the Victoria luncheon, Flaherty said returning to balanced budgets will not be easy.
"It will require decisions of government that won't always be popular or pain-free," he said. "It will require a lot of saying 'No' to pet projects and special interests."
Flaherty said the government will employ spending cuts to curtail rising costs, but it is still too early to identify a hit list.
"We will not do it in transfers to provinces," he said. "We will not do it by increasing taxes."
Federal Finance officials said economic conditions are improving, but remain volatile, making accurate projections difficult.
In the medium term, they said, the strength of economic recovery is weaker than forecast and Canada can expect larger and longer deficits.
Flaherty said in his speech the uncertain economic times mean the Liberal Opposition's sabre rattling over an election is bad timing for the country.
"Now is not the time to put economic recovery at risk with political opportunism. This is not the time to create instability out of narrow, partisan self-interest," he said.
"This is not the time to play political games."
Opposition Liberal Leader Michael Ignatieff said Flaherty's budget numbers keep getting worse.
"Mr. Flaherty has a credibility problem. The government has a credibility problem," said Ignatieff.
Flaherty originally said the Canadian economy would not slip into recession and the budget would remain balanced, he said.
"And now he's saying we'll get back to balance in 2015," said Ignatieff. "If pigs can fly."
Flaherty said Canada is doing a good job grappling with the global recession compared to other countries.
Flaherty said Ignatieff "ought to look at the numbers."
"Where does the $55 billion (deficit) come from? Certainly he knows the investment we made in General Motors. Is he against that?"
"Certainly he knows the investment we made in Chrysler to save jobs in Canada. Is he against that?"