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Ottawa's '09 deficit may hit $14B

 

Nov 20, 2008 11:16 AM

Les Whittington

OTTAWA BUREAU

 

OTTAWA–An independent parliamentary review of the Harper government's finances concludes the federal Conservatives are likely to run budget deficits "in the near term," possibly beginning this year.

 

The report by Kevin Page, the new Parliamentary Budget Officer, says the weaker economic outlook poses a risk to the government's attempts to achieve its "short-term and medium-term fiscal targets."

 

Assuming no changes in Finance Minister Jim Flaherty's policies, "the downgraded economic outlook suggests the government would record modest and temporary deficits in the near term,"according to the analysis released this morning.

 

While a budget surplus is still possible this year, the report warns the negative impact on government revenues because of the turmoil on financial markets is not yet known.

 

"As a result, a deficit for this (2008-09) fiscal year is a distinct possibility."

 

Page says the deterioration of the federal government's financial picture in the first nine months of 2008 is not so much the result of the weakened economy as Flaherty's policies, particularly the latest reduction in the GST tax and reduced corporate income taxes. This has caused federal revenues to decline by $353 million in the first nine months of this year.

 

The budget office projects a budget deficit of $3.9 billion in 2009-10, although it adds that, if the economic downturn proves worse than expected, next year's federal deficit could hit $14 billion.

 

The budget office was created in 2006 to provide independent fiscal forecasts for parliamentarians. This is Page's first budgetary study.

 

 

Parliament's budget watchdog said Thursday Ottawa is in danger of running deficits starting this year, ballooning to as high as $13.8-billion next year, before returning to a surplus position starting in 2011-12.

 

Nevertheless, the watchdog still projects a surplus for this fiscal year of at least $1.7-billion. Its "average" scenario, which is midway between worst- and best-case, projects a $3.9-billion deficit next year and a $1.4-billion shortfall in 2010-11.

 

The outlook comes from the Office of the Parliamentary Budget Officer, a newly-created body that aims to provide non-partisan economic analysis. It used nearly a dozen private-sector forecasts to develop its outlook, and made judgments as how certain changes in growth would affect federal coffers.

 

It made its budget deficit call based on what is expected to be weak economic growth for the country as the global economy tries to pull itself out of a financial crisis. The "external factors" that supported recent growth in Canada have "reversed course," the office's report said.

 

"The weaker Canadian outlook ... poses a risk for the government to achieve its stated short-term and medium-term fiscal targets," the budget officer, Kevin Page, said his outlook. "Assuming no major fiscal policy changes, the downgraded economic outlook suggests the government would record modest and temporary deficits in the near term."

 

The budget office also warned that a deficit for this fiscal year remains "a distinct possibility," due to decisions to cut the GST and corporate taxes - and not weakened economic conditions. But officially, the office projects a surplus this fiscal year as low as $1.7-billion to as much as $6-billion.

 

"While the year-to-date fiscal results, as well as all of our projection scenarios, suggest a modest surplus in 2008-09, it will be some time before the implications for [government] revenues of the recent financial market turmoil are known."

 

Opposition politicians immediately pounced on the report, saying misguided Conservative decisions on spending and tax cuts put the country into a deficit position.

 

"Will the Prime Minister admit, coming from his own appointee, Kevin Page, that he is no longer anywhere to hide? The deficit is not the fault of the international community. He and his reckless Finance Minister are the sole proprietors of Canada's deficit," John McCallum, head of the Liberal Party's economic team, said during debate in the House of Commons.

 

Stephen Harper, the Prime Minister, responded: "We need to correct the facts. There are numerous prognostications about the future. And the Minister of Finance will deliver his fiscal update in the week to come -- and that will provide the facts to all members of Parliament."

 

The fiscal update, scheduled for some time next week, will provide the Department of Finance's outlook on the economy. But Mr. Page's report steals some of the thunder.

 

Mr. Harper added Thursday Canada remains in a surplus position, and is one of the few countries in the industrialized world that can boast about that during this current downturn.

 

Meanwhile, Mr. Page said there are a range of policy initiatives the government can enact to address the current economic slowdown, among them a stimulus package to boost demand. But, he added, "the key challenge for policymakers is to address short-term pressures while maintaining a longer-term vision, enacting policies that are fiscally sustainable and address the fundamental long-term challenges."

 

Chief among those long-term challenges is boosting Canada's lacklustre productivity growth. "With population ageing reducing growth in the labour force going forward, fostering productivity growth will be absolutely essential for ensuring sustained increases in living standards," Mr. Page said.

 

In the Speech from the Throne, delivered Wednesday, the government warned of "misguided" attempts to stay in a budget surplus position given the state of the global economy.

 

The last time Ottawa recorded a deficit was in 1996-97, when former finance minister and prime minister Paul Martin oversaw a shortfall of $8.7-billion.

 

pvieira@nationalpost.com

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