
New analysis casts doubt on schedule to eliminate deficits
Published Monday February 2nd, 2009


OTTAWA - The Harper government's budget will not only create the first massive deficit in a dozen years but may set the stage for Ottawa to spill red ink for a decade or more, a new analysis suggests.
Private-sector consulting firm IHS-Global Insight says there is only 15 per cent chance that Finance Minister Jim Flaherty will be able to balance the federal books in 2013-2014, as the budget projects.
And given that the budget makes no provision for a more severe recession or a more modest recovery, a second slump, or any additional government spending or tax cuts for the next half-decade, IHS-Global Insight's Dale Orr says it's reasonable to expect Ottawa could remain in deficit beyond 2020.
"The very same political pressures that forced the government to produce a fiscal stimulus package of $19 billion instead of about half that amount could very well pressure it to run small deficits consistently after the economic recovery of 2012," Orr says.
Last week, Flaherty adamantly denied he was setting Canada on the road to structural deficits that would last well beyond the four years he was forecasting, while adding far to the national debt than the projected $85 billion.
But Orr and other analysts, including parliamentary budget officer Kevin Page and TD Bank chief economist Don Drummond, a former Finance official, have suggested Ottawa may be creating a structural deficit that will last even after the economy recovers.
Although most of the budget stimulus is temporary, Orr calculates that $5 billion - mostly tax cuts - will be carried forward for many years.
Liberal finance critic John McCallum says he also doubts that the government will have the discipline to bring a quick end to budget deficits. And that is assuming the budget's prediction that the economy will bounce back with a 2.4 per cent growth next year.
"Nobody knows where the bottom," he said. "This is a global economic crisis, so it makes such forecasts very difficult."
However, the Liberals are expected to support the Conservative budget, allowing it the be passed in the House of Commons despite opposition from the New Democrats and Bloc Quebecois.
The budget is expected to receive final Commons approval on Tuesday.
In introducing the budget, Flaherty said he had a plan to get Canada out of deficit in four years, but the plan called on government revenues to pick up strongly after this year and for Ottawa to keep expenditure growth to four per cent in the last two years.
In the three years in office, the Conservatives have exceed the budget spending target in each year.
Orr notes that once deficits are an accepted norm, they are difficult to erase, citing the 27 years it took Canada to eliminate deficit budgeting during Liberal and Conservative governments of the 1970s, '80s and early 1990s.
One reason is that once Canadians again become inured to deficits, it will be more difficult to deny legitimate demands for such needed programs as battling poverty, health care, pensions or tax cuts.
Orr says assuming normal growth in the economy after 2012, it may be possible for Ottawa to run $30-billion annual deficits for many years and still keep the debt as a portion of the economy below 30 per cent, not much higher than it is now.
"Why should we refuse to eliminate child poverty simply to eliminate the deficit and drive debt burden down below 30 per cent,' some will argue," said Orr. "Others will point out, 'We're already in better fiscal shape than the Americans.' "


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