Provinces urged to eliminate deficits in five years

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Minister of Finance Jim Flaherty speaks with media in the foyer of the House of Commons on Parliament Hill in Ottawa, Thursday.

Finance Minister Jim Flaherty is calling on provinces to commit to balancing all their deficits within five years, even as some doubt Ottawa’s own resolve.

In a surprising declaration Thursday, Flaherty said he wants all provinces and territories to commit to the five-year target — as Ottawa has done — at this weekend’s finance ministers meeting in Kananaskis, Alta.

And without naming any provincial government, he cast doubt on whether some are committed to the task.

“I think they share the concern (about deficits), and some share a desire for action,” he said.

“I also hope they will commit to seeking ways to accelerate balanced budget plans, if possible. The earlier we can get rid of those deficits, the better.”

One issue being discussed in Kananaskis is the federal-provincial health care agreement, which currently sees Ottawa increasing funding annually by six per cent. With the deal set to expire in 2014, provinces are gearing up to get Ottawa to commit to at least the same level of annual increases.

But Flaherty has suggested such annual boosts are neither sustainable nor justified, noting again Thursday that it represents a rate “significantly faster than economic growth, even with inflation.”

The challenge on deficits appears to be aimed at the Ontario government, which has set a seven-year target to eliminate the shortfall, and cast doubt on whether Ottawa’s plan is achievable.

Dwight Duncan, Ontario’s finance minister, recently scoffed at Flaherty’s claim he will balance Ottawa’s budget by 2015-16. Parliamentary Budget Officer Kevin Page has also expressed doubt that the five-year target is achievable given the current projections on economic growth.

“It’s just not doable,” Duncan said earlier this month.

“It’s just like in November of ’08 when they looked the country in the eye and said they don’t have a deficit,” Duncan added. “I was laughing because ... we knew what was happening to our revenues. They have the same revenue source and they just weren’t being completely candid with the people of Ontario and the people of Canada.”

Economists have argued that fiscally it is irrelevant whether Ottawa balances the budget in its timeframe or merely comes close.

Canada’s national debt as a proportion of the economy is far smaller than any other country in the G7 at about 35 per cent — half what it was in the mid-1990s when the country faced a fiscal crisis. Adding provincial debt takes the number to 62 per cent.

But economists have also said that some provinces, particularly Ontario, face a fiscal crunch in the future as the baby boom generation begins to retire and soak up more health care dollars.

Ontario’s $18.7-billion deficit is proportionally higher than Ottawa’s, expected to come in at below the $45-billion estimate, but only slightly — 3.1 per cent of gross domestic product versus 2.8.

With the exception of Ontario, all other provinces are on track to eliminate their deficits at the same time or before Ottawa, says TD Bank economist Sonya Gulati. But those plans require governments to restrict spending increases to two to three per cent for an extended period, something few have achieved in the past.

“All governments across the country are facing the same challenges,” Gulati said.

Organizations: TD Bank

Geographic location: Ottawa, Ontario, Kananaskis Canada

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Recent comments

  • Neil
    December 17, 2010 - 19:09

    In NL, $12m surplus....come on down to the east coast. THE place to be....come one surpluses.

  • ron
    December 17, 2010 - 10:10

    HYPOCRIT!!!! And he thinks anyone believes what he says.. Ha.. HA.. Trick or Treat

  • CFA
    December 17, 2010 - 09:12

    This from the man who made an absolute pig's breakfast of things in Ontario? The Toronto Star was right to put you in with the 10 top losers of 2010.

  • Jack
    December 17, 2010 - 08:47

    While Jim Flaherty's goal of having all provinces and territories eliminating their deficits, I don't think that will be achievable. Some provinces have huge deficits, notable Prince Edward Island, New Brunswick, Quebec, Ontario, British Columbia, and to a lesser extent, Nova Scotia and Alberta (assuming crude oil futures remain low), meaning eliminating the deficit over five years could be next to impossible. So far, only Nova Scotia seems to make a good effort in trying to eliminate their deficits through HST increases, civil service cuts, elimination of government "March Madness" or spending sprees, user fee increases, and proposed spending cuts in their largest department like health care and education. However, lower natural gas royalties could hurt the province's bottom line, resulting in more pain to Nova Scotian taxpayers. In the meantime, Jim Flaherty should focus on three provinces for his deficit fighting strategy, particularly those with high deficit per capita levels like New Brunswick, Quebec, and Ontario.