Federal Finance Minister Jim Flaherty. — Canadian Press photo
OTTAWA, Ont. — Canada will miss its deficit targets in each of the next four years, because global economic weakness has carved into commodity prices and tax revenues, Finance Minister Jim Flaherty said today.
His fall economic update showed a bottom line worse than many expected, with the deficit at $26 billion, up $5 billion from the March budget forecast.
Flaherty also said it will take a year longer than predicted to balance the budget.
“Canada has clearly been affected by volatile and falling world commodity prices since the budget in late March,” he said in notes for a speech to a Fredericton business audience.
“And the forecast of private sector economists is consistent with the view that world commodity prices will remain below the level anticipated at the time of the budget.”
Because of the weakness, the government expects revenues to be on average $7.2 billion below what it had counted on in the budget during the five-year horizon period.
Flaherty made clear that he remains on track in keeping government costs down. Program expenses edge down as a percentage of the country’s gross domestic product during the period.
But the numbers show the government can’t overcome the lower revenues, which were first noticed in the final accounts of last year’s budget period. They carry on this year and into future years.
Ottawa now projects its deficit will rise to $26 billion this fiscal year, which ends in March, as opposed to the predicted $21.1 billion. Going forward, the deficit is now projected at $16.5 billion next year, compared with the budget estimate of $10.2 billion, and $8.6 billion in 2014-15, as opposed to $1.3 billion.
The March budget anticipated a $3.4 billion surplus in 2015-16, but now Flaherty expects a $1.8 billion deficit that year. The new calculation is that Ottawa will finally show a surplus of $1.7 billion in 2016-17.
The projections do include a $3 billion margin of error, or so called “risk adjustment,” so it is possible that Ottawa could still come in on target if those risks do not materialize, or if the economy performs better than expected.
In his speech, Flaherty cautioned that the world is full of risks and again expresses concern about a U.S. fiscal crisis if Congress and re-elected President Barack Obama cannot come to an agreement before Jan. 1.
But he also said there is also some cause for optimism, in which case both the Canadian economy and government finances will improve.
“Growth in Canada could be significantly stronger than expected if the United States policy-makers are able to reach an agreement to avoid the fiscal cliff in 2013, while implementing a medium-term plan to reduce their debt and deficit,” he said.
OTTAWA — Canadians can expect more clarity on the country’s economic affairs today as Finance Minister Jim Flaherty issues a mid-term fiscal report card.
The fall economic update is likely to show a modest deterioration in the government’s finances but isn’t expected to carry any major surprises.
A senior government source has said no new tax or spend measures are anticipated.
Last month, Flaherty said government revenues were lower than expected due to an average five per cent drop in the global price of the resource commodities Canada exports to the world.
TD Bank has calculated that revenues would be about $1.8 billion lower than projected this fiscal year, which ends March 31. That may lead to a modest short-term hit on Ottawa’s bottom line.
Flaherty may also build in a bigger margin for risk on his deficit projections given that he has described the global economic outlook as uncertain and risky.
That could delay — on paper at least — the government’s timeline for eliminating the deficit.
In the budget, Flaherty had pencilled a $21.1-billion shortfall this fiscal year, followed by deficits of $10.2 billion and $1.3 billion in the subsequent two years. The 2015-16 fiscal year would see a surplus for the first time in almost a decade.
Flaherty has said he still expects to meet his target for balancing the budget in the medium term, but hasn’t been specific about whether that would occur in the 2015-16 budget.
Today’s economic update will be released at noon Eastern Time in Ottawa and in Fredericton, where Flaherty will be speaking to the local chamber of commerce.