Bloomberg News

Flaherty’s Growth Outlook Leaves C$12 Billion Canada Budget Gap

October 26, 2011

Oct. 26 (Bloomberg) -- Canadian Finance Minister Jim Flaherty said he will cut his growth projections when he updates his fiscal plan in coming weeks, in a move that may leave him with C$12 billion ($11.8 billion) less in revenue than he projected in June.

Flaherty’s office released estimates showing economists forecast Canada’s economy will generate C$83 billion less in output between 2011 and 2015 than the government projected in June. That may reduce revenue by about C$12 billion over that period, according to a calculation based on government figures from its June budget that shows the government expects revenue to be about 15 percent of nominal output over that time.

Flaherty, speaking to reporters in Ottawa, said private economists forecast 2011 economic growth of 2.2 percent, compared with their March forecast of 2.9 percent. Flaherty surveys economists for predictions on indicators such as growth and interest rates for his fiscal planning.

The government is still aiming to balance the budget “in the medium term,” Flaherty said. He said he’ll provide more details in a fiscal update “in the next few weeks,” adding “we have some work to do.”

Canada’s governing Conservatives released a fiscal plan in June that pledged to balance the budget by the year beginning April 2014, using spending cuts of up to C$4 billion ($3.9 billion) annually and closing tax loopholes. Canada projects a deficit of C$32.3 billion this year.

“The government is not going to be inflexible,” Flaherty said after meeting economists from banks, universities and research institutes in Ottawa. “If we had to do more in Canada to protect jobs for example, we would of course be flexible about that.”

Recession Risk

Flaherty, who declined to answer specific questions on whether the government still planned a balanced budget by 2014, said European leaders risk triggering another global recession if they fail to resolve their debt crisis. Private sector economists aren’t predicting a recession in Canada, he said.

The Bank of Canada yesterday also lowered its growth projections for the country’s economy, reducing its forecast for Canadian growth this year to 2.1 percent from a 2.8 percent estimate in July, and cut its 2012 outlook to 1.9 percent, down from a 2.6 percent forecast.

Flaherty said the economists downgraded their forecasts by a similar amount, 0.7 percentage points. The economists forecast growth next year at 2.1 percent, down from a March projection of 2.8 percent.

The finance department said Oct. 12 the country’s budget deficit was a smaller-than-forecast C$33.4 billion in the year ended March, C$2.8 billion less than predicted in the June budget because revenue was higher than expected and spending lower.

While the government surveys private-sector economists to generate its growth forecasts, Flaherty has used more conservative projections for growth for planning purposes, citing uncertainties in the global outlook. In his June budget, he used estimates of output that were C$10 billion less than those made by the economists.

--Editors: Paul Badertscher, Vince Golle

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net; David Scanlan at dscanlan@bloomberg.net.


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