Flaherty promises balanced budget despite falling revenues
Published Monday, October 29, 2012 9:48AM EDT
Last Updated Monday, October 29, 2012 6:37PM EDT
The federal government is projected to take in nearly $2 billion less in tax revenues in the near term due to lower commodity prices, but Finance Minister Jim Flaherty still projects he will balance the budget in 2015-16.
After meeting in Ottawa with a group of private sector economists Monday, Flaherty said Canada’s GDP will be $21 billion lower than expected this year, and $29 billion lower over the next two years.
That translates to about $1.8 billion less in tax revenue for federal coffers, according to TD Bank chief economist Craig Alexander.
Flaherty said he can still meet his goal of balancing the budget if a clamp-down on government spending remains on target, and due to a prudence write-down, both of which were set out in the March budget.
Flaherty acknowledged that ongoing weakness in the global economy has resulted in slowing demand for commodities such as oil, gas and metals, which in turn has caused prices to be about five per cent less than projected.
But he said nothing about Monday’s meeting has made him consider changing the government’s fiscal plan.
“We’re doing okay. We’re not sick,” Flaherty told CTV’s Power Play on Monday, saying despite downward pressure on revenues, the government remains on track to balance the budget “in the medium term.”
Monday’s meeting produced a consensus forecast by the economists that will be the basis of the government’s fall update, which Flaherty said he will have ready in a few weeks.
The economists predicted growth to be about 2.1 per cent this year, 2.0 per cent in 2013 and 2.5 per cent in 2014.
“In the global context, Canada is doing reasonably well,” Carlos Leitao, chief economist at Laurentian Bank Securities, told Power Play.” Other than the impact on commodity prices and the impact on nominal GDP, the rest of the economic outlook…is on track.”
But the Parliamentary Budget Officer released figures Monday with a slightly less optimistic outlook. Kevin Page said he puts growth at about 1.9 per cent this year, 1.5 per cent next year and 2 per cent in 2014.
He was close to the economists on nominal growth, however, predicting GDP to be $22 billion less annually.
Page said he predicts that Flaherty has about a 60 per cent chance of balancing the budget by his target.
"Since budgetary revenues are increasing at a faster pace than total expenses, the budgetary balance improves steadily over the medium term from a deficit of $18.1 billion in 2012-13 to a surplus of $13.8 billion in 2017-18," Page said.
With files from The Canadian Press