Flaherty says March budget projections remain intact
Published Tuesday, May 31, 2011 2:07PM EDT
TORONTO - The federal government's upcoming budget will rely upon the same economic forecasts used in drafting the March budget derailed by an election call, despite some alarming global developments in the weeks since, Finance Minister Jim Flaherty said Tuesday.
"We will not be tweaking the forecasts," Flaherty said after meeting with bank economists in preparation for the delivery of his June 6 budget.
"I was certainly prepared to do that if the private sector economists felt, overall for this year, that that was necessary. They do not."
Flaherty had previously said that one of the few changes to the budget could be an updated economic outlook. But he said Tuesday he's been assured by private sector economists that current projections are largely in line with what had been assumed in the pre-election version.
The budget being delivered next week will look much like the March version. But after Prime Minister Stephen Harper won a parliamentary majority in the May 2 election, the opposition cannot stop its passage in the House of Commons this time around.
A number of global events, including troubling debt situations in the U.S. and Europe, Japan's massive earthquake and the high cost of oil, could threaten a worldwide recovery and even foist another recession on the international economy.
Despite the global risks, Flaherty said he's encouraged by domestic economic growth and signs that business investment is picking up. He added that a slowdown in consumer spending is not a big concern, as it suggests Canadians are consolidating debt.
Flaherty's chief concern is sovereign debt issues in Europe, as officials on the continent debate whether to give more aid to debt-ridden Greece, a eurozone member whose fiscal crisis threatens the stability of the entire European Union.
He also warned that the deficit and debt situations in the U.S. -- Canada's largest trading partner -- could threaten Canada's exports and the larger domestic recovery.
Most importantly, Flaherty said, he wants to avoid the credit shocks seen in the past few years that could sink either one of those important trading partners back into recession. Other risks include the continuing impact of Japan's devastating earthquake and tsunami, which is hurting the auto sector, particularly in Ontario.
At home, the finance minister said more work needs to be done to reduce the unemployment rate, which lingers around 7.6 per cent -- higher than it was before the recession hit. The corporate sector will be responsible for economic growth and job creation going forward, as government stimulus spending dries up and consumers tightly guard their budgets, he said.
"This is the time that we really need the private sector to step up to the plate in Canada and invest and grow," Flaherty said.
"Corporations in Canada, generally speaking, are flush with cash, we need them to invest in machinery, invest in commitment, invest in hiring, to help the economy grow this year."
While consumer spending was an important engine of the "modest economic recovery" in Canada, evidence that consumers are consolidating debt is "desirable," he said. Flaherty has repeatedly warned about the perils of taking on too much debt while interest rates remain low.
"We don't want consumers to take on more than they can handle, particularly in residential mortgages, because it's clear that interest rates are not going to go down, they're going to go up -- it's a matter of time."
For the sixth straight announcement date, the central bank said Tuesday the economy is not strong enough for monetary tightening and kept the trendsetting policy rate at one per cent, where it has been since last September.
The central bank gave few hints when it might start raising them again. But in an accompanying statement, the bank did change its advisory on future action, indicating it is anxious to start moving rates closer to their normal levels. The problem, the bank said, is that the conditions are not right yet.