OTTAWA - The federal government is not in as big a financial hole as it thought two months ago, but it will be in a bigger one at the end of this year.
That's the major fiscal change in the federal budget re-issued by Finance Minister Jim Flaherty on Monday, a document that largely reprises the failed March 22 budget.
Flaherty has been saying for weeks that the new budget would be much like the old one, and he wasn't kidding. Most of the changes are in the margins, but the broad targets of the government remain the same.
Ottawa now expects to post a significantly lower deficit for the 2010-11 fiscal year -- $36.2 billion, which is $4.3 billion less than it forecast in March and a whopping $19.4 billion less than the previous year.
But what the government receives on one hand because of lower costs, it will mostly give away this year because of higher spending, including $2.2 billion in compensation to Quebec for harmonizing its sales tax and additional roll-over stimulus costs originally booked for previous year.
It will also pocket almost $1 billion less in what it calls "other comprehensive income" largely due to the recent drop in the value of General Motors shares it holds.
The bottom line is that this year's deficit, for 2011-2012, will rise to $32.3 billion-- $2.7 billion more than estimated in the March 22 budget.
Flaherty said he still plans to reach balance in four years, one year earlier than the budget actually indicates. That's thanks to anticipated savings from a strategic and operating review which starts this year and aims to trim spending by $4 billion a year by 2015.
"Canadians have said yes to a disciplined and measured plan to control government spending and eliminate the deficit," Flaherty told the House of Commons, referring to the May 2 election result that gave the Conservatives their first majority.
"We humbly thank Canadians for the trust they placed in us last month. The (budget) is unwavering evidence that this government will honour the commitments we made to them."
If there is a surprise in the budget it's that Flaherty makes little provisions for what many economists have identified as a darkening horizon for the U.S. and global economies, which will likely also impact Canada.
The budget concedes economic conditions have deteriorated since March. The U.S. economy appears close to having stalled, the repercussions of the Japanese disaster are only now emerging, and the debt problems in weaker European economies have intensified.
But the government believes the stronger-than-expected economic performance in Canada during the last three months of 2010 and the first three of 2011 has compensated for what looks like a weaker second half of the year. So it is sticking to the March projections of real growth of 2.9 per cent this year and 2.5 next.
Parliamentary budget officer Kevin Page said last week that could be a mistake -- he thinks growth will come in at only 2.2 per cent in 2012.
But Flaherty said he is already discounting some of the froth from the private sector forecast, by $10 billion a year in revenues, so the fiscal projections can withstand a more disappointing economy.
The minister has not taken precautions for a disastrous turn in the global situation, such as a repeat of the 2008 crisis, but analysts say that is still a high improbability, on which no government bases its fiscal projection.
