* Seen broadly on track to eliminate deficit in medium term
* Timeline for surplus may slip; economists not concerned
* Ottawa preparing stimulus plan in case of U.S. crisis
By Louise Egan
OTTAWA, Nov 12 Canada will update its budget
forecasts on Tuesday in a report that may show Ottawa is
slightly behind schedule in its plan for eliminating a small
deficit, while also preparing a contingency plan for more
stimulus in case of a U.S. fiscal disaster.
The Conservative government's finance minister, Jim
Flaherty, is scheduled to deliver a speech in Fredericton, New
Brunswick, on Tuesday at 1200 Eastern (1700 GMT). He will unveil
the annual fall fiscal update at the same time, according to a
government official who spoke on condition of anonymity.
Canada prided itself on an 11-year string of budget
surpluses prior to the 2008-09 recession when it slid into
deficit, partly due to stimulus spending and tax cuts.
Although the federal government's fiscal gap is now less
than 2 percent of gross domestic product - tiny in relation to
that of the United States or some European countries - the
government sees returning to surplus as a top priority and has
vowed to do so by the 2015-16 fiscal year by cutting spending
and fostering economic growth.
But more recently, Flaherty has shied away from giving a
precise year for reaching that goal, talking more vaguely about
the "medium term" instead. In late October he said revenues had
been lower than expected and that would affect the fiscal
outlook. Last week he remarked that he was not obsessed about
balancing the books in any particular year.
The government's latest forecast is for a deficit of
C$21.1 billion in the current fiscal year.
Given the current global context, economists see little to
worry about if Canada closes its fiscal gap a year or two later
Doug Porter, deputy chief economist at BMO Capital Markets,
said he would only be concerned if there were "huge changes"
such as deficit projections for upcoming years that are several
billion dollars bigger than previously thought.
Craig Wright, chief economist at Royal Bank of Canada, even
sees a chance of a surprise surplus earlier than expected if the
stars align in Flaherty's favor.
"The plan will likely show the balance in 2015-16 but I
would suggest the risks are to achieving balance earlier rather
than later," he said.
"We are slightly more optimistic than consensus which drives
our projections. As well, prudence is built into the budget and
last year's deficit is modest," he said.
The country's parliamentary budget office estimated last
month there was a 60 percent chance the government would run a
surplus in 2015-16.
Flaherty said last week he is ready with an emergency
spending plan in case the U.S. Congress and the White House do
not agree on how to prevent a set of automatic tax hikes and
spending cuts that would go into effect on Jan. 1 and likely
plunge the country into recession.
If the worst-case scenario came into play, Flaherty would
undoubtedly face resistance from hardliners in his own party who
oppose big government spending. But a recent G20 commitment to
not force through austerity measures if it means stifling growth
would also be fresh in his mind.