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UPDATE 2-Canada PM sees 2008 surplus, won't comment on '09

Fri Oct 17, 2008 3:53pm EDT

(Adds details, background)

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QUEBEC CITY, Quebec, Oct 17 (Reuters) - Canadian Prime Minister Stephen Harper said on Friday that there is no reason to believe Canada's budget would not stay in surplus this fiscal year but declined to comment on next year's figures.

Since the start of the global financial crisis, Harper has insisted the Canadian budget will stay in the black.

Some leading economists are predicting the crisis will cut revenues to such an extent that the government could be forced to run deficits as large at C$10 billion ($8.5 billion) in the next few years.

"I believe, based on everything I've seen so far, that there is no reason why ... we can't maintain a balanced budget this year," Harper told a news conference after talks with French President Nicolas Sarkozy.

"Others are speculating about future years. I don't think we're yet in a position to know all the information in that regard. I think it would be premature to speculate on that. I'll just say very clearly that the government of Canada will maintain responsible fiscal policies," he said.

Going into the red is generally considered to be political suicide in Canada, which in 1993 had a C$39 billion deficit and only managed to eliminate it after years of painful cuts.

Harper, whose Conservatives won Tuesday's general election, last week outlined an economic platform which predicted a C$2.5 billion surplus in 2012-13 versus the C$5.3 billion surplus for that year forecast in the February 2008 budget.

The Conservative platform sees a cumulative surplus from 2009-10 to 2012-13 of C$8.03 billion, versus a budget forecast of C$16.7 billion. It was calculated based on the growth estimates for the budget, which economists now say are too rosy.

"The government of Canada will ensure that whatever we do is in the long-run interests of the Canadian economy," Harper told the news conference.

Last Saturday, when asked which spending plans he would have to cut to avoid a deficit, Harper dismissed the question as a "ridiculous hypothetical scenario".

Harper has promised to deliver a fiscal update by the end of November.

The Canadian Chamber of Commerce says commodity prices have slumped and weaker U.S. demand for goods will hurt Canada's export-oriented economy, while the higher cost of credit and financial market volatility will dampen domestic spending.

During the election campaign, Finance Minister Jim Flaherty said he expects a budget surplus of at least C$3 billion ($2.5 billion) in the 2008-09 fiscal year.

($1=$1.18 Canadian) (Reporting by David Ljunggren; Editing by Peter Galloway)



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