November 13, 2012 / 5:50 PM / in 5 years

UPDATE 3-Canada pushes back date for wiping out budget deficit

* Gov’t sees balanced budget not earlier than 2016-17

* Deficits seen slightly higher for next four years

* Weaker commodity prices, lower revenues spur new projection

* Ottawa maps contingency plan for shocks from U.S., Europe

* Opposition says Ottawa ignoring “warning signs”

By Louise Egan

OTTAWA, Nov 13 (Reuters) - Canada’s government pushed back the target date for eliminating its budget deficit by a year on Tuesday, citing a weak global economy that has dampened prices for its exports of oil and other commodities.

The finance department projected federal budget deficits for this year and the following three years that are C$5 billion ($5 billion) to C$7 billion bigger than the government estimated in its March budget. It now sees a return to a small surplus in 2016-17, a year later than it had planned.

Analysts had expected some slippage in the timetable even though economic growth forecasts are largely unchanged from the March budget. Finance Minister Jim Flaherty tried to downplay the revisions, saying a surplus would come sooner if not for a C$3 billion buffer against risk he included in the outlook.

“We may or may not need the risk adjustment,” Flaherty told reporters after releasing the revised projections in a speech in Fredericton, New Brunswick. “We’re talking about relatively small amounts of money in the big picture.”

Canada’s fiscal challenges - the current deficit is 1.4 percent of gross domestic product - are manageable compared with those facing the United States and some European nations. The country prided itself on an 11-year string of budget surpluses before the global financial crisis, and the Conservative government has promised to restore a surplus largely through a controversial plan to cut 19,000 government jobs.

Flaherty said the fiscal shortfall for the current year would be C$26 billion ($26 billion), up from a previous forecast of C$21.1 billion.

The government expects revenue this year to be C$6.3 billion lower than it projected in March, and to be C$7.2 billion lower per year on average over the medium term. Canada is a leading exporter of crude oil and its economy relies heavily on natural resources exports.

Commodity prices have fallen 7 percent since spring and are expected to remain lower over the medium term, it said.

“Nevertheless, we remain on track to meet our goal to return to balanced budgets over the medium term,” Flaherty said.

Market players saw the changes as part of a necessary balancing of austerity and growth, but warned of the risks in postponing the balanced-budget target for the second year in a row.

In November 2011, the government pushed back its promised date to balance the budget by a year to 2015-16 from 2014-15.

“If there’s a third consecutive year of slippage without any offsetting policy response, the government’s credibility could be called into question,” said Michael Gregory, an economist with BMO Capital Markets.

The main opposition, the New Democratic Party (NDP), accused the Conservatives of lurching from budget to budget with no clear plan other than to slash expenditures.

“Once again they’ve missed their target and with reports of slowing growth and persistent double digit unemployment in some parts of the country we think that they’re just ignoring the warning signs,” said Peggy Nash, an NDP lawmaker and spokeswoman on finance issues.

“They’re going full-speed ahead with the cuts that they’re making and they’re not adapting their plan to changing circumstances,” she said.


The Canadian outlook assumes the United States will avoid a set of tax hikes and spending cuts known as the “fiscal cliff”, which could spur a recession. But it does factor in some U.S. fiscal tightening next year.

Flaherty said he is prepared to inject new stimulus into the economy if the U.S. worst-case scenario transpires or if the European debt crisis flares up again.

“We have contingency plans not only with respect to the fiscal cliff, but with respect to the European situation were that to unravel in a disorderly way.”

The government sees the deficit narrowing steadily to C$16.5 billion in 2013-14, C$8.6 billion in 2014-15 and C$1.8 billion in 2015-16.

Ottawa will post a surplus of C$1.7 billion in 2016-17, according to the projections. In March, Flaherty said the deficit would be wiped out in 2015-16.

The federal debt-to-GDP ratio is expected to decline to 28.1 percent in 2017-18 from 33 percent in 2011-12.

When provincial government debt is included as well as the net assets of the country’s public pension plans, the debt-to-GDP ratio is seen at 36.3 percent in 2017, the lowest in the G7 group of rich countries.

The revised outlook assumes growth of at least 2 percent every year. Based on a survey last month of private sector economists, the government forecasts 2.1 percent growth this year, 2.0 percent in 2013 and 2.5 percent in 2014.

$1=$1.00 Canadian)

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