Canada deficit shrinks, reforms spark anger

Thu Mar 29, 2012 5:44pm EDT
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By Louise Egan

OTTAWA (Reuters) - Canada opted for the slow road to a balanced budget and kept spending cuts relatively mild in a cautious budget on Thursday that was nonetheless packed with controversial reforms that ranged from raising the retirement age to fast-tracking approvals for big oil and mining projects.

The Conservative government maintained a promise made last year to eliminate its budget deficit, small by international standards at 1.5 percent of gross domestic product, by the 2015-16 fiscal year after adjusting for promised spending cuts. It cuts discretionary spending by 6.9 percent as of 2014-15, on the low end of expectations.

Analysts say Ottawa could easily close the budget gap a year earlier due to a better-than-expected fiscal performance this year, an improved economic outlook and a contingency cushion built into the numbers.

The budget deficit for the current year ending March 31 is now seen at C$24.9 billion ($24.9 billion), almost C$6 billion lower than estimated in November. That gap will narrow to C$21.1 billion in 2012-13 and continue shrinking until a surplus of C$3.4 billion is reached in 2015-16, according to the government's estimates.

In reality, analysts see an underlying surplus as early as 2014-15 if you strip away the government's C$3 billion downward adjustment for risk to revenues.

"If there are surprises, it's probably to the good side, not the bad side," said Craig Wright, chief economist at the Royal Bank of Canada.

"When you look at fiscal projections, what you like to see is conservative economic assumptions and we've got those. There is a good amount of prudence in the economic projections and there is that adjustment for risk," he said.

The budget was Prime Minister Stephen Harper's first opportunity to present a major new plan since his Conservatives won a decisive majority in the May 2011 election following five years of unstable minority government. Because of the majority, passage of the budget is assured.   Continued...

Canada's Prime Minister Stephen Harper and Finance Minister Jim Flaherty hold copies of the budget as they walk to the House of Commons to deliver the budget on Parliament Hill in Ottawa March 29, 2012. REUTERS/Patrick Doyle