UPDATE 1-Canada budget to show revenues C$2.1 bln lower than forecast

Mon Mar 18, 2013 11:17am EDT
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* Nominal GDP forecast cut to 3.3 pct from 4 pct-official

* Real GDP growth falls to 1.6 pct from 2 pct

* Gov't likely to cut spending to offset lower revenue

By Louise Egan

OTTAWA, March 18 (Reuters) - The Canadian government's budget on Thursday will grapple with how to compensate for a C$2.1 billion ($2.06 billion) drop in revenues, a government official said on Monday.

The official, who declined to be named, said the C$2.1 billion figure is based on a cut to a 2013 government forecast for nominal gross domestic product to 3.3 percent from an earlier forecast 4 percent.

Nominal GDP is the broadest measure of the tax base. The general rule used by the federal government is that for every 1 percent drop in nominal GDP, revenues take a C$3 billion hit.

The outlook for real GDP growth is also weaker and is now seen at 1.6 percent, compared with 2.0 percent previously, the official said.

The federal government bases its fiscal projections on the average forecast of a group of private sector economists. Finance Minister Jim Flaherty met with the economists earlier this month but did not divulge their numbers.   Continued...