Canada may speed up debt payments once budget is balanced

Wed May 14, 2014 8:53pm EDT
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OTTAWA May 14 (Reuters) - Canada's Conservative government will consider allocating some of its projected budget surplus to paying down debt, Finance Minister Joe Oliver said on Wednesday.

Ottawa expects to eliminate its budget deficit next year ahead of an October 2015 election. Prime Minister Stephen Harper has promised since 2011 to use the surplus to cut income taxes for families, although the government now says final decisions will only be taken after consulting with Canadians.

Oliver, speaking to the entire House of Commons in a special question-and-answer session, signaled there might be a mix of tax cuts and debt payments.

"When we get out of the deficit situation and move to a surplus next year, the growth of the economy will of course, over time, reduce the ratio of debt to GDP," Oliver said.

"That is even without the money allocated to the new payment of debt, which is something that we'll be considering as well next year," he said.

The federal government is projected to post a budget deficit of C$2.9 billion ($2.7 billion) in the fiscal year ending March 31, 2015 followed by a surplus of C$6.4 billion the following year.

Oliver also said the biggest risks to the Canadian economy were external, citing low growth and inflation in Europe, the spillover effects of the normalization of U.S. monetary policy and the possibility that the U.S. economic growth will be slower than expected this year.

"The key risks to Canada's outlook remain external and tilted to the downside," said Oliver. "The risk of a sovereign debt crisis has declined but it has not been eliminated."

"There is a risk that the projected pickup in U.S. growth during the remainder of this year could be lower than expected.

($1 = $1.09 Canadian) (Reporting by Louise Egan; Editing by Lisa Shumaker)