PM's budget law limits options as Canada flirts with recession

Fri Jul 24, 2015 5:39pm EDT
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By Leah Schnurr

OTTAWA, July 24 (Reuters) - Canada's Conservative government may have tied its own hands by launching anti-deficit legislation just as the global oil price shock was pushing the country to the edge of recession.

What had seemed like a prudent measure now means Prime Minister Stephen Harper has less room to maneuver just months from an election, even if he wanted to.

Final data has not been published, but the economy likely shrank in the first two quarters of 2015, sparking calls by some for fiscal stimulus.

Mostafa Askari, assistant Parliamentary Budget Officer, said the law doesn't appear to allow for the government to respond to slow growth outside of a recession.

"In those cases, one would expect that the government should have the flexibility to respond to that and run a deficit," Askari said.

Harper, who forecast a balanced budget for 2015-16 following years of deficit, has said he will not risk that hard-won balance, betting fiscal prudence will help him win re-election in October. Harper's Conservatives are trailing in the polls to the left-leaning opposition.

Harper repeated that target on Friday, two days after a Parliamentary watchdog forecast the country would run a deficit this fiscal year.

The finance minister's spokesman said the latest budget included room to account for global weakness.   Continued...