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By Rod Nickel
REGINA, Saskatchewan, July 24 (Reuters) - Canada is well on track to realize a balanced budget this year, Prime Minister Stephen Harper reiterated on Friday, saying that an economic slowdown caused by cheap oil prices was not the time to send the country into massive deficits.
The government earlier this year projected a C$1.4 billion ($1.07 billion) surplus, plus a C$1 billion contingency reserve, for fiscal 2015 which began in April.
But the drop in energy prices and the possibility that the economy was in recession in the first half of the year has some questioning whether the budget will be able to stay balanced.
A watchdog report earlier this week forecast a deficit of C$1 billion for the current fiscal year, after using up the reserve.
Nonetheless, the Conservative government, heading for an election in October, has maintained it will balance the books.
"Our budgeting is very conservative and we are well on track to realize a balanced budget this year," Harper told reporters on Friday.
Figures released by the Finance Department earlier this week showed a government surplus of C$3.95 billion in the first two months of the fiscal year.
Harper said the government's policy response has been appropriate, pointing to spending on infrastructure and benefits for families that he said are sustaining economic activity. Some have suggested the government should spend more to stimulate the economy.
"Having a bit of a slowdown because of commodity prices is not a time to plunge the country into massive deficits or to begin hiking taxes," Harper said. "Countries that have done that in response end up in disastrous circumstances." ($1 = 1.3039 Canadian dollars) (Reporting by Rod Nickel, writing by Leah Schnurr; Editing by Chizu Nomiyama)