(Adds comments on manufacturing outlook, innovation)
By Andrea Hopkins
BRAMPTON, Ontario, Oct 2 (Reuters) - Canada's budget deficit for the 2013/14 fiscal year is likely to be C$5.2 billion ($4.6 billion), rather than the C$16.6 billion forecast in February, Prime Minister Stephen Harper said on Thursday.
Harper told a business audience the improvement was due in large part to one-off factors, but did not give details. He said Canada would run a small deficit in the 2014/15 fiscal year before returning to surplus in 2015/16.
"It obviously means we are clearly returning to a balanced position," he said,
"Some of the improvement here, a significant part of it, is due to one-time factors. So you won't see all of this projected into the future, but some of it clearly will be."
Harper said the government would move quickly to implement promises made in the last election campaign in 2011.
Harper's Conservatives, who face an election in October 2015, pledged that once they balanced the budget they would allow couples with children to split their income for tax purposes.
This would particularly help couples where one adult was a high earner paying the maximum tax and the other was bringing in not much money. The couple would each declare half their overall income and be taxed at a lower rate.
The 2011 Conservative platform estimated income splitting, which would apply to couples with children under 18, would cost the government C$2.5 billion annually.
Although the Conservatives have stressed they are the only party that can be trusted to handle the economy, a string of recent polls have suggested they would lose an election to the opposition Liberals if a vote were held now.
Harper said on Thursday he believed that while some job seekers may have challenges finding work in the short term, there are job and skill shortages in many high-skilled fields and in certain parts of the country. Moreover, there will be a longer-term shortage of workers as the baby-boom generation retires.
The prime minister also said there was reason for optimism in manufacturing, which has suffered in recent years as Canada's strong dollar made exports more expensive overseas.
While Canada is not going to be able to compete in the area of low-skilled mass-manufactured products as it once did, Harper said he believed the country was already starting to shift manufacturing to high-end, niche-oriented production that requires innovation.
"Exporters tell me they are seeing that transformation in the manufacturing sector. It was a bit delayed in Canada because for years in Canada we ran a policy on the dollar that frankly ... stopped our manufacturing sector from innovating the way it did in other countries," Harper said. He was referring to Canada's dollar, which was near-parity and even above par with the U.S. dollar in recent years.
"I'm actually quite optimistic for the sector going forward, but it will require ongoing partnerships with government and with research institutions." ($1=$1.12 Canadian) (With additional writing by David Ljunggren; Editing by Chizu Nomiyama, Andre Grenon and Jeffreys Hodgson and Benkoe)