Canada says commodity drop hits budget, surplus on track

Mon Oct 29, 2012 2:15pm EDT
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By Louise Egan

OTTAWA (Reuters) - Lower commodity prices are reducing the Canadian government's revenues, Ottawa said on Monday but forecast it will still be able to eliminate its budget deficit in the medium term.

Finance Minister Jim Flaherty said he expects economic growth of at least 2 percent through 2017, which was the consensus of private sector economists surveyed by his office this month. That leaves the Conservative government's overall economic outlook through 2017 unchanged from the forecast in its March budget despite a drop in its growth outlook for 2013.

Sharp downward revisions to the nominal level of gross domestic product, which is not adjusted for inflation, for this year and next were the biggest change in the new forecasts from the government's March outlook. The size of nominal growth has a direct impact on tax revenues.

"We know that the revenues are off. They're not off dramatically, but they're off a bit, and we'll have to adjust for that," Flaherty told reporters.

In a written statement, Flaherty said: "This will have an impact on the fiscal outlook that was presented in Economic Action Plan 2012 (the budget)."

He later downplayed that impact, which will be reflected in a fiscal update due for release later this fall. "The fiscal track is OK, we're still on track to balance (the budget) in the medium term," he said.

Flaherty would not say whether Ottawa still believes it will post a surplus in 2015-16 as it said in March.

Canada recovered more quickly from the last recession than did the United States and other major economies, helped by a sound banking system, robust consumer spending and a heated housing market.   Continued...

Canada's Finance Minister Jim Flaherty pauses during a news conference in Ottawa October 18, 2012. REUTERS/Chris Wattie