Canada pushes back date for wiping out budget deficit

Tue Nov 13, 2012 3:08pm EST
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By Louise Egan

OTTAWA (Reuters) - Canada pushed back the target date to eliminate its federal budget deficit by a year on Tuesday, citing the impact of a weak global economy that has dampened prices for oil and other commodity exports.

The finance department projected federal budget deficits for this year and the following three years that are C$5 billion to C$7 billion bigger than it estimated in the March budget. It now sees a return to a small surplus in 2016-17, a year later than previously planned.

Analysts had largely expected some slippage in the timeline for returning to surplus even though growth forecasts are largely unchanged from March. Finance Minister Jim Flaherty tried to downplay the revisions, saying a surplus would come sooner if not for a C$3 billion buffer against risk he included in the outlook.

"We may or may not need the risk adjustment," Flaherty told reporters after releasing the revised projections in a speech in Fredericton, New Brunswick. "We're talking about relatively small amounts of money in the big picture."

Canada's fiscal challenges - the current deficit is 1.4 percent of gross domestic product - are manageable compared with those facing the United States and some European nations. The country prided itself on an 11-year string of surpluses prior to the global financial crisis, and the Conservative government has promised to restore a surplus largely through spending cuts.

Flaherty said the fiscal shortfall in the current year would be C$26 billion ($26 billion), up from the previous forecast of C$21.1 billion.

The government expects revenue this year to be C$6.3 billion lower than it projected in March, and revenue will be C$7.2 billion lower per year on average over the medium term. Canada is a leading exporter of crude oil and its economy relies heavily on natural resources exports.

Commodity prices have fallen 7 percent since spring and are expected to remain lower over the medium term, it said.   Continued...