Canada may cut spending more to tackle deficit: Flaherty

Fri Mar 1, 2013 3:39pm EST
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By Louise Egan and Randall Palmer

OTTAWA (Reuters) - Slow Canadian economic growth means the government will have lower revenues than initially forecast in drawing up the next budget and some ministries may need to cut spending further, Finance Minister Jim Flaherty said on Friday.

He said he continues to plan to eliminate the federal government's relatively small deficit by 2015 in spite of the bigger obstacles.

"We also look at program spending, that's true too. And we can do some more tightening there if necessary," he told reporters when asked how he would adapt the budget to account for weaker-than-expected growth.

"But we start with a premise that we're going to balance the budget in 2015 and it may need some more sacrifice in budgeting among various ministries of the government," he said.

Canada said goodbye to over a decade of budget surpluses during the global financial crisis when it pumped stimulus cash into the economy and felt the effects of previously announced tax cuts. The ruling Conservatives expect a deficit of about C$25 billion in the 2012-13 fiscal year, or about 1.4 percent of the size of the economy, and have vowed to balance the books in time for the next election in 2015.

Flaherty, who said continued deficits are "not an option", expressed frustration at Washington's inability to come up with a credible fiscal plan, speaking as the White House and congressional leaders failed to reach a deal to avoid $85 billion in spending cuts, also known as the "sequester.

Ottawa says the cuts will shave 0.4 percentage point off U.S. growth. Flaherty could not say what the impact would be on Canada, but said it was unlikely to be huge as long as the U.S. economy is growing. The bigger threat to global stability right now is Europe, he said.

Flaherty was speaking after data on Friday showed sluggish Canadian economic growth in the fourth quarter for the weakest six months since the recession.   Continued...

Canada's Finance Minister Jim Flaherty speaks during Question Period in the House of Commons on Parliament Hill in Ottawa February 26, 2013. REUTERS/Chris Wattie