Canada's deficit said permanent unless tackled now

Wed Jan 13, 2010 1:32pm EST
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OTTAWA (Reuters) - Canada faces a long-term budget deficit that will only grow bigger if not addressed now as the population ages and revenues get squeezed by tax cuts, the parliamentary budget officer said on Wednesday.

Budget Officer Kevin Page raised the alarm about Ottawa's deteriorating fiscal health, a politically hot issue for the minority Conservative government, as Finance Minister Jim Flaherty prepares his next budget for March 4.

Page warned that unless politicians set clear targets for debt levels, the country is headed back to the crippling deficits, last seen in the early 1990s.

"We do not want to go back there," Page told reporters after releasing a report explaining his projections.

"We know what it's like to be in a mess, we know what a drag it produced on our economy. If you look at what happened in Japan in the 1990s ... the United States' situation right now, the U.K. situation ... it's not sustainable," he said.

Page's mandate is to assess the fiscal impact of policies and proposals for members of Parliament.

Page reiterated projections he made last November that Canada's economy will not return to its full potential until 2013 -- two years later than the Bank of Canada's view -- and that the government will carry a structural deficit of C$19 billion ($18.5 billion) in 2013-14.

The Conservative government, which estimates a deficit of about C$5 billion in 2014-15, has repeatedly said it can balance the books in the medium term through a combination of allowing stimulus programs to expire, economic growth and possibly some spending restraint if needed.

Page believes the government has underestimated the portion of the overall deficit that is structural, or permanent.

($1=$1.03 Canadian)

(Reporting by Louise Egan; editing by Peter Galloway)

<p>Canada's Parliamentary Budget Officer Kevin Page waits to testify before the Commons finance committee on Parliament Hill in Ottawa November 3, 2009. REUTERS/Chris Wattie</p>