Canada says to cut fiscal deficit in medium term

Tue Jan 26, 2010 2:38pm EST
 
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By Nicole Mordant

VANCOUVER (Reuters) - The Canadian government will eliminate its budget deficit in the medium term, a senior finance official said on Tuesday, despite the doubts some economists have raised about that goal.

The minority Conservative government, which risks upsetting voters by slipping into a deficit after a decade of surpluses, has said it hopes to balance the books mainly through economic growth and the phasing out of extraordinary stimulus spending.

Unlike U.S. President Barack Obama, Prime Minister Stephen Harper has promised to allow spending to continue to grow but said he would restrain the rate of that growth if necessary.

The reliance on a return to historical growth rates of about 3 percent could be problematic. Bank of Canada Governor Mark Carney said this month that the economy is unlikely to grow by more than 2 percent beyond 2011 unless productivity improves.

"We've seen a lot of different numbers. That's all part of the process," Ted Menzies, parliamentary secretary to the minister of finance, told reporters.

"The important thing is that we are growing. I think that's critical, that we recognize that it's going to be a difficult challenge and we will be balancing the budget in the medium term," he said.

Canada's independent budget officer warned this month that, according to his team's calculations, Ottawa is headed for a structural budget deficit of C$19 billion ($17.9 billion) even with a bounceback in growth.

Other economists have said that without tax hikes or major spending cuts, a return to surplus looks unlikely.   Continued...

 
<p>Finance Minister Jim Flaherty on Parliament Hill, June 16, 2009. REUTERS/Chris Wattie</p>