Canada sees budget surplus in 2015, warns of risks

Tue Oct 12, 2010 2:15pm EDT
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By Ka Yan Ng and Louise Egan

MISSISSAUGA, Ontario/OTTAWA (Reuters) - Canada predicted on Tuesday it will balance its budget by the 2015-16 fiscal year after posting a record deficit for 2009-10, but warned that the shaky global recovery could spill into Canada and erode tax revenues.

Canada's federal budget deficit for the 2009-10 fiscal year totaled C$55.6 billion ($55.5 billion), or 3.6 percent of gross domestic product, exceeding expectations due to special payments to two major provinces, the finance ministry said in its annual fall update of fiscal and economic projections.

The Conservative government of Prime Minister Stephen Harper had forecast a budget shortfall of C$53.8 billion, or 3.5 percent of gross domestic product, as it poured cash into infrastructure projects and offered tax breaks in an effort to soften the impact of the global financial crisis.

Excluding federal assistance payments to Ontario and British Columbia related to their decision to blend provincial and federal sales taxes, Ottawa said it would have reported a deficit in the fiscal year ended in March that was C$3.8 billion lower than its original forecast.

The government said it would return to a budget surplus in 2015-16. But it highlighted the uncertainty of the global economic outlook and in particular weak demand in the United States, Canada's top export market, and factored these risks into its fiscal and growth numbers.

"These global challenges, particularly the uncertainty surrounding the strength of the U.S. recovery, pose a risk to the Canadian economic and fiscal outlook, particularly over the near term," the report said.

It forecast the deficit would narrow to C$45.4 billion in the current fiscal year, ending in March 2011, and shrink steadily until reaching C$1.7 billion in 2014-15 and a surplus of C$2.6 billion in 2015-16.

Amid signs that economic recovery is losing steam, Finance Minister Jim Flaherty has come under pressure from the political opposition to prolong stimulus spending, or at least be more flexible with a self-imposed deadline of March 31, 2011 for funding infrastructure projects.   Continued...