Budget watchdog urges clearer fiscal targets

Thu Jun 2, 2011 9:11am EDT
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By Louise Egan

OTTAWA (Reuters) - Canada needs to put forward a more credible austerity package this year and next in order to prevent a structural budget deficit in the longer term, the country's budget watchdog said on Wednesday.

Kevin Page, the parliamentary budget officer, sees the fiscal deficit shrinking quickly over the next six years due to economic growth and the withdrawal of stimulus.

The government has promised to balance the budget by 2014-15 partly by cutting C$11 billion ($11.2 billion) from government operating costs. But it hasn't clearly spelled out how it will restrain spending nor has it set any more specific annual or medium-term targets, to which it can be held accountable.

"We seem to have thrown the fiscal rules out when the recession hit," Page told Reuters in an interview. "We use to have a 25 percent debt-to-GDP target in the medium term ... this government got rid of prudence reserves," he said.

"We will focus on austerity. Do we have a good austerity package? ... What are the risks around that package? Is there transparency?"

Page warned that unless the newly elected majority Conservative government takes steps during its four-year mandate to address the long-term issues of an aging population and dismal productivity, it will continue to suffer funding problems well into the future.

One major headache facing the Conservatives is upcoming negotiations over payments to provincial governments for healthcare costs, which are rising as baby boomers age.

A 10-year accord that increased these transfer payments by 6 percent a year ends in 2014 and many experts think funding cannot continue to rise at that rate without spending cuts elsewhere.   Continued...

<p>Parliamentary Budget Officer Kevin Page listens to a journalist's question during a news conference in Ottawa October 9, 2008. REUTERS/Christopher Pike</p>