November 13, 2012 / 5:03 PM / in 6 years

Canada pushes back date for wiping out budget deficit

OTTAWA (Reuters) - Canada pushed back the target date to eliminate its federal budget deficit by a year on Tuesday, citing the impact of a weak global economy that has dampened prices for oil and other commodity exports.

The finance department projected federal budget deficits for this year and the following three years that are C$5 billion to C$7 billion bigger than it estimated in the March budget. It now sees a return to a small surplus in 2016-17, a year later than previously planned.

Analysts had largely expected some slippage in the timeline for returning to surplus even though growth forecasts are largely unchanged from March. Finance Minister Jim Flaherty tried to downplay the revisions, saying a surplus would come sooner if not for a C$3 billion buffer against risk he included in the outlook.

“We may or may not need the risk adjustment,” Flaherty told reporters after releasing the revised projections in a speech in Fredericton, New Brunswick. “We’re talking about relatively small amounts of money in the big picture.”

Canada’s fiscal challenges - the current deficit is 1.4 percent of gross domestic product - are manageable compared with those facing the United States and some European nations. The country prided itself on an 11-year string of surpluses prior to the global financial crisis, and the Conservative government has promised to restore a surplus largely through spending cuts.

Flaherty said the fiscal shortfall in the current year would be C$26 billion ($26 billion), up from the previous forecast of C$21.1 billion.

The government expects revenue this year to be C$6.3 billion lower than it projected in March, and revenue will be C$7.2 billion lower per year on average over the medium term. Canada is a leading exporter of crude oil and its economy relies heavily on natural resources exports.

Commodity prices have fallen 7 percent since spring and are expected to remain lower over the medium term, it said.

“Nevertheless, we remain on track to meet our goal to return to balanced budgets over the medium term,” Flaherty said.

Market players were sanguine about the changes.

“The delay of one year in the return to balance, based in part on global risks, does not represent a significant departure from earlier plans, although it highlights the fiscal stance’s continuing vulnerability to global risks,” said Peter Buchanan of CIBC World Markets.


The Canadian outlook assumes the United States will avoid a set of tax hikes and spending cuts known as the “fiscal cliff”. But it does factor in some U.S. fiscal tightening next year.

Flaherty said he is prepared to inject new stimulus into the economy if the U.S. worst-case scenario transpires or if the European debt crisis flares up again.

“We have contingency plans not only with respect to the fiscal cliff, but with respect to the European situation were that to unravel in a disorderly way.”

The government sees the deficit narrowing steadily to C$16.5 billion in 2013-14, C$8.6 billion in 2014-15 and C$1.8 billion in 2015-16.

Ottawa will post a surplus of C$1.7 billion in 2016-17, according to the projections. In March, Flaherty said the deficit would be wiped out in 2015-16.

The federal debt-to-GDP ratio is expected to decline to 28.1 percent in 2017-18 from 33 percent in 2011-12.

When provincial government debt is included as well as the net assets of the country’s public pension plans, the debt-to-GDP ratio is seen at 36.3 percent in 2017, the lowest in the G7 group of rich countries.

The revised outlook assumes growth of at least 2 percent every year. Based on a survey last month of private sector economists, the government forecasts 2.1 percent growth this year, 2.0 percent in 2013 and 2.5 percent in 2014.

($1 = $1.0013 Canadian)

Additional reporting by Alex Paterson in Ottawa; editing by Jeffrey Hodgson, Andrea Ricci and Matthew Lewis

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