March 18, 2013 / 2:43 PM / 5 years ago

Canada budget to show revenues Canadian $2.1 billion lower than forecast

OTTAWA (Reuters) - The Canadian government’s budget on Thursday will grapple with how to compensate for a C$2.1 billion ($2.06 billion) drop in revenues, a government official said on Monday.

The official, who declined to be named, said the C$2.1 billion figure is based on a cut to a 2013 government forecast for nominal gross domestic product to 3.3 percent from an earlier forecast 4 percent.

Nominal GDP is the broadest measure of the tax base. The general rule used by the federal government is that for every 1 percent drop in nominal GDP, revenues take a C$3 billion hit.

The outlook for real GDP growth is also weaker and is now seen at 1.6 percent, compared with 2.0 percent previously, the official said.

The federal government bases its fiscal projections on the average forecast of a group of private sector economists. Finance Minister Jim Flaherty met with the economists earlier this month but did not divulge their numbers.

Flaherty has hinted at further cuts to direct government spending on programs and services to offset possible revenue shortfalls, but has said Ottawa will not touch transfer payments to provincial governments or to individuals.

He said last week the lower growth outlook was a short-term concern rather than a longer-term worry.

($1=$1.02 Canadian)

With additional writing by Jeffrey Hodgson; Editing by Peter Galloway

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