January 21, 2009 / 5:17 PM / in 9 years

Budget officer raises deficit estimate

OTTAWA (Reuters) - Canada’s budget deficit is likely to total at least C$13 billion ($10.2 billion) in the 2009-10 fiscal year, or 0.8 percent of gross domestic product, before any stimulus measures are taken, the parliamentary budget officer said on Wednesday.

The new estimate compares with the officer’s estimate last November of a deficit of C$3.9 billion for the same period.

To avoid a long-term structural deficit, the Conservative government’s upcoming budget should avoid any permanent measures, such as permanent tax cuts, that cost more than C$6 billion annually, according to briefing notes published by Kevin Page, Canada’s independent budget officer.

The rapidly worsening outlook for the Canadian economy -- the average private sector forecast now calls for the economy to contract 0.8 percent this year -- led Page to predict cumulative budget deficits of C$46 billion from 2009-10 to 2013-14.

Since the PBO’s November 2008 report, “the near-term outlook for the Canadian economy has weakened further and is projected to remain below its potential capacity over 2008-2013,” Page said.

That represents C$20,000 in lost income for every household in that period, he said.

And the deficit could be as high as C$21 billion annually if the situation deteriorates further.

“PBO currently judges that the balance of risks to its fiscal outlook is tilted to the downside, reflecting the possibility of weaker-than-expected economic performance and relatively optimistic assumptions about corporate profits,” it said.

Page said preliminary estimates show the government has a structural surplus of about C$6 billion. “Thus, any permanent fiscal actions (e.g., permanent tax cuts or permanent spending increases) exceeding $6 billion annually would likely result in structural deficits, limiting the government’s ability to manage future cost pressures due to, for example, population aging,” he said.

Finance Minister Jim Flaherty will present his budget for 2009-10 to Parliament on January 27. The spending plan is expected to contain C$20 billion to C$30 billion in stimulus spending and end a 12-year string of budget surpluses.

($1=$1.27 Canadian)

Reporting by Louise Egan; editing by Peter Galloway

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