January 22, 2009 / 7:31 PM / in 9 years

Ottawa sees C$64 billion in deficits over two years

OTTAWA (Reuters) - Canada will post C$64 billion in deficits over the next two fiscal years to stimulate a flagging economy but it will return to surplus in five years, a senior government official said on Thursday.

<p>The Parliament Building is framed through a gate on Parliament Hill in Ottawa, November 13, 2003. REUTERS/Chris Wattie</p>

The deficits will mark an end to more than a decade of surpluses for Canada, which had been the only member of the Group of Seven leading industrialized nations still in the black.

The official, an aide to Prime Minster Stephen Harper, said the deficit would be C$34 billion in the fiscal year starting April 1 and C$30 billion the following year, and deficits would dwindle thereafter.

“The world economy has been thrown into a crisis that we can address but whose effects we cannot escape,” said the aide, briefing reporters ahead of the minority Conservative government’s annual budget, which it will deliver on Tuesday.

“We did not start the economic crisis but we will take steps to protect the jobs of today while running our economy to create the jobs of tomorrow.”

The last time Canada ran a deficit was in 1996-97. Next year’s will be the largest figure since the C$37.5 billion shortfall in 1994-95.

Most of the stimulus spending will be short-term so as to prevent a permanent deficit from emerging, he said.

In the campaign ahead of the October 14 election, Harper had said a deficit could be avoided, but as the global economy worsened he agreed at a summit in Washington the next month to join in concerted international stimulus efforts.

The figure of C$34 billion represents roughly 2 percent of the value of the Canadian economy.

Some economists have recently projected that, even without stimulus efforts, Canada would run a deficit of C$10 billion to C$15 billion. Opposition parties have said they accept the need for short-term deficits but have criticized the government for earlier tax cuts that had eliminated surpluses.

The aide said most of the expected deficits stemmed from measures in the stimulus package.

BMO Nesbitt Burns economist Doug Porter said he saw an underlying deficit of C$10 billion and stimulus of more than C$20 billion or about 1.5 percent of GDP for the coming year.

“This is very close to what I thought would be a reasonable amount of net new stimulus on top of what would’ve been a fairly sizable underlying budget deficit in any event, so I don’t think there’s a big shock here,” he said.

Porter said it would not be enough on its own to pull Canada out of recession, saying the biggest need will be for the U.S. and global economies to stabilize and improve.

“Also, the economy is going to get a big helping hand from the interest rate cuts. Also, consumers get a hand from lower gasoline prices. All those things together should eventually lead to a recovery,” Porter said.

The Harper aide said Ottawa’s revenues -- including corporate and personal taxes -- have been declining with the economic slowdown but as far as he knew the budget for the current fiscal year, which ends March 31, would remain in surplus.

($1=$1.25 Canadian)

Additional reporting by Jennifer Kwan in Toronto; editing by Rob Wilson

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