December 22, 2009 / 10:38 PM / in 8 years

Flaherty says budget to look at restoring balance

OTTAWA (Reuters) - The Canadian government intends to maintain its economic stimulus into 2011, but its next budget will look at how to return to fiscal balance, Finance Minister Jim Flaherty told Reuters in an interview.

<p>Canada's Finance Minister Jim Flaherty speaks during an interview with Reuters in Ottawa December 21, 2009. REUTERS/Chris Wattie</p>

“I expect we’ll set out some indicators about how we’ll move the country back toward balanced budgets over the course of several years,” he said on Monday in a year-end interview that was held for release on Tuesday.

Alone among the Group of Seven leading industrialized nations, Canada ran surpluses for more than a decade, but moved into deficit in the last fiscal year amid a stimulus program designed to pull the economy out of recession.

Flaherty said the deficit for the year that ends March 31 remains on track to be near the C$55.9 billion ($52.7 billion) previously forecast, with growth around 2.3 percent for 2010.

In November he projected a small deficit of C$5.2 billion in 2014-15, but he told Reuters that it was reasonable to expect a balanced budget by then.

He said the next budget would be unlikely to come before the Vancouver Olympics, which end on February 28, suggesting a March announcement about government spending plans.

“It’ll primarily be a stay-the-course budget. I think that’s what the country needs right now and what the country expects,” he said.

Flaherty said Canada’s economic prospects for next year are relatively good, reflecting encouraging retail sales and business confidence, rebounding auto sales that have let General Motors Co start repaying its government bailout, and unemployment that is starting to stabilize.

But he admitted there were still only “limited indications” of the private-sector demand that the economy will need.

“There are some positive signs. I‘m still worried about the size of the deficit in the United States ... the fact that we still have some European banks with toxic assets that have not yet been dealt with, some weakness still in some of the banking systems in the world,” he said.

“So we could have some more bumps along the road.”

Asked if Canada could see a double-dip recession, where the economy recovers, only to slide back again, he said: “We’re certainly going to continue with the economic stimulus to minimize that possibility.”

It went against the Conservative government’s grain to embark on big spending projects and allow budget deficits to fight the recession, but Flaherty said it was necessary.

Asked if he was now a Keynesian, a follower of John Maynard Keynes’s idea that governments should stimulate the economy with deficits in bad times and run surpluses in good times, he chuckled: “Not really.”

“People used to think of me ... as a fairly right-wing conservative,” he said. “When it comes to economics, I’ve always been pragmatic. And that is, if you see a serious recession, which we saw, public demand has to replace private demand when private demand dries up.”

($1=$1.06 Canadian)

Editing by Janet Guttsman

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