Parliament's government spending watchdog is predicting deeper budget deficits through at least 2014, casting further doubt on Finance Minister Jim Flaherty's assertion that he will erase a $50.2-billion shortfall in four years.
In a revised forecast, the Office of the Parliamentary Budget Officer, led by former Finance official Kevin Page, says the federal government is on pace to record a $16.7-billion budget deficit in the fiscal year ending March 31, 2014, compared with the $700-million surplus Mr. Flaherty projected in his January budget.
The revisions are based on deteriorating economic conditions that threaten to boost unemployment and reduce tax revenue to levels unforeseen when Mr. Flaherty was crafting his recession-fighting program early this year.
Conservatives played down the latest observations of the budget office, or PBO, saying Mr. Page isn't taking into account planned asset sales and spending reductions. Still, the PBO report will be a boon to Prime Minister Stephen Harper's political opponents who are seeking to discredit the Conservative government's handling of the first recession in almost two decades.
“The Harper government's economic policies are an abject failure,” John McCallum, the Liberal finance critic and a former Bay Street economist, said in a statement released in Ottawa. The PBO wrote the report at the behest of the House of Commons finance committee, which asked for an update at the end of May. The outlook, which will be released publicly later this week, was delivered to committee members Monday. A copy was obtained by The Globe and Mail.
Mr. Harper's government, which created the PBO, has tangled with Mr. Page in recent months over his less than complimentary forecasts. Mr. Flaherty has refused to give Mr. Page's analysis any special weight, referring to him as one forecaster among many.
Mr. Page's latest statement on the country's finances updates previous warnings by his office that the combination of a deeper-than-expected recession and a $40-billion stimulus program made the federal government's pledge to return the federal budget to surplus by 2014 highly suspect.
The economics team at Toronto-Dominion Bank, led by chief economist Don Drummond, another former Finance official, predicted early last month that Mr. Flaherty was on track to record a $19.4-billion budget deficit in 2014 unless he takes serious steps to restrain spending.
“You never say never because you could make the policy adjustments to accomplish it,” Mary Webb, a senior economist at Scotia Capital in Toronto, said of the Finance Minister's promise to balance the budget by 2014. “But it is going to be tough.”
Mr. Flaherty has remained unmoved by the doubts about his exit strategy from the government's recessionary spending binge.
He said as recently as last month that he believes the economy will expand fast enough to allow the government to record a small surplus in the fiscal year beginning April 1, 2013, even as he was forced to increase his deficit forecast for the current fiscal year by 50 per cent to reflect the government's bailouts for General Motors Corp. and Chrysler LLC.
Ted Menzies, Mr. Flaherty's parliamentary secretary and a member of the finance committee, said Monday that the PBO isn't giving fair consideration to the government's pledge to review and reduce spending and to generate at least $2-billion selling government assets.
“It is a projection, so take it for what it is worth,” Mr. Menzies said from Calgary. “We're pretty confident in ours.”
The PBO's latest outlook is based on a survey of 10 private economists in June that concluded Canada's gross domestic product would shrink 2.4 per cent in 2009, according to the average of the estimates. That would be the second-weakest on record dating back to 1962, trailing only a 2.9 per cent contraction in 1982. Mr. Flaherty, who bases his economic outlook on a consensus of private forecasters, determined his January budget with the assumption that Canada's GDP would shrink 0.8 per cent this year.
Canada's economy collapsed last year along with most of those in the developed world, which is now enduring the enduring the deepest recession since the Second World War.
That deterioration is now robbing federal coffers of revenue from the Goods and Services Tax and corporate profits at the same time that employment insurance payments are surging to cover tens of thousands of newly unemployed.
There likely will be 320,000 fewer jobs than Mr. Flaherty expected at the time of the budget, the PBO says in the report.
