New reports forecasting a cooling housing market and slower consumer spending tied to record household debt suggest the Conservative government can't count on growth to give them an easy ride to a balanced budget.
Erasing Canada's deficit by 2015 - as first promised by Prime Minister Stephen Harper during this year's election campaign - will require a mix of spending cuts and economic growth.
But the Parliamentary Budget Officer released a report this week questioning whether promised spending cuts will materialize, and a new update from TD Economics warns that Canada's growth spurt is about to cool.
The news led NDP Leader Jack Layton to urge more caution when it comes to government cuts for fear of hurting employment and economic growth.
"Here we have the government jumping very quickly to a program of restraint, but we have some indications that the economy could be stalling or in some difficulty," Mr. Layton said.
TD Bank's quarterly economic forecast said economic growth in Canada has peaked as households focus on debt reduction and governments phase out stimulus spending. Releasing its first growth projections for 2013, TD Economics forecasts real GDP growth of 2.1 per cent. That's below the 2.7 per cent average forecast from private-sector economists produced in March that was used as the foundation of the numbers in this month's federal budget.
TD is not alone in seeing slower growth on the horizon. The Bank of Canada has also forecast 2.1 per cent GDP growth for 2013, while the PBO issued a report this month anticipating 2.3 per cent growth.
TD chief economist Craig Alexander said higher growth and lower-than-expected interest rates could help Ottawa beat its $29.6-billion deficit target for this year, but after that, he's forecasting slower growth than the government is counting on.
"I think the government should consider options as to how to respond if the tax revenues don't come in as anticipated," Mr. Alexander said in an interview.
Meanwhile, a report on the world economy released on Tuesday by the Organization for Economic Co-operation and Development urges Canada's federal and provincial governments to deliver on cost-cutting pledges.
"Achieving these [federal]plans will require significant expenditure restraint compared to the previous decade, which will entail curbing public-sector compensation and defence spending," it states. A third report released on Tuesday - from the Certified General Accountants Association of Canada - warned household debt in Canada has hit a record high of $1.5-trillion.
The government has so far revealed few of its planned cuts.
Opposition questions on Tuesday focused on Fisheries and Oceans cuts that include closing a search and rescue dispatch centre in Newfoundland and the fact that the minister in charge of restraint - Treasury Board President Tony Clement - is under fire over an Auditor-General's report criticizing the way cabinet doled out G8 legacy projects in his riding of Parry Sound-Muskoka.
Mr. Clement does not answer any questions in the Commons about the Auditor-General's report, but responded on the lack of detail coming from the government about what will be cut.
"We have a strong mandate to eliminate the deficit by 2014-15. We intend to do just that," Mr. Clement said. "Internal services, capital and personnel costs are part of the operating budgets that are being reduced and, in fact, the numbers do add up."
That answer didn't stop New Democratic MP Charlie Angus from suggesting Mr. Clement's connection to the G8 spending spree makes him the wrong man to lead Ottawa's restraint effort.
"It's like putting Dracula in charge of the blood bank," he said.Report Typo/Error