Minister of Finance Jim Flaherty speaks to the media before attending a meeting with provincial and territorial finance ministers in Chelsea, Quebec May 25, 2009. The meeting will focus on the economy, pension plans and employment insurance. REUTERS/Blair GableBLAIR GABLE/Reuters
Finance Minister Jim Flaherty warned yesterday that Ottawa's budget deficit this year will be "substantially more" than projected only four months ago, a disclosure that helps him beat back demands for more spending and readies Canadians for what may be a record level of red ink.
Mr. Flaherty, who revealed this at a meeting of provincial finance ministers seeking help from Ottawa, blamed the ballooning shortfall on an economic slowdown that is "more severe" than expected.
He declined to reveal exactly how much the deficit has grown, though, saying he will hold off until June when he updates Parliament on progress in doling out federal economic stimulus spending.
Ottawa's parliamentary budget watchdog, Kevin Page, estimated yesterday the 2009-10 deficit could hit "in the neighbourhood" of $40-billion - up more than $6-billion from Mr. Flaherty's January forecast of $33.7-billion.
A $40-billion deficit would be record territory for Ottawa and an uncomfortable achievement for the Harper government, which came into office eager to trim public spending.
That level of red ink would be a shade higher than the $39-billion shortfall racked up in 1992-93 under the Mulroney Tory government, which is currently the largest deficit on the federal Finance Department's historical record.
(Canadians may recall that in the early 1990s, deficits were reported as exceeding $40-billion in two separate fiscal years: $41-billion in 1992-93 and $42-billion in 1993-94. But those shortfalls were revised downward in 2003 when Ottawa changed its accounting conventions.)
A bigger deficit, even though it drives up the national debt, is not as big a problem for Ottawa as those of the early 1990s. That's because the economy has grown significantly in the past 16 years and the federal government is therefore better equipped to shoulder rising levels of deficit and debt.
The federal debt today is equal to about 29 per cent of annual economic output - the lowest level among the major advanced economies in the Group of Seven. That means Ottawa can borrow cheaply, making added debt relatively inexpensive to finance.
Mr. Page, the Parliamentary Budget Officer, estimates that the deficit will reach about $40-billion both this fiscal year and the next, 2010-11. He said these pale beside the 1990s' shortfalls - especially given the $1-trillion-plus economy today. "These deficits actually look small."
The Tories chose to telegraph the rising deficit weeks before they release the actual figure in order to lessen its impact when it's ultimately disclosed. It's similar to what they did days before the January budget when Harper officials released deficit projections to the media.
The Conservatives say, however, that they've yet to firm up the deficit figure, which is growing due to rising employment insurance payouts, plunging tax revenue and increasing auto sector aid. They argue it's best to share what they know now rather than holding back until June.
Separately, yesterday, Mr. Flaherty and his provincial counterparts launched a study to tackle concerns that Canadians are ill prepared for retirement.
It's a working group that Alberta Finance Minister Iris Evans says could lead to a new retirement savings scheme for Canadians.
"It could result in another way of saving - perhaps a supplemental to the Canada Pension Plan," she said. "Canadians could be better taken care of in their retirement."
Ontario and other provinces have been pressing Ottawa to take a leading role in a debate over whether governments need to take steps to help Canadians bolster their retirement nest eggs.
The majority of Canadians lack workplace pension plans. Existing company plans and RRSPs have been hard hit by the stock market meltdown.
Ontario Finance Minister Dwight Duncan, whose province was forced to help General Motors of Canada shore up a multibillion pension shortfall, has called the lack of retirement income "a defining issue of our generation" in Canada.
He said he was "absolutely astounded" by the level of consensus among finance ministers on the need to tackle this.
Ted Menzies, parliamentary secretary to the federal Finance Minister, will head the working group. The Conservative MP took pains to dispel any suggestion this could lead to a compulsory savings plan instead of a voluntary one.
"I don't think anyone wants to have a mandatory pension plan … that takes 20 per cent of your wages," he said.
Steven Chase