Deficit means years of restraint

Share

Ottawa's ballooning $50-billion budget deficit has economists warning of growing shortfalls in future years and a danger that Canada won't be able to drag itself out of the red within the 48 months originally promised.

Analysts say this year's swelling deficit - up 50 per cent from the Harper government's forecasts of just four months ago - is a symptom of the deepening recession and not a one-time anomaly. They estimate next year's deficit could jump 30 per cent over projections, to $40-billion from nearly $30-billion.

As well, economists say that eliminating the deficit by 2013-14, as the Conservatives pledge, could require tax hikes or a significant government restraint program featuring billions of dollars in spending cuts.

"We're too far away from balance to get there just relying on the rebound in the economy," said BMO Nesbitt Burns deputy chief economist Douglas Porter.

Toronto Dominion Bank chief economist Don Drummond, a former Finance Department official, said he thinks it will take five to seven years to return to balanced budgets and "five would be pretty aggressive."

The economic warnings came as the Conservatives faced efforts by the opposition to undercut their political brand as guardians of the national economy. During Question Period, Liberal Leader Michael Ignatieff called on Prime Minister Stephen Harper to get rid of Finance Minister Jim Flaherty, noting that the government has made several separate projections since it was elected last fall.

"Canadians just cannot trust the government with their money," Mr. Ignatieff told the House of Commons. "Will the Prime Minister fire the Minister of Finance?"

Mr. Harper defended the numbers, saying Canada's deficit is significantly lower than those of the United States, Britain and Japan. He also reiterated that his government will spend more if it has to help the unemployed.

"That deficit has gone up because the recession is deeper. If the recession gets deeper, we will do more to help the unemployed and to help people."

He also said that it is Mr. Ignatieff who is facing a credibility problem after having asked so often for stimulus spending.

"I cannot fire the Leader of the Opposition and with all the tapes I have on him, I do not want to," said the Prime Minister, in reference to a series of commercials the Tories are airing about Mr. Ignatieff's time outside the country.

The remark drew a retort from Mr. Ignatieff, who said Mr. Harper reminded him of Richard Nixon, the U.S. president who resigned over the Watergate scandal. NDP Leader Jack Layton attacked both Mr. Harper and previous Liberal governments, arguing that tax cuts implemented by the two have left little room for movement.

Earlier this week, the Tories had hoped to soften up voters for deficit numbers to be announced next month - as they had done in January, before the budget - when Mr. Flaherty announced there would be a significant increase.

But unlike late January, the Tories weren't ready to release detailed deficit projections for a number of reasons. The Finance Department wanted more time to put together a snapshot of the deficit's size and was waiting for the latest estimate of rising employment-insurance payouts and fresh numbers on economic output. Officials also wanted a better estimate of Ottawa's obligations in terms of auto-sector aid - a number they caution is still not finalized. The federal government has been advised it should set aside cash for this, given these are high-risk loans.

But the government grew worried on Tuesday when officials saw forecasters such as Parliamentary Budget Officer Kevin Page pegging the deficit at about $40-billion. Tories say they released the $50-billion deficit estimate to avoid "inaccurate" speculation on the shortfall, which could confuse markets.

Other economists warn it will take longer than the promised four years to balanced Ottawa's books.

Mr. Page said he thinks it will take five years to return to balanced budgets and even then "you'd be looking at billions of dollars of restraint measures or tax hikes or a combination of the two."

At their weekly caucus meeting Wednesday, Liberals pledged to become more hard line with the Conservatives, a tactic which might include voting against the government on non-confidence motions.

Mr. Ignatieff told MPs that it was time to "aggressively oppose them [the Harper Tories]as a government," said a Liberal insider.

According to the insider, Mr. Ignatieff said that the approach "may mean non-confidence motions which could lead us into an election and government."

Mr. Ignatieff told his caucus Wednesday that the party needs to tell "Canadians about the Conservatives' lack of economic competence."

Outside of caucus, Liberal finance critic John McCallum criticized the government for not getting the stimulus money out the door more quickly, calling the delays "some constipation in the public service or the government of Canada."