Nov. 27: $100-million projected surplus
Finance Minister Jim Flaherty was facing a deficit of $5.9-billion in the fiscal year ending March 31, 2010, according to the fiscal update he released last fall. To achieve a surplus, Mr. Flaherty pledged to reduce government spending by $4.3-billion and predicted the government would earn $1.6-billion from changes to public sector compensation and the gains on purchases of insured mortgages from banks.
Dec. 17: "There will be a deficit"
Mr. Flaherty acknowledged a surplus was out of the question. While meeting with provincial finance ministers in Saskatoon on Dec. 17, Mr. Flaherty released a revised economic outlook that said Canada's GDP would contract 0.4 per cent in 2009, compared with his November estimate for growth of 0.3 per cent.
January: $33.7-billion projected deficit
In his January budget, Mr. Flaherty booked Canada's first shortfall in a dozen years, saying the deteriorating economy and the government's $40-billion stimulus program would cause four years of deficits, starting in 2010.
May 27: $50-billion projected deficit
Mr. Flaherty revised his projection again this week, citing a deeper-than-expected recession, higher-than-anticipated employment insurance payments and the rescues of Chrysler and General Motors.
Impact on the debt
Canada's net federal debt will be $502-billion in 2009-2010, a $40-billion increase from the previous year, according to an April estimate by the International Monetary Fund. Mr. Flaherty's revision implies that the net federal debt this fiscal year will be at least $16-billion higher, assuming the IMF based its forecast on the government's January budget.
Plan to pay it down
Mr. Flaherty says a higher deficit this year won't stop him from paying for his stimulus program and returning to surplus by 2014. That's possible, according to Avery Shenfeld, an economist at CIBC World Markets, because much of the spending is one-time and the 4.7-per-cent economic growth that the Bank of Canada projects in 2011 will spark increased revenue. "When the global economy recovers and commodity prices improve, a lot of this will melt away," Mr. Shenfeld said. Other economists are more skeptical. The Parliamentary Budget Officer said as long ago as February that there are "significant risks" that the government will fail to close the deficit by 2014.
Details to come
Mr. Flaherty says he will provide details in June about what is causing his deficit projection to balloon. About half of the $16-billion increase is the result of higher employment insurance benefits and weaker tax revenue, and the other half is attributable to the rescue packages for General Motors and Chrysler, according to people familiar with the figures