Tory deficit targets are too optimistic, budget officer says

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Finance Minister Jim Flaherty recently vowed to balance the budget within five years. Don't bet on it, says Parliamentary Budget Officer Kevin Page.

In a report to be released Wednesday, Mr. Page warns there is only a small chance that the Conservative government will meet its deficit-slaying target.

Mr. Flaherty announced last month in his fall fiscal update that the federal deficit hit a record $55.6-billion last year but will be turned into a surplus by 2015-2016.

Mr. Page's report provides the Budget Office's analysis of that fiscal update, which was based on economic growth estimates from 14 private-sector economists. At the time, Mr. Flaherty said as a precautionary measure, the government's numbers assume even lower growth that what those economists suggested.

But Mr. Page's analysis indicates revenues will remain too low and spending too high to erase the deficit by the government's target date.

"The government has indicated in the 2010 budget it could get savings," Mr. Page said. "We're beginning to raise questions whether or not this is really in fact achievable."

In an interview, Mr. Page would not reveal the exact figures in his report, but said its focus will be on "downside risk" to explain why he's more pessimistic than the government.

The term downside risk is commonly used by officials in the Finance Department and the Bank of Canada to describe issues on the horizon that could throw off projections. Downside risks mentioned recently by Bank of Canada Governor Mark Carney include a downturn in the housing market, instability in international financial markets or a slower-than-expected recovery in the United States.

MPs need more information to assess how likely it is that each of these risks will play out and what impact they would have on Ottawa's bottom line, Mr. Page said.

While his report will be released online Wednesday, he will discuss the report in depth with MPs Thursday during an appearance before the Commons finance committee, which is in the midst of pre-budget consultations.

Mr. Page said he will be updating his previously stated concern about a structural deficit, warning Ottawa and the provinces that the current 6-per-cent annual increases in federal health transfers to the provinces is simply not sustainable for the long term.

He forecasts the deficit for the current year will be smaller than the $45.4-billion projected in the government's latest numbers. Deficits will shrink once the stimulus spending ends, he said, but the government has yet to deal with the long-term demographic cash crunch as a growing number of Canadians increase their use of health care and qualify for Old Age Security.

The government's fiscal update indicates the deficit could be erased even if Ottawa continues to increase transfers at existing rates under a deal that expires in 2013-2014. That arrangement currently increases health transfers to the provinces by 6 per cent a year and social transfers by 3 per cent annually. Negotiations have just begun on a new arrangement.

"What we want is for the Prime Minister and the premiers to have this fiscal sustainability analysis," said Mr. Page, stating that such increases simply cannot continue over the long term.

"It means you do not have a sustainable fiscal situation."