Finance Minister Jim Flaherty is vowing to stay the course on spending cuts and planned hikes to Employment Insurance premiums, while acknowledging Canada's economy faces "obvious risks" from financial troubles in the United States and Europe.
Having repeatedly urged his G20 colleagues to move more aggressively on debts and deficits, it's no surprise that Canada's Finance Minister isn't backing down from his own pledge to balance the books by 2014-15. Yet meeting that goal is shaping up to be a far more difficult task as economists downgrade their assumptions for Canadian growth in light of world events.
Among the most significant changes since Mr. Flaherty's June budget is much slower growth in the U.S. economy – confirmed this week by the U.S. Federal Reserve – and lower commodity prices, particularly for oil.
"The volatility in financial markets and the impact that could have on the economy really puts their budget outlook at serious risk," BMO deputy chief economist Doug Porter said. Should tax revenue come in lower than expected, that would force Ottawa to cut deeper on the spending side in order to balance the books on schedule.
Yet with so much uncertainty at the moment, economists say Mr. Flaherty should have a clearer picture of the state of Canada's economy this fall when he prepares his next official growth numbers in the economic update.
Speaking with reporters Wednesday at a day-and-a-half policy retreat with 22 business and public policy leaders, Mr. Flaherty said there's no plan to bring forward an early economic update but acknowledged Canada will be impacted by troubles outside its borders.
"We're currently feeling the effects of that uncertainty, as is the rest of the global economy," he said. "This continued uncertainty, at a time when the global economy remains fragile, poses obvious risks for Canada."
Asked Wednesday if his forecasts are now too optimistic, Mr. Flaherty replied that he is a "realist" and a "pragmatist," before listing Canada's positive financial statistics.
Mr. Flaherty said it's important that the focus on markets and other recent events not distract from planning for long-term issues like an aging population and efforts to increase productivity.
Last fall, Mr. Flaherty set out planned annual increases to Employment Insurance premiums – at a lower rate than previously planned – and later brought in a one-year EI incentive in the 2011 budget to encourage small businesses to hire new staff.
The Canadian Federation of Independent Business is calling for that incentive to be extended and for premium increases to be reduced, but Mr. Flaherty said he's not considering those options.
"That is certainly disappointing," said CFIB vice-president Dan Kelly, expressing hope that a promised new premium-setting policy may still lead to changes.
NDP finance critic Peggy Nash said the Finance Minister should be more flexible with his commitments so that government policy – such as the deficit timeline – can shift as needed.
This is the fifth time the Finance Minister has held a summer policy retreat. This year, the meeting is taking place at the Wakefield Mill Inn in Wakefield, Que. The guest lists over the years have included CEOs of Canadian companies – both large and small – as well as economists and occasionally current and former journalists. This year's guests include David Frum, a former speechwriter to U.S. President George W. Bush, Nitin Kawale, president of Cisco Canada, and L. Ian Macdonald, a newspaper columnist and editor-in-chief of Policy Options magazine.