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The Canada Mortgage and Housing Corporation ( CMHC ) complex in Ottawa on Thursday Oct. 9, 2008.

Sean Kilpatrick/The Globe and Mail

As the government frets that Canada Post's troubles will get in the way of balancing the federal budget, Canada Mortgage & Housing Corp. is quietly buoying the federal bottom line. That is bound to create a tension between any desire to slow the agency's growth and plans to end the government deficit.

According to its own numbers, the mortgage insurance giant that Ottawa owns has added $17-billion to government coffers in the past 10 years, or about $1.7-billion a year.

It looks like CMHC will add at least that again this year.

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So far in the first three quarters of the year, the insurer has paid $345-million in income taxes. CMHC is on track to pay close to half a billion dollars in taxes when the full 12-month figures are in.

On top of that, the government consolidates CMHC's financial statements into its own (fair enough, as the government is the sole shareholder). The insurer has posted net income of almost $1.3-billion so far this year and should finish the year somewhere around $1.6-billion if things continue apace.

The upshot is CMHC could be responsible for almost $2-billion in deficit reduction on its own in a single year. Another way of looking at a number like that is it's about half the surplus that Finance Minister Jim Flaherty has forecast for the fiscal year ending in 2016.

The numbers illustrate the tension the government faces when dealing with CMHC. Finance Minister Jim Flaherty has mused that the mortgage insurer has gotten overly "grand." He has spent the past couple of years tinkering with CMHC, adding needed reforms, and has basically capped the insurer's growth. Yet shrinking it means shrinking a source of budget-balancing profits.

There's another wrinkle. All the cash sitting at CMHC from past profits, known as retained earnings and accumulated other comprehensive income, counts against the government's total debt. That totals almost $15-billion, against a federal debt that totals about $600-billion. (The flipside is also true. Losses at CMHC will reduce any surplus or increase any federal deficit, and declines in retained earnings that will result will add to the federal debt. So there is reason to worry about keeping CMHC out of the red.) There are all sorts of reasons to rein in the growth of CMHC, which had been expanding for years at an incredible pace. But the cash it contributes to federal coffers at a time of financial need suggests it will be tough to shrink CMHC too aggressively until the federal books are well into surplus. As for notions of privatizing it any time soon, those too have to be weighed against the loss of the income.

The optimal balance from the government's point of view, from a purely financial standpoint, is to try to limit the risks of CMHC and housing to the overall economy while still harvesting a big income stream.

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