This is part of an article from Bloomberg..
As David Wolf notes in this article, Flaherty will need to either cut spending or raise taxes to avoid a ten billion dollar deficit next year.. It would be an interesting ideological switch if Flaherty opted for raising taxes and it would not be politically popular. However, he could cut entitlements and social programs which would be popular among some Conservative supporters even though there will be a strong reaction from others. He can always plead the economic conditions as demanding the cuts. Of course when it comes to bailouts that excuse doesn't seem to come into play for some reason.
Flaherty Announces Cutbacks as Canadian Economy Slows (Update1)
By Sean B. Pasternak and Theophilos Argitis
Nov. 3 (Bloomberg) -- Canadian Finance Minister Jim Flaherty announced his first spending cutbacks today as the country copes with a slowing economy, setting new caps on federal transfers to the poorest regions.
Canada will limit the growth rate for equalization payments to certain provinces, which total C$13.6 billion ($11.5 billion) this budget year, to the pace of growth for nominal gross domestic product, Flaherty told reporters today.
Flaherty, 58, is being forced to manage a slowdown in tax revenue that threatens to end a record streak of 11 consecutive budget surpluses for the oil-rich country. In recent weeks, he's hinted Canada may need to post a deficit next year.
``The reality is equalization had excessive growth,'' Flaherty said today after a meeting with his provincial counterparts in Toronto. ``I did this on the basis, quite frankly, that we had a program that was unsustainable.''
Growth in the world's eighth-biggest economy will slow to 0.6 percent this year, the least since 1991, the Bank of Canada said Oct. 23 in a quarterly forecast, as the country suffers from weak demand from the U.S. and the global credit squeeze. Canada also has been hurt by slumping prices for commodities, which generate about half the country's export revenue.
David Wolf, chief strategist at Merrill Lynch & Co. Canada in Toronto, forecasts the government may post a C$10 billion deficit in the next fiscal year unless the government scales back spending or raises taxes.