Thursday, November 5, 2009

Budget Watchdog: Deficit can't be eliminated without further govt. action.

What we can expect is cuts in social programs since the Conservatives are not likely to raise taxes. These programs for the most part help those who are not too well off but that will matter little to the Conservatives. There is always private charity to fall back on the preferred solution for conservatives. As the article points out the Conservatives have not been forthcoming about their spending plans to the budget office so far.

Deficit can't be eliminated without further action: Budget watchdog
By Andrew Mayeda, Canwest News ServiceNovember 2, 2009

In a report released Monday afternoon, parliamentary budget officer Kevin Page projects that the federal government will slip into a substantial 'structural deficit' over the next few years, meaning that government revenues will persistently fall short of expenses, even when the economy recovers.

Page estimates the structural deficit will hit $12.5 billion in the current fiscal year, before rising to $18.9 billion in 2013-14.

"Although the economy is projected to return to its potential capacity by 2013 . . . without additional policy actions the budget is not projected to return to balance by 2013-14," states the report, which analyzes the fiscal update released by Finance Minister Jim Flaherty in early September.

Page's analysis is significant, because it is akin to saying that an individual simply does not have the income to pay down the mortgage on his or her home.

The report suggests the government will have to either raise taxes — an option the Conservatives have categorically disavowed — or cut spending to eventually balance the books.

In unveiling the fiscal update, Flaherty said the government will eliminate the deficit by constraining spending growth, but will wait until the strength of the nation's recovery becomes clear before deciding which programs to target.

Page notes the structural deficit will be smaller than those of the early 1980s and early '90s, when the country's finances were swimming in red ink.

"However, a more thorough assessment of the sustainability of the current fiscal structure requires a longer-term perspective, in particular taking into account the fiscal challenges posed by population aging," the report says.

Page actually forecasts that the total federal deficit will be smaller this year and next than the Conservatives have projected. The government expects the deficit to reach $55.9 billion this year and $45.3 billion next year, but Page predicts it will be $54.2 billion this year and $43.1 billion next year.

However, Page's longer-term forecasts are worse than the government's. In 2013-14, he is predicting a deficit of $19 billion, compared with the projection of $11.2 billion by the Department of Finance.

Over the next five years, Page projects cumulative deficits of $167.4 billion, while the government has forecast a total of $159.2 billion.

The report suggests the government should be more forthcoming about how it plans to rein in program spending.

According to Page, the government's projections include $5.8 billion in unidentified savings over the next five years through reviews of program spending, including $2 billion this year.

Page says his office has requested expenditure planning documents from the federal Treasury Board, but has thus far been rebuffed.

The budget watchdog's conclusions echo those of veteran economist Dale Orr, who has argued that it will be difficult for the government to balance the budget without significant tax hikes or spending cuts.

Page notes that the outlook for the Canadian economy has improved in recent months, but he forecasts that the economy won't return to its productive potential until 2013.

In a statement, Flaherty said that Page's projections are similar to the government's in terms of gross domestic product, deficits and employment.

"Canada has one of the best fiscal positions in the world and, as the PBO points out, medium term deficit projections are smaller than in the 1980s and '90s and are small relative to the size of the economy," the minister said through a spokesman.

"But we strongly believe permanent structural deficits must be avoided. Once it is clear the economic recovery has taken hold, extraordinary stimulus spending will end, the economy will see significant growth again and deficits will fall. If necessary, we will restrain the growth of future federal government spending to eventually eliminate deficits altogether."

© Copyright (c) Canwest News Service

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