Canada faces multibillion-dollar deficits: budget officer

OTTAWA — Stephen Harper’s campaign pledge not to take Canada into deficit has already come back to haunt him, with Parliament’s budgetary officer saying multibillion-dollar deficits are likely unavoidable.

Kevin Page gave sobering news to newly elected parliamentarians Thursday, predicting the government will record the first deficit in more than a decade with a $3.9-billion shortfall next year.

And the situation could be far worse.

Under a worst-case scenario that economists say is not so far-fetched, the federal deficit could hit $13.8 billion next year and $50.6 billion over the next four years.

One thing is certain, Page said, the slumping economy combined with tax cuts introduced last fall — particularly the one-point GST reduction — has brought the era of large federal surpluses to a halt.

“This is not the same year we’ve seen in recent years. We don’t have the reason to believe we’re sitting on a much larger unanticipated surplus,” he said.

That gave the opposition parties plenty of ammunition to remind Canadians that during the election campaign only a few weeks ago, Harper and Finance Minister Jim Flaherty insisted they would not allow a deficit.

Liberal Leader Stephane Dion pounced on one line in the report as proof the government had mismanaged its books and the economy.

Dion highlighted a passage that said the government is so close to the line this year — as opposed to the $6.6-billion surplus it held last year at this time — because of tax cuts it made last fall. The one-point cut in the GST alone is expected to deprive Ottawa of about $7 billion, Page said.

“It didn’t have to be this way. It is the ideological choices made by Mr. Harper and Mr. Flaherty that have put this country’s finances at risk,” said Dion.

“Mr. Harper leads the biggest spending by a federal government in Canadian history. He spent, spent and spent, he cut the wrong taxes, and he left no buffer and no room to manoeuvre. Now his finance minister is considering a fire sale of government assets to keep the books balanced. ”

Flaherty said last week that he is considering the sale of government assets, such as office and commercial buildings, in a bid to balance the books.

On Thursday, he insisted he’s not giving up on the possibility of balancing the books. He said he will reveal the most up-to-date numbers when he tables the government’s official economic update next Thursday.

“It may not be possible and we’re not going to do it artificially but I’m going to try,” he told reporters.

One ace up his sleeve is deep spending cuts to government departments, including controlling salary increases for the public service, which he said he will outline next week.

“Our concern, as it was with equalization (to provinces), is to control the rate of growth,” he said. “This is a serious time. Certainly we’re of the view that public sector compensation should not lead private sector compensation.”

Flaherty said the government is also moving ahead on a stimulus package, including accelerated infrastructure spending, but would make no announcements next week.

NDP Leader Jack Layton called on immediate action, noting that the United States had already committed $25 billion to the auto sector and Congress was debating an additional $25 billion.

“Our government has been missing in action, and the result is you get people thrown into the streets,” he said.

The budget officer’s 42-page report on the budget — the first issued by the newly created office — is the most detailed analysis of the predicament facing budget planners in the Finance Department.

It presents three scenarios that go from a modest surplus to a deep deficit depending on assumptions of economic growth.

Taking the average of 11 private sector economic forecasts — that Canada will skirt a recession with 0.5 per cent growth next year — Ottawa will register a $3.9-billion deficit in the first year and $1.4 billion the following year.

Under the low scenario of a 0.3 per cent contraction next year and slower growth going forward, however, Ottawa would plunge into a deeper hole with four years of large deficits.

It would register a $13.8-billion deficit next year, and deficits of $13.2 billion, $11.8 billion and $11.8 billion going forward, for a four-year total of $50.6 billion.

A sunny view sees the economy growing by a relatively robust 1.5 per cent next year and the government remaining in the black.

The budget office projections assume Ottawa takes no additional measures — increased spending, tax changes or spending cuts — that would have a direct impact on the budget.

TD Bank chief economist Don Drummond — who several weeks ago predicted a $10-billion deficit for next year — said his view now is that conditions have worsened and that the deficit could be even greater than Page’s low-case scenario.

He said when he did his analysis, he had expected the economy to be flat next year. But at the time, he also made a pessimistic assessment where the economy shrinks by 1.8 per cent in 2009.

On Wednesday, Bank of Canada governor Mark Carney conceded for the first time that Canada faces a real possibility of sliding into deficit with at least two negative quarters of growth.