National Post (National Edition)
Moody’s approves Flaherty’s budget; retains AAA rating
Approves forecast of eliminating $25.9B deficit by 2015
OT TAWA • Finance Minister Jim Flaherty has safeguarded Canada’s status as the only Group of Seven country with a stable top credit rating after releasing a fiscal plan that eliminates the country’s deficit in two years.
Mr. Flaherty’s budget, presented Thursday, projected Canada will swing to a surplus of about $800-million in the fiscal year that begins April 2015 from a $25.9-billion deficit, by limiting spending growth to the slowest pace since the 1990s and banking on an accelerated recovery. Moody’s said in a statement the budget is in line with the government’s AAA bond rating.
“The important thing to take away from this is recognizing that Canada does stand head and shoulders over many of its developed-market peers in ensuring that its fiscal fundamentals are very sound,” David Tulk, chief Canada macro strategist at TD Securities said.
The governing Conservatives are seeking to reverse a legacy of deficits that may reach a cumulative $170-billion amid the slowest expansion since the 2009 recession that is hampering revenue.
Spending growth is forecast to average 2.1% over the next five years, after rising about 26%, or 4.9% a year, since 2007. Revenue is projected to grow an average 4.6%, more than double the current year’s pace, as Mr. Flaherty bets the country’s expansion will pick up steam.
“The prospect of a return to budget balance by 2015-16 and the beginning of a decline in the debt ratios after the 2014-15 year indicate that, relative to other large AAArated sovereigns, Canada’s debt position will remain favourable,” Moody’s said.
Canada is the only G7 country with a stable AAA debt rating from Standard & Poor’s, Moody’s Investors Service and Fitch Ratings.
“It’s credible, in that growth in revenue and expenditures are very doable and realistic,” said Michael Greg-
It requires discipline, but that discipline is
being followed
ory, senior economist at BMO Capital Markets in Toronto, even though the “net risk is that revenues don’t live up to projection.”
Mr. Flaherty has pledged not to reduce transfers to individuals and provinces or raise taxes, other than closing loopholes, to spare most Canadians the brunt of deficit-cutting measures.
Instead, he is zeroing in on the $120-billion Canada’s government spends on operating and capital expenses, which is less than half of total program spending.
The Conservatives, led by Prime Minister Stephen Harper, have already been working to reduce the federal payroll, pledging to fire about 12,000 workers and cut another 7,000 jobs through attrition. Thursday’s fiscal plans include about $600-million worth of additional savings from government over five years.
“It requires discipline, but that discipline is being followed and it leads to a balanced budget,” Mr. Flaherty said.
Mr. Flaherty projected direct program spending, excluding payments to individuals and provinces, would drop to 5.8% of GDP in 2015 from 6.7% in 2012. That will decline further to 5.5% by 2017, near the lowest in 50 years.
Mr. Flaherty’s plan also projects spending will be less than forecast in his last update in November, reflecting changes to how the government accounts for budgeted expenses that never occur, and other factors such as weaker-than-expected inflation that is reducing price-indexed payments.
Still, revenue is being hampered by a slumping global economy, with the government reducing its growth forecast for this year to 1.6%, compared with a 2% November projection. Combined with lower commodity prices, that will reduce revenue projections by $14.8-billion between 2012 and 2017, before new measures in the fiscal plan.