Flaherty maps out road to eliminating deficit
‘It’s doable.’ analysts say, but it will require some iron discipline
Rising tax revenue from a robust economy and tight controls on government spending will be crucial factors in balancing the budget, economists say. Federal Finance Minister Jim Flaherty stood by his pledge to eliminate the deficit, which now stands at $25.9 billion, by 2015. “I want our country to be in a very solid fiscal position in case we have another crisis. We can get there by 2015 with quite moderate choices,” Flaherty told reporters. “We do not need to slash and burn. We can be sensible over time.” The deficit, is forecast to fall to $18.7 billion in the 2013-14 fiscal year starting on April1, dropping to $6.6 billion in 2014-15 and returning to a surplus of $800 million in 2015-16, according to the budget plan. “An awful lot of things have to go right over the next five years. It’s doable but it’s going to require a number of notes to be struck,” said Doug Porter, chief economist at the Bank of Montreal.
For instance, the federal government will have to keep spending in line with inflation for the next five years.
“That’s going to require a lot of discipline,” Porter said. New budget cuts announced Thursday add up to about $600 million.
But previously announced measures unveiled in 2010 and later are set to reduce government spending by $15.8 billion annually by 2015.
Those cuts have come from wage and salaries freezes of federal employees and professional services contracts.
“It’s across the public sector,” Porter said.
“It was a very broad attack on their own government operations.”
On the revenue side, “they’re go- ing to need revenues to grow a little bit faster than the economy, and they’re going to need the economy to post pretty solid growth over the next five years,” Porter said. According to the budget forecast, the Canadian economy will grow by 1.6 per cent in 2013, accelerating to 2.5 per cent the following year and 2.6 per cent in 2015.
The medium-term assumptions are in line with forecasts by privatesector economists, including those at TD Bank, said Sonya Gulati, senior economist at TD Economics.
The forecast expects growth in the U.S. to pick up to 1.9 per cent this year and 2.9 per cent in 2014.
“As the U.S. picks up, Canada is going to benefit as well,” Gulati said.
Flaherty told reporters that he’s confident that adequate spending controls are in place.
“Our spending on our own government programs has flat-lined. It requires discipline, but discipline is being followed and it leads to a balanced budget in 2015.”
Asked what he would do with a budget surplus, the finance minister responded, “My priority is to get there.
“There will be lots of demands for funding in 2015-2016.”