Ottawa suffered the biggest deficit in history last year at $55.6 billion, but Finance Minister Jim Flaherty says the government remains on track to balance the budget in just over five years.
In a fiscal update delivered Tuesday, Flaherty said Ottawa is roughly on track with its projections for spending and revenues and will record its first surplus in eight years in 2015-16.
“The plan to bring the budget back to balance will ensure that the federal debt, measured relative to the size of the economy, resumes its downward track by 2012-13,” Flaherty told a lunch hosted by the Mississauga Chinese Business Association.
“Our government’s commitment to return to balanced budgets stems from our fundamental belief that the private sector…. must be Canada’s economic engine of growth, not government.”
Unlike in some past years, the government unveiled no new spending or cost-cutting measures in the update, but it did contain some surprises.
Owing to a one-time cost of $5.6-billion for transitional assistance to Ontario and British Columbia to change to a harmonized sales tax this year, the 2009-2010 deficit hit a record $55.6-billion.
That’s $1.8-billion more than budgeted for in March and about $10-billion more than the previous biggest in the early 1990s.
But this year’s deficit — the 2010-11 period — is expected to be $3.7-billion less than the $49.2-billion shortfall previously projected, largely owing to the Canadian economy’s quick recovery from recession starting in the fourth quarter of 2009, which saw growth rates of 4.9 and 5.8 per cent in the fourth quarter of 2009 and first of 2010.
That was followed by a faster than expected braking beginning in the spring, when growth slowed to two per cent.
As the recovery slows, so will federal revenues, the government says. It estimates, based on the latest sampling of private sector forecasts, that growth slowed to 1.8 per cent in the third quarter, and will average about 2.5 per cent in the following three quarters.
After a sharp expansion in the first several months after the recession ended last year, the Canadian economy has been sideswiped lately by the weak U.S. recovery — which has squeezed demand for Canadian exports — and the softening of the Canadian housing market, a major past driver of domestic growth.
With the slowdown in the economy, it’s unlikely there will be much of a change in the eight per cent national jobless rate over the next few months.
The update shows no significant changes in the government’s fiscal position over the next five years. In the budget, Flaherty had expected a tiny $1.8-billion deficit in 2014-15, and now expects the shortfall to be $1.7-billion.
The balanced budget projections include a hit of about $5-billion to the treasury from Flaherty’s recent decision to limit hikes to employment insurance premiums. And it assumes social transfer payments to provinces will continue to grow at the current pace after the agreement runs out in 2014.
The past year’s bigger-than-expected deficit was mainly attributed to accounting changes that required Ottawa to record funds transferred to Ontario and British Columbia for changing over to a harmonized sales tax in the 2009-10 year.
Ottawa said the transfers amount to $5.6-billion, without which the deficit would have come in $3.8-billion lower than projected.