Harper government plans deficits as deep as $30 billion

Prime Minister Stephen Harper, far right, watches as Finance Minister Jim Flaherty delivers the government's fiscal update in the House of Commons on Nov. 27.(Tom Hanson/Canadian Press)A federal economic stimulus package will likely lead to a deficit in the $20-billion to $30-billion range for the 2009-10 fiscal year, a Prime Minister's Office official told CBC News on Thursday.

Hours after the announcement, Harper confirmed in a television interview that the Conservative government was planning to take unprecedented action to stimulate the country's economy.

“Some people are talking in the neighbourhood of a $5- to $10-billion deficit. Our own assessment is frankly that will not be sufficient given the challenges we're facing,” Harper told CTV News in a year-end interview.

“I think what will be more realistic in terms of the kind of stimulus our economy is going to need is going to be in the $20-billion to $30-billion range.”

The figure includes the $5 billion deficit the Finance Ministry projected on Wednesday for the next fiscal year, the CBC's Rosemary Barton reported from Ottawa.

It also includes funding for the planned $3.3-billion auto-sector bailout, as well as unspecified amounts for forestry, housing, job retraining and infrastructure investment, the senior official said.

The new numbers are a stark contrast to the surplus projections of Finance Minister Jim Flaherty's economic statement, tabled Nov. 27, and show how quickly the government's perception of the economy has been changing.

In November, the government foresaw surpluses of $800 million in 2008-09, $100 million in 2009-10 and $100 million in 2010-11. Those were to rise to $1.1 billion in 2011-12, $4.2 billion in 2012-13 and $8.1 billion in 2013-14.

On Wednesday, the Finance Ministry posted an update of Flaherty's economic statement on its website that issued new budgetary projections based on fresh private sector forecasts. They indicated deficits of about $5 billion for 2009-2010 and $5.5 billion for 2010-2011.

"The level of nominal GDP is expected to be about $20 billion lower in each of the next two years. This suggests that revenues will be weaker than projected in the November statement," the update said.

Tories 'in deficit denial' for weeks: opposition

On Wednesday, Flaherty acknowledged that Canada can't withstand the turbulence in the global economy.

He said three factors are affecting the economy: falling world GDP; an American recession, which the U.S. National Bureau of Economic Research officially recognized on Dec. 1; and a drop in commodity prices.

But the opposition parties said it's about time the finance minister admitted what they've known all along.

"Finally, they've come up with the truth," Liberal finance critic John McCallum said. "They've been in deficit denial for weeks or months, and they've known this all along that there was a deficit."

New Democrat MP Thomas Mulcair said the change in the figures means Flaherty has lost his credibility.

"Is there a problem or isn't there?" Mulcair said from Montreal. "Of course there is, but he's been denying it up until now and no one believes him anymore."

While still projecting a small surplus for the current fiscal year, Wednesday's update said that the "budgetary balance for the next two years would be about halfway between the average and low scenarios set out in the economic statement."

Although the updated documents discuss specifically those two fiscal years, their charts suggest there would also be deficits for 2011-12 and 2012-13 of around $4 billion and $1 billion, respectively.

The government won't see a surplus until the 2013-14 fiscal year, the update chart suggests.

The deficits are forecast to occur even if the government proceeds with billions of dollars in asset sales and cost cutting that it has proposed. The projections also don't take into account any money spent for a stimulus package to boost the economy.

The federal government hasn't run a deficit since 1996-97. In the 2006-07 fiscal year, Ottawa's surplus hit $13.8 billion.

With files from the Canadian Press