Friday, January 23, 2009

Government will run $34B deficit for coming year: official

The federal government will run a $34-billion deficit in the coming fiscal year, and a $30-billion deficit in the following year, a senior government official said.

The spokesman said Thursday that the federal government will return to running a surplus within five years.

Federal Finance Minister Jim Flaherty is due to present a new budget on Jan. 27.

Speaking on condition of anonymity, the official told reporters the government decided to announce the size of the deficits now because of intense speculation about the budget.

The release of the budget details is, nevertheless, an extraordinary step. The secrecy around federal budget planning is legendary.

By releasing the size and nature of the deficits ahead of the federal budget, the government might be hoping to soften the impact of the deficit blow.

The size of the deficit is largely attributable to the Conservative government's decision to include billions in stimulus spending beginning in this year's budget. That includes immediate spending on infrastructure and help for Canadians hit hardest by the economic downturn.

Debt-to-GDP ratio will still be lowest in G8: official

Even with the deficit, Canada will still be in an enviable fiscal situation, the official said.

Canada's debt-to-GDP ratio was 23.4 per cent in 2007, and that is forecast to rise to 28 per cent in 2010. Even with that increase, Canada will still maintain the position it has held as having the lowest debt-to-GDP ratio in the G8, the official said.

The release of the deficit figures came a day after parliamentary budget officer Kevin Page suggested that a low economic growth scenario could mean deficits totalling more than $100 billion over the next five years, negating the gains made in fighting the overall debt.

Earlier on Thursday, Bank of Canada governor Mark Carney said the country is headed for a sharp, deep recession, but a recovery is expected by the third quarter of this year.

The central bank anticipates the economy will contract at an annualized rate of 2.3 per cent in the fourth quarter of 2008, followed by a deeper drop of 4.8 per cent for the first three months of 2009 and a drop of one per cent in the second quarter of this year.

However, the bank sees a rebound to positive activity by the third quarter of the year, when it forecasts two per cent growth, and predicts 3.5 per cent expansion in the last three months of the year.

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