Deficit only temporary, Flaherty insists
Deficit only temporary, Flaherty insists
Eric Beauchesne , Canwest News Service
Published: Tuesday, December 23, 2008
OTTAWA - Less than a month after projecting the government would not go into deficit, Finance Minister Jim Flaherty is now promising a plan for getting out of the red.
Flaherty's revelation that the Jan. 27 budget will contain a plan to escape what the government now admits will be a deficit next year came Tuesday, only hours before the Finance Department revealed that this year's shrinking budget surplus has almost disappeared.
Finance Minister Jim Flaherty: 'We’ll show in the budget itself how we will come out of deficit.'
The government suffered a $600-million shortfall in October, the third straight monthly deficit, leaving it only $200 million in the black seven months into the fiscal year, down from $6.1 billion a year earlier, the department reported.
"We'll show in the budget itself how we will come out of deficit," Flaherty told a news conference in Toronto, after reiterating his commitment that the slide into the red will be temporary.
"So it will be clear to Canadians that as the economy recovers, the deficit will disappear and we'll be in surplus again," he said, providing assurance to ease concerns among some that this could be the start of an extended period of deficit financing.
Prime Minister Stephen Harper has said his government may have to inject up to $30 billion in additional government spending and tax cuts to deal with the recession and stimulate the economy.
"We will ensure that spending that puts us into deficit is temporary, is for finite purposes, so that we will not be into a permanent deficit," Flaherty said at the news conference held just prior to his meeting with his newly created council of economic advisers.
While Flaherty said he has not yet decided what stimulus measures will be in the budget, he revealed the government is looking at eliminating the waiting period for the unemployed before they can collect jobless benefits.
"We haven't made any decisions . . . other than obviously there will be some stimulus . . . because the economy is weakening significantly," he said. "That is one of the items that's been brought up and that is being reviewed."
The government - in addition to admitting that it will go into a deficit - is also acknowledging that the economy is in recession, with a 0.4 per cent contraction expected in 2009. In its Nov. 29 budget update, the government projected growth of 0.3 per cent next year, as well as marginal surpluses over the coming two years.
But the latest monthly financial statement suggests that the slide towards a deficit this fiscal year was due to a rapid run-up in government spending, not a fall in revenues.
During the first seven months of the year, program spending soared by $7.8 billion, or 7.2 per cent, while revenues rose $1.2 billion, or 0.9 per cent.
"It's not a revenue problem, it's a spending problem," said Kevin Gaudet of the Canadian Taxpayers Federation, calling on the government to stimulate the economy with more tax cuts not more spending.
The increase in revenues was due to the growth in personal income taxes, offset by declines in corporate income tax and the GST, the Finance Department said. The increase in program spending, meanwhile, reflected higher payments to people and provinces and operating expenses of federal departments.
"Program spending growth has been relatively strong so far this year but began to moderate in September," the department said, adding that the growth in spending is expected to moderate even further into the fiscal year.
© Canwest News Service 2008
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