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article imagePBO: without a plan Canada's structural deficit is bad news

By Stephanie Dearing     Jan 12, 2010 in Business
Parliament Budget Officer, Kevin Page, went public with talking points from his report on Canada's deficit, which is scheduled for release on Wednesday. Page asserts that at present, Canada has no plan to deal with the deficit.
Ottawa, ON - Warning that Canada's structural deficit might well send Canada back into the quagmire of fiscal troubles experienced through the 1970's and 1980's, Page said the only way to avoid being saddled with a long-term structural deficit is "... to take drastic measures, either spending reduction or tax increase, to get us back to balances." Last November, Page released a report that stated "... PBO calculations continue to suggest that the budget is not structurally balanced over the medium term. PBO estimates that the structural balance would deteriorate from essentially a balanced position in 2007-08 to an $18.9 billion structural deficit in 2013-14." Speaking to the press Tuesday, Page contradicted Finance Minister Jim Flaherty again. Flaherty has denied that the deficit will pose a problem for Canada. Page pointed to Canada's lack of fiscal targets towards reducing the deficit, saying "... that's not a good place to be."
Flaherty asserted Monday that Canada's deficit won't be an issue, that it can be paid down without increasing taxes, which have been reduced by the Harper government. Flaherty said cutting government spending would not be needed to pay down the deficit. The secret, according to Flaherty, is to keep spending on government programs at today's rate. The Conservatives are also counting on improved economic performance to enrich government coffers, allowing the deficit to be paid down.
However, Flaherty warned Canada's recovery from the recession is still fragile, pointing to the jobless recovery as a key factor in an inability to make strong progress out of the recession. Flaherty acknowledged that Canada's hard-hit manufacturing sector contributed to job losses, but told press that he didn't think the government could do much to assist in turning things around. Speaking to reporters in Manitoba, Flaherty said “We'll start to see more of economic recovery, but we'll see sort of flat unemployment and employment numbers. It takes time for businesses to gain the confidence to hire people again, and that's a significant concern.”
The Conservative government has made it clear that its upcoming budget, to be released on March 4th, will not contain any new spending, and in fact, will have a focus on reducing stimulus spending. Flaherty is criss-crossing Canada as part of his pre-budget consultations.
Some bad news was released by the Bank of Canada Tuesday morning. Canada posted a trade deficit of $333 million in November, instead of the expected surplus of $500 million. The Bank of Canada's representative, Benjamin Reitzes said “While exporters are benefiting from stronger commodity prices, a strong Canadian dollar and sluggish U.S. recovery continue to weigh on other sectors. Coupled with domestic demand-driven import gains, Canada will likely be flirting with deficits throughout 2010.” Trade deficits in 2010 will create a drag on the overall economy.
The Bank of Canada had some good news, releasing survey results showing businesses anticipate hiring more employees and borrowing money in 2010.
Page was appointed as the Parliamentary Budget Officer by Prime Minister Stephen Harper in 2008 as part of Harper's fulfillment of his promise for more government accountability. Described as Canada's "pit bull' when it comes to fiscal oversight, members of the Conservative government have threatened to curtail Page's mandate.
A structural deficit is defined as being "The portion of a country's budget deficit that is not the result of changes in the economic cycle. The structural deficit will exist even when the economy is at the peak of the cycle."
Page is releasing his report even though parliament has been prorogued. His office will be releasing two further reports between now and March, one on Canada's Employment Insurance program and an update on government revenues.
More about Kevin page, Parliament budget officer, Jim flaherty, Canadian finance minister, Bank canada
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