Narrowing deficit leaves Flaherty wiggle room ahead of budget

The size of the federal deficit is shrinking faster than Jim Flaherty expected just a few months ago, setting the stage for the Finance Minister to announce a bit of good news in an upcoming budget that will be dominated by controversial spending cuts.

In the first nine months of the current fiscal year, Ottawa ran a deficit of $17.7-billion. That works out to an average monthly deficit of about $2-billion, meaning if the trend continues, the total deficit for 2011-12 should come in around $24-billion.

That’s lower than the $31-billion deficit Mr. Flaherty projected in his November fiscal update, a figure that included a $3-billion “adjustment for risk” that now appears unnecessary.

The improving bottom line means Ottawa could “squeeze out a surplus” in 2014-15, according to TD Bank economist Sonya Gulati. That is the year the Conservatives promised to balance the books during the 2011 election campaign, however Mr. Flaherty pushed back that target by a year in November based on worse-than-expected economic conditions. The original target now seems to be back in play.

“To make this happen, we expect the upcoming budget to lay out the government’s cards as to how and where expenditure restraint will be secured,” Ms. Gulati said in a research note. “While we were told [Thursday] that cuts in the budget will not be ‘draconian in nature,’ efficiencies and program savings will need to be put on the table.”

The latest figures were released Friday by Finance Canada in a monthly document called the Fiscal Monitor. The report noted that Ottawa posted a deficit of $353-million in December 2011, which is down from $1.4-billion in December 2010. The year-to-date deficit of $17.7-billion compares to a deficit of $27.4-billion during the same period a year earlier.

The report also provides a rough overview of spending trends.

Spending on elderly benefits is up 6.5 per cent during the April to December period, compared to a year earlier. In the run up to the budget, federal ministers are raising concern about the rising cost of elderly benefits as the baby boomers are now starting to retire. The government has said the 2012 budget will include long-term changes to Old Age Security that will make the program “sustainable” for the long term. The government has said one option it is looking at is to gradually raise the eligibility age for OAS from the current 65 to 67.

Spending on “Canada’s cities and communities” is up 22.5 per cent and defence spending has increased 7 per cent.

The documents show the government has already moved to cut spending however, particularly in federal transfer payments to certain groups. Aboriginal Affairs transfers are down 3.9 per cent, agriculture transfers are down 13.2 per cent, foreign affairs and international trade transfers are 7.5 per cent lower, Human Resources and Skills Development transfers are down 14.3 per cent and industry transfers are down 19.2 per cent. A transfer category called “other” – worth $6.2-billion so far this year – is down 42.1 per cent.

Original Article
Source: Globe
Author: Bill Curry