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OTTAWA — Ottawa is coming to grips with the reality that Canada's unprecedented streak of budget surpluses is at an end, setting the stage for a new debate over how aggressively to adopt deficit financing to spur a flagging economy.
Parliament's newly appointed budget officer, Kevin Page, told about 50 lawmakers and staffers yesterday that the federal government is set to record budget shortfalls of $3.9-billion in the fiscal year ending March 31, 2010, and $1.4-billion the next fiscal year.
That's a jolt for many in Ottawa, where members of Parliament and public servants have come to expect a surprise of billions in unbudgeted cash at the end of each fiscal year to propel the government's finances safely into the black.
The first debate in the House of Commons since last month's election was dominated by opposition attempts to pin the blame for Canada's economic woes on Prime Minister Stephen Harper's policies.
Yet beyond the rhetoric, there was an acknowledgment that the real question is how much money the federal government will need to spend to stave off the country's first recession since 1991. Opposition parties called on the government to do something quickly.
"We're hoping to move toward a continuing balanced budget," Finance Minister Jim Flaherty told reporters yesterday after Question Period. "It may not be possible and we're not going to do it artificially."
Canada has saved more revenue than it has spent for 11 consecutive years, reducing the country's debt by more than $100-billion.
The federal government likely will manage a $4-billion surplus in the current fiscal year as a result of the surge in the value of commodities, Mr. Page said in his first extensive report since being appointed to the newly created post earlier this year. But those prices have plunged since the summer, and future federal revenue will plummet along with tumbling oil and wheat prices.
"We wanted to make sure parliamentarians knew this year wasn't going to be like previous years," Mr. Page, a former Finance official, said in an interview. "This year is different."
The difference is a global recession caused by the seizure of world credit markets. That has all but stalled Canada's export-dependent economy just nine months after Mr. Flaherty based his budget on growth of 1.7 per cent.
Mr. Flaherty has already lowered that estimate, and will have to do so again when he restates his own economic and fiscal projections in the Commons on Nov. 27.
The average rate of economic growth predicted by the 11 forecasters Mr. Page used as the basis for his fiscal projections is 0.6 per cent this year and 0.5 per cent in 2009.
The Finance Minister said there won't be any stimulus measures in his update - those will come "later," he said. Mr. Flaherty didn't elaborate, beyond saying he was open to adding to the more than $33-billion of infrastructure funding his government has already pledged.
That raises the question of how much the Conservative government would have to spend to make a difference.
Mr. Page steered clear of policy prescriptions, saying only that, to be effective, a stimulus package would have to be done quickly and target people and companies that would spend the money. Mr. Page also recommended one-off programs to avoid long-term pressure on the budget.
The International Monetary Fund is recommending that countries create spending packages worth 2 per cent of their gross domestic products, which in Canada's case would be roughly $26-billion.
Glen Hodgson, chief economist at the Conference Board of Canada and a former Finance official, urged Mr. Flaherty to be aggressive, saying that Canada could easily absorb a deficit of $10-billion - essentially the same amount Mr. Flaherty put toward the debt last year.
"If you really want to make a difference, you have to spend tens of billions," Mr. Hodgson, who has made representations to the government and the New Democratic Party, said in an interview. "The reason you get your deficit and debt under control is so you can spend when you need to."
Canada signed a statement by the Group of 20 industrialized countries and major emerging markets in Washington last weekend that included a pledge to fight the global recession with fiscal measures.
China has announced a stimulus package of half a trillion dollars and the United States and Britain are putting together stimulus packages despite their existing deficits.
"We will undertake whatever short-term fiscal measures are necessary to be part of the global economic solution to a global economic problem," Mr. Harper told the Commons yesterday.
The opposition pounded the government yesterday for quicker steps.
"Given the dire circumstances right now in the global economy, it's no time for Minister Flaherty to say you can wait a few months for any further stimulus," said Scott Brison, the Liberal finance critic.
NDP Leader Jack Layton called for investments in clean energy technology, research, infrastructure, and social programs like skills training, pensions, and employment insurance. "Leaders everywhere are taking decisive action, but this government hasn't shown the same courage," Mr. Layton said.
Why the economic outlook appears gloomy
1. Plunging commodity prices will reduce the government's revenue
by shrinking corporate profits and personal incomes.
2. Exports will slump because of weaker demand from the United States
and other countries, making layoffs at factories likely.
3. The government's decision to cut the Goods
and Services Tax and boost spending has
shrunk the surplus to its smallest in years.
4. Canada's economy is on track to grow at a fraction
of the 1.7-per-cent pace the government expected
in February, and even risks contracting.
5. Consumer and business confidence has deteriorated.
KATHRYN TAM, DEAN TWEED/THE GLOBE AND MAIL 66 SOURCE: OFFICE OF THE PARLIAMENTARY BUDGET OFFICER, CONFERENCE BOARD OF CANADA
