OTTAWA – It’s official: the days of big bad budget deficits are back.
The Harper government declared Thursday that it will run deficits for up to five years, including a massive $64-billion shortfall over the next two.
A senior official said next week’s federal budget will forecast a $34-billion deficit for 2009-2010 and a further shortfall of $30 billion the year after.
It’s a startling about-face from just two months ago when the government forecast a surplus in its fall economic statement.
It’s the first time the government has put a specific price tag on the deficits – and it’s the first time in a decade that Canada finds itself in the red and adding to its national debt, instead of reducing it.
The government official dismissed suggestions that the huge deficits will have a crippling long-term impact on Canada’s finances – or drag on indefinitely.
He said the Tories are projecting a return to surplus in five years.
The official, who asked not to be named, said he was taking the unusual step of leaking the deficit figure because the government wants to halt an out-of-control guessing game.
“There has been a lot of speculation on deficit figures … So we’re sharing this information with you.”
The Tories are also hoping coverage of next week’s budget focuses on spending measures – many of which are likely to be popular – instead of the deficit numbers.
The official said the budget will pump money into roads and infrastructure, help people who are losing their jobs, and help stimulate job-creation.
Prime Minister Stephen Harper repeatedly dismissed the possibility of deficits when asked about them during the recent federal election.
Just weeks ago, Finance Minister Jim Flaherty was still vigorously denying that deficits were imminent.
But some observers say government fiscal policies had already caused a deficit before this latest round of stimulus spending.
Parliamentary budget officer Kevin Page has said the deficit would have been $13 billion – even without the fiscal package. The Tories have cut a variety of taxes, including a two percentage point cut in the GST which costs the federal treasury $12 billion a year.
But the Tories reject the suggestion that the coming deficits will wipe out a decade of strong fiscal stewardship.
The official said that even after it falls into the red, Canada’s debt compared to the size of its economy will remain the lowest of all G8 countries.
That figure is important, because it speaks to the ability of taxpayers – current and future ones – to at least pay down the interest on the national debt to keep it from rising.
The debt-to-GDP ratio was 23.4 per cent in 2007, and will rise to 28 per cent in 2010, the government says. That figure does not include the full impact of the stimulus measures.
But it is still far short of the 70 per cent debt-to-GDP ratio that Canada had when the Chretien government began eliminating a $42-billion deficit in the early 1990s.
And, the government official noted, the numbers are still better in Canada than elsewhere.
The United States is projected to have a 54.6 per cent debt-to-GDP ratio in 2010, while Japan and Italy have both racked up debts above 90 per cent of their annual economic output.
When asked how the government plans to eliminate the deficit in five years, the official said many of the upcoming financial commitments will come with expiry dates.
“Predominantly, spending around the stimulus package will be very short-term in nature and thus far more predictable,” he said.
“If your spending is short-term in nature and your program are time-limited, then you can predict with a much greater degree of certainty that you will not run a structural deficit.
“A permanent deficit would be something that you would get as a result of spending commitments that are long-term entitlement programs, things that would go out over the horizon.”