NEW YORK – Finance Minister Jim Flaherty says the federal government will keep its books balanced despite a growth forecast by the Bank of Canada that’s lower than Ottawa projected in its February budget.
He made the comments Wednesday in New York in response to a question about the possibility of the government ending up with a budget deficit from lower than expected tax revenues.
“We are not facing a deficit,” Flaherty said after a speech to the Canadian Association of New York at the Yacht Club in New York City.
“We will have a balanced budget in Canada. I’m satisfied with our economic growth, it’s within a range that satisfies, including the 1.4 suggested by the Bank of Canada, that still would result in a balanced budget in Canada.
“We’re building a cushion with respect to debt repayment and we also can always do what the government seems to think they can’t do, which is to restrain spending from time to time.”
On Tuesday, the Bank of Canada, slashed interest rates by half a percentage point and scaled back economic growth projections to 1.4 per cent this year from the 1.8 per cent it had forecast in January.
The central bank said Canada is in for two relatively lean years and the economy won’t fully recover until mid-2010.
In his February budget, Flaherty predicted the economy would grow 1.7 per cent this year. But the worsening U.S. economy and the impact of the global credit crunch has squeezed the manufacturing sector in Ontario and Quebec more than expected.
Slower growth will cut federal revenues from personal and corporate taxes, raising the prospect that revenues will not match spending and lead to a deficit for the first time in a decade.
But Flaherty has repeatedly committed his government to a balanced budget, noting that corporate tax cuts he announced last fall have sowed the seeds for stronger growth in the future.
“We knew what the challenges were going to be in 2008/2009 when we prepared the fall economic statement. That’s why we brought in a very substantial business tax reduction,” the minister said.
“And with the other tax reductions that we accelerated we have a substantial stimulus, about $21 billion, entering the Canadian economy at a time when it’s needed.”
After his New York speech, Flaherty noted that Canada’s dependence on the United States has dropped to about 75 per cent of Canadian exports from 85 per cent in the past. “We’re exporting more to other places in the world, including Asia and the European Union,” the minister said.
But Flaherty said the manufacturing sector has been affected overall. “The auto sector within manufacturing and the forestry sector, the reduced demand in the United States directly effects Canada. Most of the cars manufactured in Canada are exported the United States. Demand is down in the US auto market.”
