Jim, now that we're in a recession....

Are you still paying Hugh MacPhie $25,000 a pop to write your speeches?


Flaherty warns against balancing budget 'at any price'
Paul Vieira , Canwest News Service
Published: Wednesday, October 29, 2008

OTTAWA - Finance Minister Jim Flaherty warned Wednesday of "misguided" attempts of balancing the books during a period of global economic uncertainty - the clearest sign yet his Conservative government may be forced to post a deficit.

However, he said the government would "redouble" efforts to keep spending under control and find internal savings. Also, he hinted Ottawa might consider the sale or shut down of Crown assets if they are no longer relevant in today's world.

"We will do what we can, despite challenging economic circumstances, to keep the budget balanced," Flaherty told a luncheon business crowd in Toronto. "But we recognize that we work for Canadian families, not fiscal forecasters. What we will never do is engineer a surplus at any price, because that price would ultimately be paid by Canadian families."

He said that Canadians "quite rightly" find deficits "unacceptable," and his government would not return to the days of annual deficits in the tens of billions of dollar, as was the case in the 1970s and 1980s.

"But also unacceptable," he added, "is a devotion to surpluses simply for the sake of saying you achieved them. That view refuses to take into account the long-term damage that can result from misguided attempts to balance the books during a historic global downturn."

This could be a pre-emptive defence against the Liberal party, which will likely make political hay if the Conservatives record a deficit.

Flaherty has been under pressure over the state of government finances. The Conservatives campaigned on a platform of prudent and responsible economic measures, while warning that their political opponents would run up deficits.

But there is a growing consensus among economists that Ottawa is on pace to record a deficit for 2009-10, ranging from $5 billion to $10 billion. Also, analysts suggest there is a risk of a deficit this fiscal year after Ottawa posted a $1.75-billion deficit in August - the last month before turmoil in financial markets emerged. Also, the August results indicated Ottawa's revenue from taxes on an annualized basis dropped for the first time since 2002, when the country had narrowly avoided a recession and a series of significant tax cuts were making their way through the system.

Flaherty said financial projections are now tougher than ever for Ottawa to make, and Canadians had better get used to uncertain forecasts.

"Without question, these are uncertain economic times, and after the extraordinary developments that have taken place in a matter of weeks, no one can reliably predict what will happen next. This is the new reality Canada faces today."

To combat what is now expected to be lower-than-expected tax revenue, Flaherty said his government is prepared to "redouble" efforts to find internal savings within the federal public sector.

"Departments will have what they need to fund essential programs and services - and no more," he vowed.

Moreover, he said a review of government spending would also extend to Crown corporations and agencies, which indicates the Conservatives are toying with the idea of selling assets such as Atomic Energy Canada Ltd.

"We will ensure that original purpose for setting up each corporate entity is still relevant in today's world, and that dollars are being spent wisely," Flaherty said of the Crown agency review.


© Financial Post 2008