By Jason Fekete, Postmedia News


OTTAWA — Sinking federal revenues will increase Canada’s budget deficit to $26 billion in the current 2012-13 fiscal year and could push back the Conservative government’s timeline for balancing the books until 2016-17, according to the fall economic update released Tuesday.

As expected, sagging commodity prices are eroding federal revenues and helping drive up the deficit — to $26 billion in 2012-13, nearly $5 billion higher than the $21.1 billion projected in the March budget.

With the lower tax revenues, the government now expects it won’t get back into the black until 2016-17 — a year later than expected in the budget — when it projects a surplus of $1.7 billion. The budgetary balance, however, is adjusted downward for risk by $3 billion annually going forward, meaning the government could indeed be in a surplus position by 2015-16 if the fiscal risks do not materialize.

“I firmly believe that our government is striking the right balance between returning to balanced budgets over the medium term and continuing to invest in the key drivers of economic growth and job creation,” Finance Minister Jim Flaherty said Tuesday in a luncheon speech to the Fredericton Chamber of Commerce, as he unveiled the fall economic update.

“This update recognizes that our country is not immune to global forces. Nor can we control the economic shocks that ripple outwards from other nations.”

Indeed, Flaherty used his speech to warn that Canada is not immune to the stubbornly fragile global economy, including the ongoing sovereign debt and banking crisis in Europe and the sluggish rebound in the U.S., although the minister maintains Canada remains on track for modest growth.

Flaherty also warned that a failure by U.S. politicians to find a compromise to the looming “fiscal cliff” — more than $600 billion worth of tax hikes and spending cuts set to take effect beginning Jan. 1 — will sink the United States back into recession, likely dragging Canada along with it.

Domestically, he warned the “main risk” continues to be the exposure of Canadian households to elevated levels of debt.

“A negative external shock to the Canadian economy that would translate into higher unemployment rates could trigger deleveraging on the part of those households holding elevated levels of debt,” says the fall economic update.

Updated Finance Canada numbers project real gross domestic product growth at 2.1 per cent for 2012 (the same as in the March budget), but only two per cent real GDP growth in 2013, down from the 2.4 per cent for next year that was predicted in the budget.

The government also substantially downgraded expected 2012 nominal GDP growth to 3.4 per cent due to softening commodity prices, compared to 4.6 per cent projected in the budget.

Overall, commodity prices have sunk seven per cent since budget 2012 was delivered in March and prices are expected to continue to remain below initial budget projections over the medium term, says the fall economic update.

Nominal gross domestic product is considered one of the broadest measures of the federal government’s tax base.

A one-percentage-point reduction in nominal GDP growth (resulting from lower GDP inflation) erodes federal revenues by $1.8 billion annually, according to government data. The lower prices result in smaller nominal income, ultimately reducing personal and corporate income tax and GST revenues.

Reports suggest that EU economic uncertainty and US politics are playing with our bottom line for commodities prices hence the loss of income.

How is that Harper's fault?

Who said it was? It was stupid to promise there would be no deficit, and stupid to promise there would be no recession. Like their other stupid dumb on crime ideas.

Bad management.

So, there's no political bias here right?

Yes there is. Most of Canada is biased against him. It's not uncommon.

Reports suggest that EU economic uncertainty and US politics are playing with our bottom line for commodities prices hence the loss of income.

How is that Harper's fault?

At least the federal government has a plan and a timeline.

The Department of Citizenship and Immigration spent almost $750,000 monitoring ethnic media over the past three years, including assessments of election campaign events and "perceptions" of minister Jason Kenney.

Who would be injured if we just forgave all private debt?

the people who financed it...

and you would never see them again.

It's not entirely Harper's fault, but he shot himself in the foot with his silly GST cut, which didn't do much to help the economy and only starved the treasury of revenue when we needed it most.