OTTAWA The Harper government, which only eight weeks ago still forecast surpluses for Ottawa, has now revealed it will run the deepest shortfalls Canada has seen in more than half a generation: $64-billion over the next two years.
A senior government official, speaking to reporters on the condition of anonymity, also warned that it will take as long as five years for Ottawa to return to balanced budgets.
It's the first time that the Tories have provided an exact figure on exactly how deep into the hole Ottawa will go -- after weeks of backing away from a Nov. 27 forecast of balanced budgets.
The deliberate leaking of fiscal projections -- just five days before the Jan. 27 budget -- is unprecedented, Finance watchers say. The move reflects the minority Conservative government's desire to get unfavourable coverage out of the way before next week.
“I guess it's that old school of thought that you pre-condition for bad news so it's less of a shock when it comes out,” Toronto Dominion Bank chief economist Don Drummond said.
The Tories are betting that dealing with the deficit news now will ensure that media coverage of next week's stimulus budget instead focuses on its huge package of spending measures, expected to funnel billions of dollars into everything from public works projects to tax breaks.
The government official told reporters that the Harper government would run a $34-billion deficit in the fiscal year beginning April 1 and a $30-billion shortfall the year after.
“At that point, we will see deficits diminish and we forecast a return to surplus within five years,” he said.
The last time Canada ran a deficit close to $34-billion was 1994-1995, when it racked up $36.6-billion in new debt.
The $64-billion in projected deficits over the next two years will add approximately 15 per cent to Canada's federal debt, which at last count stood at $457-billion.
However, forecasts released earlier this week by Canada's parliamentary budget watchdog and economist Dale Orr of IHS-Global Insight suggest Ottawa could ultimately rack up more than $100-billion in new debt over the next half decade -- wiping out all the federal debt reduction achievements of the past 12 years.
The senior official said most of the big deficits in the next two years is “predominately attributable” to the Harper government's planned stimulus spending rather than a decline in tax revenue from a faltering economy.
Analysts including Mr. Orr estimate about half of the deficits in the immediate future are due to the stimulus spending and half to falling revenue.
Critics including Liberal finance critic John McCallum say the Harper government will end up running a more serious deficit than necessary because it spent too much in the past few years on tax cuts and other measures, leaving Canada more vulnerable to deficit.
But the senior official said Canada's rising debt still pales in comparison to problems facing its peers.
The debt-to-GDP ratio of all Canadian governments -- a measure of an economy's ability to afford debt -- was 23.4 per cent in 2007 and the lowest among Group of Seven countries, the official said. The stimulus package Ottawa is introducing will push Canada's measure to 28 per cent -- but other G-7 countries will see theirs jump far more dramatically, he said, with the United States climbing all the way to 54.6 per cent.