Jim Flaherty finds 'optimal balance' between austerity and growth (The Globe & Mail â Michael Babad) "Flaherty pushes back deficit timing "The Canadian government is pushing back its timeline for balancing the budget and projecting fatter-than-expected deficits for the next few years. "Finance Minister Jim Flaherty certainly has more wiggle room than many of his peers â we're not Greece, after all â and the revisions may not be surprising given the global economic climate. For now, observers believe Mr. Flaherty has found the right mix, though Bank of Montreal warns that Ottawa should watch out going forward lest its not inconsiderable reputation take a hit. "Mr. Flaherty unveiled his new projections in a fiscal update to a Fredericton business audience, The Globe and Mail's Bill Curry and Jane Taber report, delaying its planned return to a balanced budget by a year, depending on developments. "In his last budget, in March, the finance minister forecast he would eliminate the deficit by the 2015-16 fiscal year, with a $3.4-billion surplus. Today, though, he forecast a deficit of $1.8-billion for that year, and a return to a surplus, of $1.7-billion, in 2016-17. "Remember, the government builds in a risk cushion, so that could change. "The delay of one year in the return to balance, based in part on global risks, does not represent a significant departure from earlier plans, although it highlights the fiscal stanceâs continuing vulnerability to global risks," said CIBC World Markets economist Peter Buchanan. "Mr. Flaherty also projected a deficit of $26-billion for the current fiscal year, heftier than the $21.1-billion forecast in the budget. Next year's deficit is now forecast at $16.5-billion, up from the earlier projection of $10.2-billion, while the 2014-15 shortfall is now pegged at $8.6-billion, wider than the original $1.3-billion. âWhile Canadaâs economy is still growing, we are not immune to the economic uncertainty beyond our borders and the economic challenges faced by some of our largest trading partners," Mr. Flaherty said, citing lower-than-expected commodity prices that have eaten into revenues, and slower-than-forecast growth. "Global weaknesses beyond our control today carry serious consequences for Canada that are affecting our economy and our fiscal projections.â "Senior economist Michael Gregory of BMO Nesbitt Burns noted that a return to a surplus position could actually come earlier, citing the fact that the deficit projected for 2015-16 is below the level of the $3-billion risk cushion. "But this was also the case last year (for FY14/15). The fiscal slippage reflects the governmentâs judgment that it has found the optimal balance between austerity and growth, while maintaining its policy credibility," said Mr. Gregory. "We concur, but if thereâs a third consecutive year of slippage without any offsetting policy response, the governmentâs credibility could be called into question." "I agree with Mr. Gregory's note on "the optimal balance." Just look at some of Europe's wounded nations, where policy makers have erred with an austerity crusade that is helping crush their economies. "Chief economist Avery Shenfeld of CIBC World Markets also put it well, noting that the Canadian government has the wiggle room to juggle austerity and growth. âPrices are lower across a spectrum of resources, implying a weaker-than-planned take from corporate income taxes and royalties,â Mr. Shenfeld said. âBut do we really want a deeper fiscal crackdown to offset that if the cause is soft global growth?â he said. âFortunately, coming off a deficit of only 1.5 per cent of GDP last year, weâre not Greece or even the U.S., and have room to take a gradualist approach to deficit reduction at the federal level.â "The new projections are not likely to upset the credit rating agencies for whom Canada is triple-A. Nor is it likely to trouble investors. âEven with the revised timetable, some comfort will be had that deficits and debts are a small share of the economy,â said senior economist Sonya Gulati of Toronto-Dominion Bank. âThis is something that most other countries are not in a position to state. Second, a multi-year plan to return to surplus appropriately balances the need to restore fiscal health while catering to the economic fragility present. Third, the date of the return to surplus is arguably less important than the profile and path.â
Then the report doesn't understand math very well. $10,700 is not "more than five times higher" than $2,000. It is more than four times higher or more than five times as much. I know, it's a nit that I pick. Don't get me started on "could care less" when the author means something very different.