OTTAWA - The federal deficit may be relatively smaller than what Ottawa faced in the 1990s, but it's going to be harder to eliminate, says the country's budget watchdog.
And it could require tax increases if the deficit is to be eliminated within Ottawa's five-year timetable despite the Conservatives' assurances they don't plan to do that, Parliamentary Budget Officer Kevin Page said Thursday.
Finance Minister Jim Flaherty needs to lay down "anchors," or firm targets and tell Canadians what he will do if he fails to meet them, Page said.
"We have nothing to be complacent about," he added in an interview. "Without a budget anchor we may be looking at deficits that go higher and higher."
"And we do not want to go back to the early 1990s, we don't want to see on TV what is happening in London, or Paris, or Athens or in Ireland," he said, referring to civil unrest in those countries.
Page's latest report on the fiscal situation compares the current environment with how past governments dealt with deficits, particularly the Jean Chretien Liberals, which inherited a $43-billion deficit in 1993.
By comparison, the Harper government's deficit last year was $55.6 billion and is expected to be $45.4 billion this year -- nominally higher, but less than half as onerous in relation to the size of the economy then and now.
Still, the Liberals were able to eliminate the shortfall in just over three years, while under the current schedule, Ottawa won't dig itself out of the hole for five more years.
Page, who has been critical of Flaherty's projections in the past, doesn't think he is likely to meet even that target. That is because the Liberals had many advantages not available to today's Conservative government.
In the 1990s, the global economy was preparing for a sustained string of robust growth, the Canadian dollar was falling, as were interest rates. Demographically, the labour force was growing, boosting government revenues. Today, all those factors are working against the government.
"All these tail winds in the 1990s, they are all headwinds now," he said.
The Parliamentary Budget Officer has a mandate to provide independent analysis and comment on federal finances, but doesn't have any involvement in setting government policy or administration.
The Page analysis noted that when previous governments have moved to consolidate their fiscal situation, they've used spending cuts over revenue increases as the main instrument.
Page says it remains doubtful that Flaherty and Treasury Board President Stockwell Day can meet their target of annual two per cent spending growth starting in 2011, even though that would actually constitute a reduction of spending on a per capita basis, meaning a reduction in government services to Canadians.
"In the current context, forward-looking household(s) may expect future taxes to rise if the planned spending cuts are ultimately insufficient to ensure fiscal sustainability," the report states.
The Harper government has repeatedly stressed it has no intention of raising taxes to balance the budget.
In issuing the government's mid-term budgetary report card last week, Flaherty said he expects to return to surplus in a little over five years.
Flaherty said the deficit will start coming dramatically down after Ottawa's fiscal stimulus program expires at the end of next March.
