OTTAWA - The sharp rebound from recession could put the federal government on the road to balancing its books a year ahead of schedule, budget watchdog Kevin Page said Monday in a reversal from previous statements.
The parliamentary budget officer has often quarrelled with Finance Minister Jim Flaherty over the government's projections for the deficit, maintaining the shortfall could not be overcome without major spending cuts or tax hikes.
But recently both TD Bank and the Conference Board of Canada have noted that Ottawa's fiscal position has improved dramatically.
The big difference, according to the Conference Board, is the renewed flow of wealth into Canada from rebounding commodity prices. Higher prices for goods like oil and metals have boosted nominal growth -- and Ottawa's revenues.
The government's March budget had expected nominal gross domestic product -- which measures the value of output -- to grow at a healthy 4.9 per cent this year, when in fact it will likely grow by 7.2 per cent.
That alone will add about $5 billion to revenues this year and set Ottawa on course to report a surplus in the 2014-15 fiscal period, one year earlier than Flaherty projected, the think-tank estimated.
In fact, if the economy performs just slightly better than predicted and Ottawa sticks to its spending restraint plans, the Conference Board said a balanced budget could be booked as early as 2013-14.
"It's fair to say the economy snapped back a lot faster in the fourth quarter of 2009 and first quarter of 2010," Page said in an interview Monday.
"You can eliminate the deficit if you assume you have the nice steady growth year after year after year ... that's reasonable based on those types of assumptions."
There are already concrete indications that Ottawa is realizing benefits from the economic rebound.
Recent figures from the Finance Department show last year's deficit likely totalled about $47 billion, well below the budget's $53.8-billion estimate. And in the first two months of this year Ottawa is already $3 billion better off than it was at the same point in 2009.
In January, Page said the government would likely face a $19-billion structural deficit in 2013-14 and that projected growth would not be sufficient to erase the shortfall.
The budget office is next expected to report on the fiscal situation in September and Page said he would introduce a new measurement which calculates a range of projections, rather than a single base-case number.
He notes his projections are based on an average of private sector forecasts, adding that "economists aren't mystics."
Page cautioned that there are still plenty of challenges facing the Canadian and global economies, and the situation could deteriorate again.
For instance, Ottawa's improved fiscal outlook is based on the strong rebound in oil prices back to the US$80 level. As well, projections could easily be thrown off course again should the economy suffer a setback, such as a double-dip slump in the U.S., at any time over the next five years.
"The question becomes to parliamentarians, 'Can you spend your money based on an economy growing above potential for the next five years? Can you count on that?"' Page said.
Toronto economist Dale Orr, who has independently forecast Ottawa's fiscal outlook, said both the Conference Board and Page are correct in noting the change in circumstances and the uncertainty going forward.
Orr had previously projected that it would take Ottawa two years longer than it estimated to balance its books, but agrees that based on current outlooks for the recovery, it could be achieved by 2014-15.
