OTTAWA - Finance Minister Jim Flaherty and the country's budget watchdog still don't see eye to eye on the federal deficit.
In a new report Monday, Parliamentary Budget Officer Kevin Page says the country is still facing a structural deficit that will persist past 2016-17.
Page said while the government projects that all of the deficit is cyclical -- due to the under-performing economy -- he believes about $10 billion on average is structural.
That is significant, he said, because a structural deficit remains despite the ups and downs of the economy and is more difficult to erase.
Even in 2016-17, when the economy has fully recovered, Canada will still have a $1.6 billion structural deficit, he estimated.
"Distinguishing between structural and cyclical components of a government's budget balance is crucial because while the cyclical component may be expected to dissipate over a medium-term horizon as the economy returns to its potential, the structural component may necessitate policy actions," he said.
In his economic update last month, Flaherty said he expects the government to balance the budget in 2015-16, and possibly as early as 2014-15. Flaherty has persistently denied the government has a structural deficit, saying the shortfall is due to temporary stimulus spending and poor economic conditions which limit tax revenues and drive up costs, such as benefits to unemployed workers.
Page suggested there is more at play as to why he and Flaherty's department come up with different estimates of the fiscal position, even though both are using similar assumptions about the economy.
He said in an analysis of his methods compared to Finance dating back to 1976, the two are only about $1 billion a year off. But since 2005, Finance's estimate of a structural budget has been almost $10 billion higher on average and in 2010, it was $17 billion higher.
This suggests that Finance is using different and rosier assumptions about the economy's potential growth rate, income entering the country through a better terms of trade picture and higher tax generation.
"Unfortunately, Finance Canada has not published or provided its estimates of potential GDP (gross domestic product) and terms of trade or its estimates of the tax and spending sensitivities underlying its ... estimates," the report states.
Page said his belief is that Ottawa is using a much higher rate of potential growth for the economy than his office.
"Finance Canada could improve fiscal transparency by publishing its estimates of potential GDP and income over history ... as well as its methodology and assumptions," he said.
