OTTAWA - The economy continues to behave like a cash-generating machine for the federal government as it doles out new money in the budget for the provinces, program spending and tax cuts.
Taking a consensus of private forecasters, Finance Minister Jim Flaherty projects GDP growth of 2.3 per cent this year and 2.9 per cent next.
The budget documents warns there is a potential downside risk to the estimates, including a continued decline in Canadian productivity. There is also a chance that weakness in the U.S. housing market will dampen consumer spending. Productivity in the Canadian private sector is now about 75 per cent that of the U.S.
But none of those caveats is preventing Flaherty from predicting that government revenues from taxpayers will keep rising each year until at least 2010, when he has pledged to cut the GST to five per cent at a cost of about $6 billion.
"They keep spending and every year there's more money available,'' said Don Drummond, chief economist with the TD Bank. "You would think that at some point it's got to end.''
The spending spree appears to come to a crashing halt next year, when, after the annual $3-billion payment on the national debt, the government forecasts there will only be a $300-million surplus in 2007-08 and zero surplus in 2008-09. That increases the chances of Ottawa going into deficit for the first time in a decade.
Drummond said it will likely be a "smaller budget'' next year, but predicts the economy will once more come to the rescue of the next finance minister by handing in billions in unexpected bounty.
The biggest contributor to both economic growth and government revenues is the Canadian worker, who is buying goods and paying income taxes and GST at record rates. Employment grew almost by almost 350,000 last year, the highest since 2002, and got off to a fast start this year with 100,000 new jobs in the first two months.
Meanwhile, consumer spending grew by 4.1 per cent in 2006 as Canadians spent their salaries on such big-ticket items as automobiles and furniture.
The key weak sector remains manufacturing, which has been dropping as a share of total output since the Canadian dollar's resurgence in 2003.
But even here the picture is brightening. Manufacturers' profit margin last fall was slightly above its historical average and the expected pickup in the U.S. economy is expected to increase U.S. consumer demand for Canadian exports.
