OTTAWA - The federal government is expected to post at least four years of budget deficits even before Ottawa spends a dime on stimulating the economy, suggests papers released by the Finance Department.
Ottawa is officially projecting deficits of about $5 billion next year and $5.5 billion in the 2010-11 fiscal period.
But applying the methodology used by the department beyond the next two fiscal years yields further shortfalls of $4 billion and $1 billion the following years.
And the document warns that the economic situation has deteriorated even more since the numbers were tabulated earlier this month, meaning both revenues and the deficit picture could be worse.
"In the department's view, there is a risk that nominal GDP (the value of what the country produces) could be weaker than suggested by the most recent private sector survey and that the corresponding fiscal outcome would be more in line with the low scenario in the statement," says the document, prepared for the meeting of federal and provincial finance ministers earlier this week.
If that were to occur, the deficit next year could approach $9 billion and be more than $10 billion the following year.
The deficits will occur even if Ottawa proceeds with the billions of dollars in extra revenue and savings through asset sales and cost cutting it has proposed in the doomed Nov. 27 economic update.
And they assume the billions of dollars Finance Minister Jim Flaherty had proposed in the update -- including government asset sales and cost cutting -- will be carried forward in the upcoming budget.
As the economy slumps, Ottawa gets lower than expected tax revenues from corporate Canada and from consumers and is forced to spend more on unemployment benefits and other social programs.
The government expects nominal gross domestic product -- the value of goods produced -- will be $20 billion less in each of the next two years than it expected, which it says will reduce government revenues.
Liberal finance critic Scott Brison said the new numbers are more realistic than those in the Nov. 27 statement and he asked Flaherty to drop plans to sell government assets in the current weak real estate market.
`If the government now realizes their rosy projections were unrealistic, it's time for them to recognize their asset sale plan is unrealistic as well," he said.
The new finance projections were contained in a briefing Flaherty gave his provincial counterparts in Saskatoon on Wednesday, which showed the economy had sharply deteriorated since his Nov. 27 economic statement.
Flaherty and Bank of Canada governor Mark Carney used almost identical language Wednesday in describing the economy, with the minister calling it "difficult for Canada and Canadians" and the central banker referring to it as "trying."
On Thursday, Flaherty created a 12-person economic council headed by former B.C. finance minister Carole Taylor to advise the government in battling the economic malaise, which many economists say will be even worse that Ottawa is saying.
The finance minister also said Thursday he and Bank of Canada Governor Mark Carney will meet with the CEOs of the country's biggest banks in January to ensure they are taking steps to make more credit available to average Canadians.
`I expect (the banks) to make it evident to us that they are taking steps to make that more available in Canada," Flaherty said at a news conference in Saskatoon.
The updated deficit projections are based on average forecast of 16 economists for a 0.4 per cent contraction next year -- a large revision from the 0.3 per cent advance contained in the Nov. 27 update.
`Based on the updated private sector forecast, the fiscal projection of the budgetary deficit for the next two years would be about half-way between the average and low scenarios set out in the (Nov. 27) statement," the document explains.
For the next two years that means half-way between $100-million surpluses in each of the next two years and deficits of about $10-$11 billion.
Over the following two years, the would result in further but more modest deficits until the government books go back into the black in 2013-14.
But several respected economists have sharply downgraded growth again. On Wednesday, the Bank of Nova Scotia said the economy will shrink 1.2 per cent next year.
As well, the Bank of Montreal and Merrill Lynch are expected to issue new forecasts Thursday or Friday that also will have the economy contracting by more than one per cent.
