OTTAWA - The Harper government's assumptions for eliminating the deficit have become "unrealistic" in the wake of the global downturn, says parliamentary budget watchdog Kevin Page, who recommends Ottawa do its own economic forecasts on future budgets.
Testifying before the Commons finance committee Wednesday, Page warned that the downturn likely means Ottawa won't be able to meet its balanced budget target date of 2014-15.
That's not a surprise given that economists, including the Bank of Canada, have radically reduced their forecasts for growth since the June budget.
Finance Minister Jim Flaherty has already announced that he will use lower growth projections given him by private sector economists for his fall economic update expected later this month.
But Page says counting on an average of private sector economists also doesn't yield the best intelligence of economic conditions.
"What we are talking about is an average," he said in an interview after his testimony.
"I don't see the arguments for the Department of Finance not saying: 'Here's our view, here's what we're planning on.' I think it provides a better projection. You can deconstruct it better, so I think they should have their own independent outlook."
Page admits that every forecast is subject to error, but says Flaherty would be on firmer ground building in a prudence factor -- a margin for a miss on projections -- if his economists also issued a forecast to compare against.
The budget officer, who answers to Parliament, issued his own forecast Tuesday and it is lower than both the average of private-sector economists and the Bank of Canada, particularly on what the economy will do next year.
Flaherty will be using the economists' 2.1 per cent projection for growth, while Page thinks it is likely to be as slow as 1.5 per cent.
The lower forecast is based on the view that Canadian households have taken on too much debt and will need to restrain spending going forward, slowing economic activity.
If Page is right, he said government revenues will be about $50 billion lower annually than budget expectations, although Flaherty has already built in a $10-billion prudence.
According to the Parliamentary Budget Office, Ottawa will still have a $18.7-billion deficit in 2014-15, when Ottawa is counting on a small surplus. The PBO estimates Ottawa will still be in deficit two years later.
Recently, the TD Bank also projected the government would need two extra years to balance the budget than its current schedule.
"I would not be surprised if (Flaherty) increased his prudence" in the next budget, Page said.
Under questioning from MPs, Page cautioned that he is not advising the government to raise taxes or bring in austerity to increase its chances of balancing the budget in the medium term. He said it would be unwise to take such steps until the economy is back to full strength.
Given that the economy will be over $2 trillion, a $7-billion deficit at the end of the planning horizon is not significant, he said.
The bigger challenge for Ottawa, he says, is the aging population which will lower revenues while increasing costs for things like health care. He said the government should take steps to plan for the fiscal restrictions that will cause starting in a few years.
Page said even his more pessimistic view takes as a given that Europe will be able to resolve its debt problems without triggering a new global banking crisis.
If Europe doesn't solve its debt problems, even his numbers will look like wishful thinking, he said.
