Do you remember in the 2008 Canadian election campaign when our Finance Minister, Jim Flaherty, bellowed that Canada would not run a deficit?
With the election safely secured, the government promptly sang a different tune.
Then, in January 2009, Flaherty conceded what we all knew... the worldwide economic downturn was going to affect Canada after all. The Minister then announced a plan for $84.9 billion in deficits over the next five years, ending 11 straight budget surpluses, as the government tried to stimulate growth with tax measures and spending.
The Jan. 27 budget projected the economy would contract 0.8 percent, down from a December forecast for a contraction of 0.4 percent. The government bases its forecast on a consensus estimate by economists.
So much for consensus.
Yesterday our intrepid Finance Minister said the federal deficit will be “substantially” greater and the economy will shrink more than he forecast in January.
The Bank of Canada anticipates a larger 3% contraction in 2009, which would be the biggest decline since 1933. The central bank has also cut its key lending rate to a record low 0.25 percent.
Canada’s economy contracted at a 3.4% pace in the last quarter of 2008 and growth in the first quarter may shrink at a 7.3% rate, the biggest drop on record, the Bank of Canada estimates.
“We’re not in the least surprised,” said Eric Lascelles, chief economics and rates strategist at TD Securities in Toronto. “We have been predicting since March that Canada would run more like a $40 billion deficit in 2009-10. The writings have been on the wall for many months -- the economic assumptions used for the original budget were no longer realistic.”
Canada has gone from a $15 billion surplus in 2006 to a $40 billion deficit in 2009-10!
This represents the most rapid and intense deterioration of national finances in the country’s history, a swing of more than $50 billion in a year.
One thing is clear. The economic 'Immaculate Recovery' had best occur with lightening speed or else our nation is in for a heap o' financial pain.