OTTAWA — Ottawa is on track to add $200 billion to the national debt over the next few years and will take at least a decade to balance the budget, a new paper says.
The analysis from Toronto-based Dale Orr Economic Insight adds to the growing body of opinion that the government’s current plan to eliminate the deficit in four years isn’t tenable.
And economist Dale Orr takes Prime Minister Stephen Harper and Finance Minister Jim Flaherty to task for criticizing the parliamentary budget office’s recent estimate that on the year Ottawa currently expects to return to surplus — 2013-14 — it will in fact still be $17 billion in the hole.
“The government just dump(ed) on him,” Orr said of the criticism of budget officer Kevin Page.
“His major conclusions seem to be what you would get if you do an update today. Why didn’t the government say, ‘Yes, the situation is very different from the budget of last January . . . the forecast of the economy has clearly deteriorated since January.’ ”
Orr said the government may react the same way to his paper as it did to Page’s, but noted the opinion is adding up against the government with now the Toronto-Dominion Bank, Page and Orr’s analysis arriving at similar conclusions.
Flaherty initially reacted to Page’s report by saying it was “pessimistic.” Harper went further, rejecting the notion that Canada has a structural deficit that would require tax increases or cutting programs to eliminate.
“There is no need for us to start slashing programs, nor is there any need for us to raise taxes,” he said from Italy, adding that would be a very dumb policy.”
Harper did agree that it may take longer than the four years predicted in the budget to balance the budget, but said his intention was to let economic growth after the recession recedes to take care of the situation.
Orr does not offer any opinions about what the government should do, but cautioned that depending on growth is “risky” and unlikely to yield results for some time.
The problem is that after 2011, the baby-boom generation begins to turn 65 and leave the labour force, reducing potential economic growth and adding to demands on government to pay for pensions and health care.
As well, the annual cost of servicing the debt will grow significantly because the principal will be bigger and interest rates will naturally rise as the economy recovers. That principal, predicts the report, will grow by $200 billion over the next decade and cause the national debt to hit $658 billion.
