Deficits could reach almost $156 billion

OTTAWA — The recession will sink the federal government into a $155.9-billion hole over the next five years and cost hundreds of thousands of Canadians their jobs, the parliamentary budget officer predicts.

OTTAWA — The recession will sink the federal government into a $155.9-billion hole over the next five years and cost hundreds of thousands of Canadians their jobs, the parliamentary budget officer predicts.

In a report to be released Wednesday, budget officer Kevin Page calculates that even in the year 2013-14, when Finance Minister Jim Flaherty says Canada will return to surplus, Ottawa will still have a $16.7-billion deficit.

The projections are close to double the accumulated $84.9-billion deficit over five years estimated by the January budget, and appears to contradict the government’s contention that it has a cyclical deficit that will disappear with the slump.

Page’s analysis suggests the deficit is now structural — meaning the government will have to take action by reducing spending or raising taxes to get back to balance — and that job losses will be greater than expected.

“Although there is a high degree of uncertainty surrounding estimates of potential output and structural budget balances, the PBO’s calculations suggests that the budget is not structurally balanced over the medium term,” the report states.

While the deficit numbers are not a total shock — some economists have predicted worse — it’s in the area of jobs, or the number that will disappear over the next five years, that Page’s report breaks new ground.

The budget officer’s average projection is for 257,000 fewer Canadian jobs this year than estimated in the budget.

For next year, the discrepancy rises to 329,000 fewer jobs, and even in the years 2011-2014 — when the recession is expected to be but a painful memory — there are expected to be between 100,000 and 380,000 fewer Canadian jobs each year than the government assumes.

“It’s clear the Harper government has mismanaged the economy. They gave away huge corporate tax cuts and reduced the capacity of the federal government to have the funds necessary to deal with the crisis,” said NDP Leader Jack Layton.

Although the 31-page document, and two compendium reports, are not scheduled to be released publicly until Wednesday, they were shown to the political parties and details began leaking. The Canadian Press has also received copies.

Layton and Liberal finance critic John McCallum said the new employment forecasts reinforces the need for the government to expand the employment insurance system so that more jobless Canadians qualify for benefits and receive greater benefits.

McCallum also cited Page’s assessment in a release that the numbers show the government has a structural deficit as evidence the government has fumbled the economy.

“There is no credible plan to dig Canada out of the hole,” he said.

Flaherty’s office disagreed with that assessment, saying in an email that the deficit will be temporary because many of the government’s stimulus spending is scheduled to expire in two years.

The statement took a shot at the opposition for decrying the size of the deficit, but calling for more spending on employment insurance.

“We suggest the irresponsible Liberal, NDP and Bloc opposition read this report and the potential threat of ongoing deficits before again making uncosted demands for new spending,” the statement said.

Although the Page numbers represent a vast increase over what the government had budgeted, they won’t come as a major shock to many private sector economists, who have long said the budget assumptions are no longer valid.

The Toronto-Dominion Bank predicted as early as May that the accumulated deficits would hit $172 billion over five years.

In June, Flaherty himself re-calculated the jobless rate for this year to 8.6 per cent and the 2009 budget shortfall from $33.7 billion to $50.2 billion.

He did not, however, go beyond the 2009-2010 fiscal year, although the minister’s update did not repeat the pledge to return to balance in four years.

The update instead substitutes the phrase that the government is “committed to return to surplus in future years.”

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