Deficit reduction may require tax hikes: Page

Canada's budget watchdog says Ottawa will face more of a challenge eliminating its current budget deficit than it did in the 1990s.

Canada's budget watchdog said Thursday that Ottawa will face more of a challenge eliminating its current budget deficit than the federal government did in the 1990s.

And parliamentary budget officer Kevin Page said in a new report that balancing the budget could require tax increases in order to meet the government's own five-year deadline.

Parliamentary budget officer Kevin Page says Ottawa may have to hike taxes to meet its own deadline for balancing the budget. ((Fred Chartrand/Canadian Press))

The Conservatives have insisted they will not do that.

Page said that although the Jean Chrétien government faced a much deeper fiscal hole than the Harper government does now, after adjusting for inflation and economic growth, it was able to eliminate the deficit in fairly short order.

He said many of the conditions that helped the Liberals return to balance in the mid-1990s are not present today.

Unlike today, Canada's labour force was growing, the global economy was expanding, and the Canadian dollar and interest rates were falling, he said.

Finance Minister Jim Flaherty said a week ago that last year's and this year's projected deficits are the highest in Canadian history nominally — $55.6 billion and $45.4 billion — but they are small in comparison to past shortfalls relative to the size of the economy and when adjusted for inflation.

The parliamentary budget officer has a mandate to provide independent analysis and comment on the federal finances but doesn't have any involvement in setting government policy or administration.

With files from The Canadian Press