Finance Minister John Manley said the country is looking at a $1 billion surplus this year and stressed the need for improving productivity in a speech on Wednesday to the House of Commons finance committee.

He said the "relatively small" surplus is due to reduced tax revenues from the economic slowdown, coupled with tax cuts and increased government spending on health care.

The speech was Manley's first major fiscal announcement since taking over as finance minister from Paul Martin. Manley made his announcement in Halifax at the historic Pier 21 site where millions of immigrants first set foot in Canada.

John Manley

Manley said private private sector forecasters expect growth to average 3.4 per cent in 2002, while 2003 forecasts expect growth of 3.5 per cent.

After posting an $8.9 billion surplus for the most recent fiscal year, the government appears to be headed for reduced surpluses in the years to come.

According to private-sector projections, Manley said, the federal surpluses are expected to be as follows:

• 2002-03: $1.0 billion
• 2003-04: $3.1 billion
• 2004-05: $3.5 billion
• 2005-06: $6.8 billion
• 2006-07: $10.5 billion
• 2007-08: $14.6 billion

Manley said the surplus includes the reintroduction of the federal government's $3 billion contingency fund.

In laying out his fiscal update, Manley did not mention the possibility of tax hikes or cuts.

"I'm not planning tax increases," he said in response to questions from members of the committee.

Manley also said the government will reallocate its spending priorities away from programs that have served their purpose.

"Monies freed up will be used to address new, pressing needs," Manley said, adding that none of that money will be used for debt reduction.

With Canada currently outpacing the United States in terms of economic growth, the finance minister described Canada as a "Northern Tiger." However, he did touch on the need for the country to improve its productivity.

"If we want the kind of long-term, durable economic growth that will continue to boost our standard of living and our quality of life, we must improve our productivity growth as a nation," Manley said.

Economists suggested Manley is keeping his budget forecasts conservative, much the same way Paul Martin did when he held the finance post.

"(Manley's) estimate of only a $1.0 billion surplus this year is likely on the low side (assuming current spending forecasts) given the strength of the Canadian economy," BMO Nesbitt Burns chief economist Sherry Cooper said in a commentary.

" He is low-balling the surplus estimate to keep the lid on government spending initiatives emanating from his Liberal party compatriots, including the PMO," Cooper said.