Prime Minister Stephen Harper (right) watches as Finance Minister Jim Flaherty delivers the fiscal update in the House of Commons on Thursday. (Tom Hanson/Canadian Press)

The federal government is projecting balanced budgets and small surpluses through 2012-13, but says world economic uncertainty makes it impossible to rule out future deficits.

"No government at any level can guarantee the future," said the text of the speech from Finance Minister Jim Flaherty on Thursday accompanying his latest economic and fiscal update in the House of Commons.

"In fact, given so much uncertainty, no one could unconditionally guarantee the fiscal projections contained in today's statement."

Flaherty acknowledged that the U.S., Europe and Japan are in recession and that private-sector forecasters expect negative growth in Canada in the fourth quarter of 2008 and the first quarter of 2009 — meeting the definition of a recession.

Overall, from April to September, there was a budgetary surplus of $804 million this year, compared with a surplus of $6.63 billion a year earlier, the Department of Finance reported.

On Thursday, Flaherty promised a few measures to rein in government spending and small measures to help investors and make credit available to businesses. However, the update did not include a package of measures to stimulate the economy.

"Any additional actions to support the economy will have an impact on the bottom-line numbers in our next budget. These actions, or a further deterioration in global economic conditions, could result in a deficit."

That potential isn't something the government takes lightly, Flaherty said. Despite earlier promises by Stephen Harper's Conservatives not to run a deficit, however, Flaherty was open to the possibility.

Pegs equalization to GDP, boosts business credit

"Our goal must be to ensure the strength of the economy — to protect jobs, to encourage investment and to help businesses grow … while protecting the long-term fiscal position of the Government, so that if we must run a deficit, when the economy improves, we return quickly to balanced budgets.”

Flaherty announced that to rein in government spending it would:

• Eliminate the $1.95 per vote subsidy to support political parties that receive more than 2 per cent of the vote, starting April 2009.
• Hold wage increases to public servants, including MPs and senators, to 2.3 per cent for last year and 1.5 per cent for each of the next three years; and bring in legislation to stop them from striking until 2010-11.
• Cut spending on government travel, hospitality, conferences, exchanges and political services.
• Peg the growth of provincial equalization payments to the average GDP growth over a three-year period.

The government also promised that to help Canadians and investors and businesses:

• It is injecting $350 million in equity into Export Development Canada and another $350 million in equity into the Business Development Bank of Canada to boost the amount of credit available to export-oriented manufacturers and small and medium-sized businesses by about $1.5 billion from each bank
• It is allowing federally regulated pension plans to spend 10 years instead of five to make solvency payments if necessary.
• It is allowing seniors to withdraw a reduced amount in 2008, for example $7,500 instead of $10,000 from their Registered Retirement Income Funds (RRIFs).

It is proposing new powers over the financial system be made available to the finance minister, should the need for them arise.