Federal Finance Minister Jim Flaherty, speaking at the Greater Victoria Chamber of Commerce luncheon in Victoria, says Ottawa will run deficits for two years longer than originally forecast. (Arnold Lim/Canadian Press)

Canada will continue to run deficits until 2015, two years longer than originally forecast, Finance Minister Jim Flaherty said Thursday.

Speaking in Victoria, Flaherty also said the deficit this year will be more than $5 billion higher than originally thought, moving up to a projected $55.9 billion from $50.2 billion.

The government previously predicted that Ottawa would record a surplus of $700 million by 2013-14.

But on Thursday, Flaherty said that by 2014-15, the government would still record a "modest deficit" of $5.2 billion.

"It is becoming clear that the depth of the global crisis has led to an impact on the Canadian economy even larger than the government planned for in the budget," Flaherty said.

Flaherty vowed that the path to balanced budgets would not be accomplished through tax increases.

"We've worked too hard to create the tax advantage we have today to reverse course now," he said.

He also ruled out slashing government spending, accusing the Liberals of eliminating the deficit by making devastating cuts to federal transfer payments to provinces.

Instead, Flaherty said the Conservatives would focus on restraining the growth of government, but he didn't provide details or targets.

"It will be in the context of a recovering economy, not necessarily a booming one, that we can begin restraining spending growth in order to eliminate that last small deficit five years from now," Flaherty said.

"This may sound easy, and since spending will continue to grow, it may not sound particularly painful. But restraining the growth in government spending will mean some tough choices for the government."

Flaherty said that returning to balanced budgets will require decisions of government that "won't always be popular or pain-free."

"It will require a lot of saying 'no' to pet projects and special interests."

Hard to predict

Finance officials say economic conditions are improving but remain volatile, making accurate projections difficult.

In the medium term, they said, the economy is weaker than forecast and Canada can expect larger and longer deficits.

Liberal finance critic John McCallum called Flaherty’s forecasts “more prediction fiction from Stephen Harper’s $55 billion man.”

“Don’t forget, Jim Flaherty told us first there would be no deficit," McCallum said. "Then it was $34 billion. Then it was $50 billion. Today it’s $55 billion. Who knows what it will be next month and he told us the deficit would be gone by 2013, now it’s 2015.

"With all due respect, this is a finance minister totally lacking credibility on anything to do with economic management."

Finn Poschmann of the CD Howe Institute noted that in the January budget, the Harper government predicted $85 billion worth of deficits over five years. Now, Flaherty is forecasting $165 billion worth of deficits over that same period.

"These are staggering numbers," Poschmann said. "What one might hope is that this is a worst-case scenario, and it wouldn’t be a bad political strategy as far as it goes to lay out a spending program or deficit program that looks really, really bad and then do a lot better."

What's worrisome is that "the rhetoric around getting rid of a deficit in a few years’ time is absolutely gone," he said.

With files from The Canadian Press