Ottawa will have a hard time meeting its own timeline to return to balanced budgets, independent economist Dale Orr forecasted on Monday.

In September, Finance Minister Jim Flaherty outlined Ottawa's plan to wrestle Ottawa's $56-billion deficit this year down to $5 billion by 2015 without having to rely on tax increases or drastic spending cuts.

Once temporary stimulus spending is removed, the expanding economy will be enough to balance the books alone, eliminating the need for drastic tax hikes or spending cuts, Finance officials argue. But since then, some economists and commentators have suggested that Ottawa's plans are not realistic.

This month, the Parliamentary Budget Office suggested Ottawa would be hard-pressed to deal with "structural deficits" from here on out, a notion Flaherty rejected.

Orr — the chief economist for a Toronto-based consulting agency Economic Insight — forecasts the economy will shrink by 2.5 per cent in fiscal 2009, slightly worse than the 2.3 per cent contraction Ottawa is assuming. But Orr's 2.6 per cent growth prediction for 2010 is better than Ottawa's estimate of 2.3 per cent growth.

Finance officials insist that the deficit can be addressed if Ottawa is able to keep spending increases to no more than three per cent per year.

"If the government can keep the growth of program spending to the three per cent pace as they plan in 2013-14, and going forward, I do not believe they have a structural deficit," Orr said.

But Orr does take exception to a number of other assumptions.

"The government's claims that they plan to eliminate the deficit with no tax increases is simply misleading," he said. Specifically, while Ottawa has shied away from calling it a tax, he notes that the government assumes revenues from Employment Insurance premiums will bring in an additional $13 billion between 2011 and 2014.

Civil service cuts to come

Flaherty pledged that Ottawa will not cut payments to individuals or transfers to provinces to keep spending under control. That means the fiscal restraint must be focused on Ottawa's other large revenue drain, program expenditures, Orr says.

In the last fiscal year, 19 per cent of federal expenditures were allocated toward the military, and at seven per cent, the next largest chunk were First Nations and Innu programs.

It would be politically difficult for a minority government to slash from either of those two ministries, Orr says, so the likely candidate to get the axe would be personnel costs in the civil service.

Some 27 per cent of Ottawa's direct personnel costs went to civil services salaries, but even freezing salary increases would only save $500 million annually, Orr calculates.

"The only way to make serious saving is this category is to leave upcoming vacancies unfilled and or to layoff public servants," Orr said. But that would contradict the Harper government's "previously urgent priority" of public service renewal, he notes.

In recent media appearances, Flaherty hinted the government might refrain from filling pending public-sector vacancies that are expected from a wave of retirements.

"At the end of the day, if the government can sufficiently restrain its spending it will balance the budget without a tax increase," Orr said. "If it can't restrain its spending sufficiently, it can not."

If Ottawa can't meet its own three per cent target and spending increases at a four per cent annual pace moving forward, annual deficits will be the norm until at least 2021, Orr forecasts. "And at a five per cent spending pace the government would have a structural deficit," he said.

The best course of action, Orr says, would be for the government to temporarily unwind its recent GST rollbacks before reimplementing them once the books are balanced, a notion Flaherty has repeatedly rejected.