The venerable Chateau Laurier Hotel is as much an Ottawa landmark as the Parliament buildings and, over the years, has probably seen as much Canadian history as well.

This past week, on consecutive days, it bore witness to the disconnect between the government's economic thinking and those people who think about economics.

On Tuesday, Finance Minister Jim Flaherty concluded a two-day pre-budget conference with private sector economists by happily announcing that the consensus prediction on economic growth for 2010 is up, from 2.3 per cent, to 2.6 per cent.

An historical note: When Paul Martin was finance minister, he started the practice of consulting private-sector economists for their economic predictions, then taking the average of whatever they told him and including those numbers in his budgets. That way, if the predictions turned out to be incorrect, well, it was the fault of the economists not the minister.

Finance Minister Jim Flaherty on his way into a cabinet meeting at the government retreat at Meech Lake, Que., in February 2010. (Fred Chartrand/Canadian Press)

Subsequent finance ministers found this a useful way to include a neutral forecast in their budgets without actually taking ownership. But Flaherty may have just crossed that line.

In his speech at the close of the meeting, he said the uptick in projected economic growth in 2010 was proof that the Conservative government's plan to grow the Canadian economy out of its current $56-billion deficit is going to work.

He is continuing to predict a return to surplus in 2015-16, to be accomplished by some fairly modest spending cuts and no tax increases.

Instead, the main driver will be economic growth.

The fine print

Then the finance minister repeated the rest of the government's mantra: That Canada's strong fiscal condition going into the recession would be a bonus coming out and that a good chunk of the deficit would disappear when the stimulus spending stops by March 2011.

"We are in a strong competitive position vis-a-vis the rest of the world," Flaherty said. "And we aim to gain market share."

By this he meant gaining market share in the emerging markets of China and India, which the minister seemed to think should be queuing up to buy our goods and resources.

Of course it was just last autumn when the Harper government seemed to recognise — belatedly, many said at the time — that, yes, those countries are important markets, and so off went the prime minister on official visits.

Flaherty's audience this week, the Canadian Association of Manufacturers and Exporters, applauded when he talked about increasing market share in these emerging markets.

But they didn't cheer so much when he told them not to worry about the now much stronger Canadian dollar, which can price their products out of these same foreign markets.

His solution was that they should use the strong dollar to purchase foreign-made equipment that will make their factories more competitive. We will have to see how that works out.

A different take

The next day in a hotel meeting room just down the hall, the think-tank Canada 2020 held its own pre-budget session, which drew far less rosy conclusions than the picture the finance minister painted just the day before.

Taking part in the panel discussion were: Parliamentary Budget Officer Kevin Page; Avery Shenfeld, the chief economist at CIBC; former deputy finance minister Scott Clark; and former Liberal finance minister John Manley, who is now the top guy at the Canadian Council of Chief Executives.

Canada 2020 presents itself as a progressive but non-partisan think-tank and it has hosted speakers from a variety of political backgrounds. Full disclosure: I recently became a member of its advisory board and was the moderator for this panel discussion.

At Wednesday's gathering, Kevin Page repeated his claim that there will be an ongoing shortfall between the money the government takes in and the money it must spend, which will see a continuing federal deficit of around $19 billion in 10 years time.

Scott Clark, who was deputy finance minister at the end of the 1990s, when the budget finally moved into surplus, suggested things were even worse.

Clark pointed out that there are a number of issues emerging in the next few years that will have huge budgetary impacts. Not the least is the need for a new agreement between Ottawa and the provinces on health-care spending to replace the one that expires in 2014.

The luxury of blame

Avery Shenfeld and John Manley agreed that the economic situation is not as painless as the finance minister would have us believe.

But Shenfeld said it didn't matter too much as long as the ratio of debt to GDP didn't get out of whack. And Manley said the Liberal government faced an even more serious deficit problem when it came to power in 1993.

Manley's point could be taken as good news by Jim Flaherty, as the Liberals went on to eventually slay the deficit.

But of course the Liberals came to office when the deficit was in full bore and the problem could be blamed on the previous Conservative government.

(That was when then finance minister Paul Martin introduced the pre-budget consultation on a grand scale — a year of meetings and other public information devices — to get the country ready for the draconian measures in 1995 that slashed spending across the board.)

Today, though, the Harper government has a different set of political circumstances to deal with.

It came to office at a time of surplus, cut taxes like the GST to reduce the money Ottawa collects, and then saw the recession lead to the biggest deficit ever.

To win over public opinion for any tough measures that might actually reduce the deficit would require a dose of mea culpa, which is something politicians are loath to do.

For instance, raising the GST back to seven per cent, would bring in about $25 billion dollars a year — roughly the amount of Kevin Page's structural deficit — which would make the argument about economic growth leading the way to surplus all the more credible.

But that is not going to happen. Not with this government. Not in the upcoming budget. That was very clear from the two meetings at the Chateau Laurier.