Canada may have to downgrade growth forecasts: Flaherty

OTTAWA (Reuters) - Canada may have to downgrade its economic and fiscal forecasts to take into account the European debt crisis and the choppy U.S. recovery, Finance Minister Jim Flaherty said on Thursday.

In the government's fall fiscal update due in the coming weeks, Flaherty will update the outlook for the federal budget deficit, based on the average growth forecast of private sector experts whom the government consults regularly.

"We expected moderate growth, the economists in Canada told us to anticipate moderate growth and as you know, we follow the recommendations (of) the average of a group of private sector economists," Flaherty told reporters.

"We're watching closely ... we may have to revise downward somewhat, but so far, we're in the same ball park as we anticipated in the federal budget," he said.

The 2012 budget presented in March envisions growth of 2.1 percent for this year and 2.4 percent next year.

The International Monetary Fund this month lowered its outlook for Canada to 1.9 percent growth this year and 2.0 percent in 2013.

And a recent Reuters poll of more than 20 economists found they expect Canadian growth of just 2 percent this year and next.

Ottawa has also been predicting the fiscal deficit will narrow gradually and return to a small surplus in 2015/16.

Lower growth could weaken government revenues and potentially delay the return to balanced books, although Flaherty maintains that it will happen in "the medium term."

PENSIONS TARGETED

The Conservative government is also taking steps on the spending side. It outlined major reforms to public sector pensions in broad-ranging legislation introduced to Parliament on Thursday to push through measures first announced in the budget.

The pension changes will save the government C$2.6 billion ($2.7 billion) over five years, said Tony Clement, who oversees spending cuts in the federal bureaucracy as president of the Treasury Board.

The retirement age for politicians and new hires in the public sector workers will rise to 65 from 55, and both will be responsible for 50 percent of pension contributions, bringing them more in line with private sector practices.

"We are paying our fair share, we believe public servants should pay their fair share," said Clement.

Elected members of Parliament won't be subject to the full brunt of the changes until after the next election in 2016, while civil servants will have to comply as of 2013.

The budget legislation also extends a tax credit for small businesses, phases out a tax credit for mining exploration and development and revamps the country's system of tax incentives for business research and development.

The opposition New Democratic Party criticized the Conservatives for cramming so many measures into the 450-page document and said more of the tax measures should be linked to job creation.

"Part of the problem with the approach of this government is they lurch from budget to budget and it doesn't give business the kind of predictability they need," said Peggy Nash, the NDP's spokeswoman on finance.

(With additional writing by David Ljunggren; Editing by Jeffrey Hodgson and Bernadette Baum)

Source: http://news.yahoo.com/flaherty-worried-provincial-debt-deficits-143154350--business.html

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