Canada pushes back deficit elimination deadline

Finance minister reduces 2012 EI hike by half

(Reuters) - Canada pushed back its promised date to balance the budget by a year on Tuesday as a global economic slowdown takes its toll on a domestic economy that has outperformed most rivals.

Finance Minister Jim Flaherty, updating his June budget, said the budget deficit would be eradicated in the 2015-16 fiscal year, a similar time frame to Germany, Britain and France. In June he had said it would be wiped out in 2014/15.

Flaherty, speaking in Calgary, said the European debt and banking crises posed a significant risk to the global and Canadian outlooks.

"The government is increasing the adjustment for risk to take into account these heightened short-term concerns and, for fiscal planning purposes, provide the cushion (that) the still uncertain environment demands," he said.

Flaherty pegged the the 2011/12 deficit at $31 billion, down from the initial forecast of $32.3 billion, including savings from Ottawa's deficit reduction plan.

In the days before the update Flaherty had signaled the timeline for eliminating the deficit would be pushed back.

In the update, he projected the 2012/13 deficit at $26.4 billion, up from C$18.4 billion forecast in June.

It would diminish further to $15.0 billion in 2013/14 and $3.5 billion in 2014/15 with a surplus of $600 million in 2015/16, he projected.

The federal debt-to-GDP ratio is expected to decline to 30.3 percent in 2016/17 from 33.9 percent in 2010/11, levels well below that of many other major economies.

In a sign Ottawa is worried about potential further fallout from the European debt crisis, the government extended two existing stimulus measures that were due to expire and introduced what it called a "risk adjustment", which uses more conservative growth forecasts with the effect of widening the budget deficit.

In 2010, the government reduced the maximum increase in employment insurance premiums for a two-year period. That maximum increase was schedule to rise to 10 cents per $100 of insurable earnings in 2012 but will now remain steady at 5 cents for another year.

Additionally, Ottawa will extend until October 2012 a measure that allows employees with work-sharing agreements to get benefits while their employer recovers from the downturn.

Flaherty said Canada was doing well despite the shaky global economy, and he noted that every government bond issue had been oversubscribed.

"If I could leave you with one message, it's that our country currently possesses something that many, many nations today consider precious and exceedingly rare, and no, I'm not talking about oil. It's stability," he said.

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