October 26, 2008	Sunday	Shawwal 26, 1429

OTTAWA: Over the last decade in Canada, regardless of the party in power, the idea of running a federal budget deficit has been unthinkable.

Now, the ruling Conservatives are sending increasingly clear signals that they are ready to break that taboo. And observers say the financial times are so extraordinary that the government may not suffer too much politically.

Although many major nations are permanently in the red — most notably the United States — the concept is anathema in Canada, which spent several very painful years eliminating a C$42 billion ($33 billion) budget deficit in the 1990s.

During the campaign ahead of the Oct 14 general election, the Conservatives of Prime Minister Stephen Harper insisted they would not run a budget deficit over the next four years.Now they sound much less certain. Finance Minister Jim Flaherty, who says there will be a modest surplus this fiscal year, ending March 31, refused to speculate on Friday on what might happen the next year, saying it would be irresponsible to do so.Yet in an interesting admission of what might be to come, he told CTV television on Thursday, “we have to stay away from structural deficits” — that is, deficits that persist even when the economy is growing at a reasonable rate.

He added: “Government has to be wary of situations where they will have a great difficulty getting in and out of deficit in the medium and long term.”

Don Drummond, chief economist at Toronto-Dominion Bank, said on Friday that a deficit was inevitable. He predicts that Ottawa will post a C$10.4 billion deficit next fiscal year and smaller deficits for the three years after that.

Even if Ottawa scrapped all its plans for new spending, tax cuts and debt reductions next year, decreasing revenue flows would still mean a deficit.

“If the economy does weaken, I don’t think there’s anything particularly wrong with running a short-term deficit of manageable size but I think the emphasis really has to be short-term,” said Drummond.—Reuters