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A balanced budget law is not a cure-all for federal finances: PBO

September 23, 2014 - 10:25 AM

OTTAWA - Canada's parliamentary budget officer says a law requiring the federal government to run balanced budgets in normal economic times doesn't guarantee economic stability.

A new report on the subject says such a law poses risks as well as benefits.

The Harper government proposed a balanced budget law in its last throne speech, a year ago.

The report says such a law could help produce lower debt and interest costs, but it could also hurt the government's ability to be flexible during economic downturns.

It says Canadian governments have run deficits more often than not in recent history, but the red ink was mostly driven by economic slumps or inflation-driven high interest rates.

Those governments moved back towards balance as soon as they could.

For now, the report said, the federal government's medium-term budget plan is financially sound and credible.

A balanced budget law is not an economic panacea, the report warned.

"For the government's long-term financial health, a balanced budget plan for the medium term is neither necessary or sufficient," it said.

"The sustainability of the public debt depends also on the growth rate of GDP, the interest on public debt and transactions in capital and financial assets."

The report said the key will be drafting legislation that allows flexibility, provides for independent assessment of compliance and requires the government to provide details about program cuts made to maintain a balance.

News from © The Canadian Press, 2014
The Canadian Press

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