Budget officer forecasts bigger deficits (Reuters)

OTTAWA (Reuters) – Canada's economy and fiscal health will fare worse than expected in coming years, the country's budget officer said on Wednesday in a downbeat report days ahead of the government's budget.

The Parliamentary Budget Officer (PBO) issued a report providing the office's own economic growth forecasts for the first time, rather than using the consensus private sector forecasts published by the government.

It predicted the government would not be able to eliminate the federal deficit by 2014-15 as it has planned due to higher projected operating expenses.

Mediocre growth, unemployment remaining above 7 percent until 2016 and a persistently strong Canadian dollar mean the Bank of Canada will be reluctant to raise interest rates too quickly, it said.

"Reflecting the sluggish recovery, PBO projects that the output gap will close gradually, restraining the pace of interest rate hikes by the Bank of Canada," said the report.

The PBO's fiscal outlook excludes new measures announced by the government in its March budget, which was never adopted because of the general election. The Conservatives, who won a majority on May 2, will present another budget on Monday, which they say will be largely the same as the previous document, with some minor tweaks.

The PBO sees a budget deficit in 2011-12 of C$26.1 billion, slightly below Ottawa's latest projection of C$27.8 billion.

While the Conservatives predict a return to balance in roughly 2014-15, the PBO sees a shortfall of C$13.3 billion that year and C$7.3 billion the year after.

"PBO's estimate of the structural deficit does not mean that the government's budget will not return to balance or that its fiscal structure is not sustainable," the report said.

"Rather, it suggests that policy actions to increase revenues and/or reduce spending would be required to ensure that the budget is balanced once the economy returns to its potential."

Gross domestic product will grow 2.9 percent this year, the PBO estimated, in line with government forecasts. Growth in 2012 and 2013 will be below government forecasts at 2.2 percent and 2.3 percent, respectively.

PBO projects budgetary deficits totaling $128.2 billion from 2010-11 to 2015-16, compared with the C$93.6 billion projected by the government.

Finance Minister Jim Flaherty responded to the PBO report by suggesting Budget Officer Kevin Page should read the March budget proposal to see how Ottawa plans to return to surplus.

"It's all set out how we would do it. It's in the budget that we filed March 22," Flaherty said.

The cost of measures announced in the March budget -- and excluded from PBO's calculations -- totaled C$7.6 billion over six years, the government said at the time. It also said it had found savings of C$6.2 billion over five years.

In addition, it promised to squeeze out an additional C$11 billion in savings between now and 2016 but did not include those savings in its projections.

Ottawa has said the budget will restate commitments made in the original plan and add a couple of campaign promises.

On Tuesday, Flaherty said the spending plan will use the same economic growth forecasts as the original budget, which assumed 3.1 percent expansion this year and 2.8 percent in 2012.

(Reporting by Louise Egan; editing by Rob Wilson)

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Obama at Facebook: Deficits Can Be Cut

Associated Press

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Making his case to a young audience at Facebook headquarters, President Obama says trimming $4 trillion from the nation's deficits over the next 12 years sounds like a lot but can be done.

Obama was in Palo Alto, Calif., on Wednesday answering questions in person and online during a town hall at the home base of the popular social networking site.

Obama will hold another session Thursday in Reno, Nev. He's on a three-day Western tour with his message that his approach to cutting government deficits is more balanced and less painful than a rival House Republican plan.

The president has proposed cutting spending, raising taxes and squeezing federal health care programs. The Republican plan rules out tax cuts and would achieve nearly $6 trillion in savings from spending cuts and overhauling Medicare and Medicaid.

President Barack Obama sought to connect with younger voters Wednesday with a town hall meeting at the headquarters of Facebook, the hugely popular social networking site.

Obama, who already has a lot of Facebook fans -- more than 19 million on his official page -- took questions at the start of a West Coast trip aimed at building support for his deficit-reduction plans and raising money for his re-election bid.

In town hall meetings in California and Nevada, he is pitching his prescription for reducing the deficit by $4 trillion over 12 years through a combination of spending cuts and tax increases for the rich. The president's three-day trip is his most extensive travel since he announced his 2012 bid earlier this month.

That campaign could set new fundraising records as Obama courts high-dollar donors as well as young people, many of whom were among the small donors who buoyed his 2008 campaign.

In Palo Alto, Obama took questions submitted via Facebook and read to him by a moderator as well as some questions from a small in-person audience. Video of the event was streamed on the White House Facebook page.

Weeks of heated debate in Washington over long- and short-term spending have left Obama with some of the lowest approval ratings of his presidency. But the numbers are even lower for the Republican-led House and Obama's potential Republican challengers.

Voters say they want Washington to tackle deep deficit reductions, and both parties are responding -- Obama with his plan to cut $4 trillion, and House Republicans with a plan they passed last week that seeks to cut $5.8 trillion in spending over 10 years. The challenge for the president and his Republican rivals is to also connect their efforts with the public's pressing concerns over persistently high unemployment and rising gasoline prices.

Obama is using all of the resources at his disposal to make his case, from the town halls he's holding this week to the interviews he conducted Monday with local television stations in politically important states. GOP lawmakers, too, are making use of the spring break on Capitol Hill to meet with constituents.

In this age of Twitter, YouTube and dwindling viewership of broadcast evening news, a president must use every resource available, White House press secretary Jay Carney said.

"It's a mix of traditional media, new media, national media, regional media," Carney told reporters. "You've got to reach Americans where they are."

Republicans acknowledge that Obama's 2008 campaign bested them at using social media to raise money and fire up supporters. GOP candidates trying to take Obama's job -- such as former Massachusetts Gov. Mitt Romney, who announced his 2012 campaign on Twitter, and former Minnesota Gov. Tim Pawlenty, who has taped a series of videos for YouTube -- are mimicking his techniques.

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White House: Obama to Propose New Plan to Reduce Long-Term Deficits

AP

President Obama is introduced by senior adviser David Plouffe before he speaks at a Democratic National Committee event in Washington March 16.

White House senior adviser David Plouffe said Sunday that President Obama plans to outline a new proposal for bringing down the federal deficit this week. 

The announcement comes shortly after the White House reached a deal with Congress to fund the government for the rest of the fiscal year, and ahead of two other spending battles. Republicans are pushing for trillions in additional spending cuts over the next decade as part of their 2012 budget proposal and are threatening to torpedo a vote to raise the debt ceiling unless their spending-cut demands are met. 

Plouffe, who served as Obama's campaign manager in 2008, told "Fox News Sunday" that Obama wants to take a "balanced approach" to these issues and will lay out his proposal this week. The Obama plan, a follow-up to an earlier White House budget outline, would effectively serve as a counterproposal to the 10-year plan unveiled last week by Rep. Paul Ryan, R-Wis. -- a plan that aims to reduce the deficit by $4.4 trillion in that period through spending cuts and entitlement reforms.  

"We have to use a scalpel, not a machete," Plouffe cautioned, while vowing to look at "all corners of government" for savings. "We're going to have a big debate."

Plouffe said the president's plan would address Medicare and Medicaid, though he said Obama would downplay Social Security as a minor contributor to the country's short-term deficits. He said the president would continue to push for rolling back the Bush tax cuts for wealthy Americans. 

"His budget for this year says for upper-income Americans, he does believe that they need to contribute to the deficit reduction in this country," he said. 

The White House said in a Twitter post that the president would deliver his opening speech on the plan Wednesday. 

Plouffe, in the interview, criticized Ryan's plan for making cuts to education and energy investment while giving tax breaks for the wealthy. But Plouffe made clear that the White House is outlining its new deficit reduction plan with an eye toward the upcoming debt ceiling vote. 

"We're not going to default on the debt limit. We can't do that," Plouffe said, warning that such a move would hurt job creation and lead to increased interest rates. He said the White House wants to make clear that deficit reduction is possible, suggesting lawmakers on both sides of the aisle should back an increase in the debt ceiling while working toward long-term deficit reduction. 

"We don't disagree that we cannot continue on this fiscal path," he said. Plouffe said that, as the latest budget deal proves, "compromise is not a dirty word."  

But House Republican Leader Eric Cantor, R-Va., questioned whether Obama had found religion on spending cuts. Though Republicans and Democrats just reached a deal to cut $38.5 billion out of the budget for the rest of the current fiscal year, Cantor said the White House wasn't exactly cooperative. 

"We've had to bring this president kicking and screaming to the table to cut spending," Cantor told "Fox News Sunday. "It's really hard to believe what this White House and what this president is saying." 

He said Republicans will still need to see genuine spending cuts and entitlement reforms to go along with an increase in the $14.3 trillion debt ceiling. 

Earlier in the year, Obama proposed a 10-year budget plan that forecast $1.1 trillion in deficit reduction. But Republicans derided the proposal, noting that the president was looking to freeze discretionary spending at already-high levels and that the national debt would continue to soar under his plan. 

Sen. Jeff Sessions, R-Ala., top Republican on the Senate Budget Committee, said Sunday that he hopes the next proposal will be "sincere." 

"I think he needs to do more than just give a speech," he told Fox News. "I think he needs to submit a new budget." 

Cantor said Sunday that the weekend's budget deal was "only the beginning" in the battle to control spending. 

"We have a fiscal train wreck before us," he said. "This is the first bite of the apple." 

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