The Canadian government will not be able to keep its election promise to balance the budget in two years, Finance Minister Jim Flaherty said on Tuesday.
Flaherty and Canada's Prime Minister Stephen Harper said during last spring's federal election campaign that Canada was on the verge of a balanced national budget. Now, Flaherty expects to run a deficit until 2015.
The announcement came after months of criticism by Harper and Flaherty of European governments that are facing sovereign debt crises and trying to implement austerity measures that are often unpopular with their citizens.
Flaherty, whose government is trying to reduce costs by cutting the federal bureaucracy and reduce government waste, blamed the reduced federal revenues on a slowdown of economic activity caused by the European sovereign debt crisis.
"Canada's key economic threats are not of our own making," Flaherty said to the Calgary, Alberta, Chamber of Commerce, a meeting of business leaders in a city where Flaherty and Harper's Conservative Party have strong support.
Flaherty promised his audience that Canadians can count on economic stability.
"Countries, just like individuals, do not stumble into prosperity. They set out a plan and stick to it, so that they are fully capable of seizing opportunity when misfortune hits, instead of merely being overwhelmed by it," Flaherty said.
"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."
To combat the deteriorating economy, Flaherty announced a small cut in the tax that employers and workers pay for unemployment insurance. As well, he announced an extension on "work sharing," which gives employees the ability to work part-time while drawing a portion of unemployment benefits.
Flaherty's economic update came just a few days after his government announced a loss of 54,000 jobs last month, most of them full-time positions in manufacturing.
Meanwhile, Europe is sinking into a recession that may last years, Bank of Canada Governor Mark Carney warned Tuesday. He said Europe can expect "at least a brief recession."
Carney, newly-appointed head of the Financial Stability Board of the G20, told London bankers they need to increase global financial liquidity and get money into the hands of investors who will actually use it to improve productivity.
"Over the medium term, the continuation of such extreme liquidity cycles could ultimately threaten open capital markets and a free trading system if not better addressed," Carney warned.