Finance topics

BEIJING — As the federal budget deficit soars into the stratosphere, Treasury Secretary Timothy Geithner is reassuring the Chinese — the largest holders of U.S. government debt — that President Barack Obama’s administration is serious about restoring fiscal discipline once the current economic crisis is resolved.

Geithner, making his first trip to China as Treasury secretary, used a major economic policy address Monday as well as separate meetings with top Chinese officials to deliver that message.

"As we recover from this unprecedented crisis, we will cut our fiscal deficit, we will eliminate the extraordinary government support that we have put in place to overcome the crisis," Geithner said in a speech to students at Peking University, which Geithner attended as a young college student learning Chinese nearly three decades ago.

The Chinese officials did not comment publicly on Geithner’s reassurances, but judging from the reaction of the college students, Geithner still may have some explaining to do.

The students peppered the Treasury secretary with questions about the debt, the administration’s massive amounts of support to the banks and U.S. auto companies and the recent rise in interest rates on Treasury securities.

Some students wanted to know whether China’s holdings of $768 billion of U.S. Treasury securities — which makes China America’s biggest creditor — were safe, given projections by Obama’s administration that the deficit for this year will soar to an astronomical $1.84 trillion, four times the previous single-year record.

China’s investments in the United States "are very safe," Geithner told the students instant cash advance. "We have the deepest, most liquid financial markets in the world."

The recent rise in long-term rates for Treasury securities was not a reflection of worries about rising U.S. budget deficits but a reflection of the view by investors that the global economy is improving, which lessens demand for U.S. Treasuries as a safe haven, Geithner explained.

As far as spending large amounts of money to support Chrysler and General Motors as they go through bankruptcy, Geithner said the administration was optimistic that government support would only be temporary. "We want to have a quick, clean exit," he said.

Geithner also stressed to the students that the administration would soon unveil a comprehensive overhaul of financial system regulations designed to fix the flaws exposed by the current economic crisis. "We have a lot to do, but we are going to fix this."

Later, Geithner and other Treasury officials met at the Great Hall of the People with a team of economic officials from China led by Vice Premier Wang Qishan for discussions about the high-level talks in Washington this summer between the two nations.

Wang called the talks, which will replace the Strategic Economic Dialogue begun in the Bush administration, an "important initiative in growing the China-U.S. relationship."

Geithner will wrap up his visit Tuesday with meetings with Chinese President Hu Jintao and Premier Wen Jiaboa.

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OTTAWA–The federal government is now officially in a deficit position with no prospect of getting out of the hole any time soon, the Finance Department said Friday.

The department's monthly fiscal monitor shows government revenues hit a wall in March as corporations began taking large refunds on prepaid tax, and more laid-off Canadians stopped paying taxes.

The net effect was that Ottawa lost $3.6 billion in March, closing the books on the 2008-2009 fiscal year $2.2 billion in the hole. Last year at this time, the government sat on an $11.4 billion surplus.

The last time Ottawa recorded an annual shortfall was in 1996-97, and according to Finance Minister Jim Flaherty, it will be at least another four years before the government sees black ink again.

"Personal income tax revenues decreased by $1.3 billion (in March), or 12.4 per cent, reflecting lower employment and personal income tax reductions announced (in the budget," the department said.

"Corporate income tax revenues were down $2.1 billion, or 46.8 per cent, reflecting refunds issued in the month."

While a final tally on the fiscal year won't be released until later this summer, the $2.2-billion shortfall is twice what Flaherty had predicted in the January budget.

Earlier this week, Flaherty surprised Canadians by announcing that his prediction for a $34-billion deficit during this current fiscal year also grossly underestimated the impact of the recession on the government's bottom line.

He now says the deficit will top $50 billion.

March's shortfall occurred despite a $600-million decrease in program spending, and $200 million lower debt servicing charges payday loan companies.

The big problem for Ottawa is that revenues collapsed, reflecting the weaker economy and to a lesser extent tax cuts introduced in the budget.

Overall, revenues fell by $3.1 billion for the month, or 14.4 per cent lower from March 2008.

For the fiscal year that closed March 31, government revenues were $9.2 billion lower despite a 2.4 per cent increase in receipts from personal income taxes.

Corporate tax revenues were down $11.1 billion, or 27.2 per cent, reflecting both a weaker profit climate, the impact of lower corporate tax rates and firms beginning to seek refunds on taxes paid.

The department also reported it had an $89.5-billion financial requirement during the fiscal year, compared to a $13.6-billion financial source the previous year, as a result of Ottawa's attempt to improve liquidity in financial markets.

"This year-over-year difference reflects the Budget 2007 announcement that the government would meet all the borrowing needs of Canada Mortgage and Housing Corporation, the Business Development Bank of Canada and Farm Credit Canada. The difference also reflects $55 billion in initial purchases of mortgage pools through Canada Mortgage and Housing Corp.," the department explained.

While the financial requirement is not booked as a deficit for Ottawa because it represents a swap of assets, it does affect the government's borrowing levels.

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