The federal government is expecting much bigger, longer lasting deficits than forecast in the budget earlier this year.

In a fiscal update released today, the federal Finance Department indicated that it now expects a $55.9-billion deficit in the current fiscal year, compared with the $33.7 billion that was predicted in the budget.

Federal Finance Minister Jim Flaherty attributed the much bigger shortfall to a weaker-than-expected economy. “It is becoming clear that the depth of the global crisis has led to an impact on the Canadian economy even larger than the government planned for in the budget,” he said in a speech in Victoria setting out the revised forecast.

The grimmer outlook also cascades through the next several years too. For example, the government now expects a $45.3-billion deficit next year, up from $29.8 billion in the budget. The government had planned to be back in surplus by the 2013-2014 fiscal year, however it now expects an $11.2-billion deficit in that year, and a $5.2-billion shortfall in the year after that.

Flaherty offered little that was new in terms of how the government intends to deal with the darker outlook. “The implementation of Canada’s Economic Action Plan remains our top priority as a government,” he said. “That will continue to be our focus for this year and next—staying the course.”

“Once the plan is fully implemented, and we are certain that the recovery has fully taken hold, we will move forward on a plan to return to balanced budgets, as we committed,” he added. “But a sustained economic recovery must come first.”

Additionally, Flaherty warned that uncertainty about the economic outlook remains extremely high, “due to uncertainty over the global recovery, the full effect of the current recession on unemployment, and the impact on commodity prices.”

However, he pledged that it will eventually return to surplus by curtailing spending. “When the time is right—when our Economic Action Plan has been implemented, our recovery is entrenched, and the private sector forecasts become more certain—we will determine the amount of growth restraint that will be required to balance the budget,” he explained.

“A deficit remaining in place five years from now may not seem particularly encouraging today. But it reflects the cautious approach we’re taking to a fragile recovery, not overstating its potential strength for the sake of making the books look better,” he said. “It will be in the context of a recovering economy—not necessarily a booming one—that we can begin restraining spending growth, in order to eliminate that last small deficit five years from now.”