His fall economic update showed a bottom line worse than many expected, with the deficit at $26 billion, up $5 billion from the March budget forecast.
Flaherty also said it will take a year longer than predicted to balance the budget.
"Canada has clearly been affected by volatile and falling world commodity prices since the budget in late March," he said in notes for a speech to a Fredericton business audience.
"And the forecast of private sector economists is consistent with the view that world commodity prices will remain below the level anticipated at the time of the budget."
Because of the weakness, the government expects revenues to be on average $7.2 billion below what it had counted on in the budget during the five-year horizon period.
Flaherty made clear that he remains on track in keeping government costs down. Program expenses edge down as a percentage of the country's gross domestic product during the period.
But the numbers show the government can't overcome the lower revenues, which were first noticed in the final accounts of last year's budget period. They carry on this year and into future years.
Ottawa now projects its deficit will rise to $26 billion this fiscal year, which ends in March, as opposed to the predicted $21.1 billion. Going forward, the deficit is now projected at $16.5 billion next year, compared with the budget estimate of $10.2 billion, and $8.6 billion in 2014-15, as opposed to $1.3 billion.
The March budget anticipated a $3.4 billion surplus in 2015-16, but now Flaherty expects a $1.8 billion deficit that year. The new calculation is that Ottawa will finally show a surplus of $1.7 billion in 2016-17.
The projections do include a $3 billion margin of error, or so called "risk adjustment," so it is possible that Ottawa could still come in on target if those risks do not materialize, or if the economy performs better than expected.
In his speech, Flaherty cautioned that the world is full of risks and again expresses concern about a U.S. fiscal crisis if Congress and re-elected President Barack Obama cannot come to an agreement before Jan. 1.
But he also said there is also some cause for optimism, in which case both the Canadian economy and government finances will improve.
"Growth in Canada could be significantly stronger than expected if the United States policy-makers are able to reach an agreement to avoid the fiscal cliff in 2013, while implementing a medium-term plan to reduce their debt and deficit," he said.