OTTAWA—Finance Minister Jim Flaherty acknowledged the economy is performing worse than predicted but did little in Tuesday’s mini-budget to stimulate economic prospects for Canadians.The deteriorating global situation threatens to knock the legs out from under the Conservatives’ economic strategy, which calls for the federal government to shift into an era of tough spending restraint after a two-year, $48 billion spending spree to offset the recession.
“We have to be realistic about what’s going on in the world,” Flaherty told reporters after releasing the annual economic update. “We are living in a highly uncertain world.”
In a major shift, Flaherty admitted the Conservatives won’t live up to their signature election campaign promise to whittle away Ottawa’s record budget deficits by fiscal 2014-15. Largely because of reduced tax revenues from slower-than-predicted economic growth, the Harper government will be unable to wipe out the budget deficit until fiscal 2015-16, Flaherty said.
If true, this could have a direct impact on the ability of the Conservatives to meet their election campaign promise of more tax breaks for Canadians.
Election pledges of income splitting for working families, additional tax breaks to encourage physical fitness and a doubling of contributions to tax-free savings accounts won’t happen until the budget is balanced.
As first reported by the Star, Flaherty confirmed two measures the government is taking — scaling back a planned hike to employment insurance premiums and extending a work-sharing program — in a bid to safeguard the Canadian economy from global turmoil.
Flaherty’s update drew flack from several quarters. New Democrats criticized it for doing little to help Canada’s unemployment, which experienced a surprising jump last month.
And the Canadian Taxpayers Federation took aim at the Conservatives for missing their deficit target made just seven months ago and forcing Canadians to wait longer for promised tax relief.
“If he doesn’t deliver a balanced budget, he’s not going to deliver tax relief. He’s only going to deliver more debt,” said Gregory Thomas, federal director of the CTF. He urged the Conservatives to cut costs to balance the budget sooner.
NDP MP Peter Julian said the fiscal and economic update is silent on measures to put Canadians back to work, despite October’s statistics showing the economy lost 54,000 jobs.
“There’s not a single new measure for job creation at a time when the economy desperately needs that,” Julian said in an interview. “Their overall approach is fundamentally flawed.”
He said the moves to limit a payroll tax increase as well as extend the work-sharing program are scant consolation “for the families that are losing a breadwinner.”
“And we’re talking tens of thousands over the last few weeks,” Julian said.
But in his speech in Calgary, Flaherty suggested that the government was trying to walk a line between competing demands.
“On one hand, we have people urging us to slash spending across the board,” Flaherty said. “On the other, we have calls for billions of dollars of new spending.”
Speaking later to reporters, he made clear the government has no appetite for big-ticket programs to stimulate the economy, like the spending spree that just ended.
“If we were to continue with that plan now, we would create a structural deficit in Canada. We would end up in the same kind of mess quite frankly that some other countries in the world have gotten themselves into,” Flaherty said. “We’re not going there.”
Flaherty didn’t completely discount the chance that the budget could be balanced by 2014-15, saying that remains the government’s goal but said current turmoil made it impossible to say for sure.
Interim Liberal Leader Bob Rae said Flaherty’s update ignores the provinces, which are sure to see their own deficit targets slip, too, meaning a worsening picture overall for government finances across the country.
“He’s not admitting that our fiscal challenge is even greater than he’s pretending it is. If he misses his targets, you assume that everybody else is going to miss theirs,” Rae said.
He also criticized Flaherty for not freezing employment insurance premiums altogether, saying it makes “no sense” to hike payroll taxes when the economy is slowing.
Canada’s recovery from the recent recession has been slowed by the lacklustre performance of the economy in the United States, which takes the bulk of Canadian exports. And the shaky situation in Europe, where the debt crisis in Greece could easily spread to undermine the stability of larger economies such as Italy and Spain, has increased the risks of another worldwide economic slump.
As a result, Flaherty cited forecasts that show Canada’s economic growth dropping sharply this year to 2.2 per cent from 2.9 per cent predicted in the March budget. The forecast for 2012 is equally gloomy, with growth expected to come in at 2.1 per cent — much below the 2.8 per cent in March.
Origin
Source: Toronto Star
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