December 19, 2008 / 7:51 AM / 9 years ago

Canada eyes up to C$30 billion in deficit spending

<p>Canada's Prime Minister Stephen Harper speaks during Question Period in the House of Commons on Parliament Hill in Ottawa December 3, 2008. Harper said on Thursday his government could run a deficit of as much as C$30 billion ($25 billion) next year to fund a stimulus package aimed at kick-starting the weakening economy. REUTERS/Chris Wattie</p>

OTTAWA (Reuters) - Canada will break a 12-year string of budget surpluses and run a deficit of as much as C$30 billion ($25 billion) next year to kick-start the economy, Prime Minister Stephen Harper says.

Harper, whose Conservatives have long fought against deficits and increases in public spending, told CTV in a year-end interview aired late on Thursday that the deficit would be short term.

“What will be more realistic, in terms of the kind of stimulus our economy will need, is going to be in the C$20 to C$30 billion range,” he said. “These are the policies we must adopt under these circumstances.”

The higher amount of C$30 billion represents about 2 percent of Canada’s economy, a stimulus target urged by the International Monetary Fund after November’s Washington summit of the Group of 20 developed and developing nations.

Harper made the remarks three weeks after delivering a fiscal update that his political opponents criticized for being overly rosy in its outlook for the economy, which has fallen into recession along with many others around the world.

The deficit spending will include billions of dollars for infrastructure and public housing construction, tax breaks to fuel consumer spending and training for unemployed workers.

Anger over the fiscal update earlier this month prompted opposition parties to form a coalition that came close to toppling the minority Conservative government.

MIXED SIGNALS?

The largest opposition group, the Liberal Party, has since backed away from automatically trying to topple the government, saying it would examine the January 27 budget before deciding.

But Liberal economic spokesman Scott Brison, a former banker now in Parliament, said Harper and Finance Minister Jim Flaherty are sending mixed signals.

Flaherty appointed an advisory council of eminent Canadians on Thursday morning to advise him on how much stimulus is needed and how to apply it.

“If Harper already knows the size and direction of his stimulus package, he ought to let Flaherty know,” Brison told Reuters. “Is he even interested in the views of his ‘eminent’ Canadian panel, or is that another charade?”

Brison also said the budget was headed for deficit even without a stimulus package.

Parliamentary budget officer Kevin Page put out a memo on Thursday saying that if stimulus of C$30 billion were provided in the 2009-10 fiscal year, it would result in a C$34 billion deficit but this might not lead to permanent deficits.

Harper said his plan would include aid for the aerospace, mining and forestry industries, which have been hit hard by the slowing economy and credit crunch.

The federal government and that of the province of Ontario have already agreed to provide billions of dollars in aid to the Canadian subsidiaries of Detroit’s Big Three automakers in conjunction with a U.S. bailout plan.

“Where I want to use taxpayers’ money -- to the extent I can -- is to help ordinary people and help communities,” Harper said.

He said he would have no choice but to seek another election if the opposition Liberal, New Democrat and Bloc Quebecois parties vote down the budget in January and bring down the government.

“Canadians elected our government. They were very clear about that. They gave us a strengthened mandate,” he said.

In the political crisis this month, the coalition had aimed to simply form the government after winning a confidence vote.

But the opposition parties did not get the chance after Harper convinced the governor general -- who represents the formal head of state, Queen Elizabeth -- to suspend Parliament.

($1=$1.22 Canadian)

Additional reporting by Jeffrey Jones; Editing by Peter Galloway

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