January 6, 2009 / 2:50 PM / 9 years ago

Canada budget to address credit access-minister

<p>Canada's Finance Minister Jim Flaherty talks with the media after an all day meeting with the provincial and territorial finance minister in Saskatoon, Saskatchewan December 17, 2008.David Stobbe</p>

MONTREAL (Reuters) - Canada's upcoming budget will address the issue of access to credit and contain a clear plan for the country to eventually emerge from deficit financing, Finance Minister Jim Flaherty said on Tuesday.

Flaherty, who warned that both domestic and international economic conditions continue to deteriorate, said the Conservative government is also weighing further tax cuts as a way of stimulating the economy.

"The No. 1 issue that I've heard so far across Canada has been access to credit, access to financing ... so yes that is an issue, that is the access to credit, we expect to address in the budget," he told reporters in Montreal, without giving specifics.

Speaking to reporters a day after he met with the chief executives of Canada's big banks, Flaherty said the government has agreed to form a working group with the banks to address the issue of credit availability for businesses and consumers.

Prime Minister Stephen Harper said late last year that Ottawa could spend up to C$30 billion ($25.4 billion) this year on stimulus measures.

Flaherty told the Canadian Broadcasting Corp. later on Tuesday that Canada would run "a significant deficit" in the 2009-10 budget and also said it would be in deficit before any stimulus measures were taken.

In a much-derided fiscal update delivered late last November, he had originally said the budget for the next four years would be balanced before stimulus measures were taken into account.

Speaking earlier in the day, Flaherty said the government was looking at policy options that could help revive the markets for commercial paper and securitized debt, which have fallen victim to the global credit crunch.

Finance and central bank officials have prodded the country's banks to loosen up lending to try to support the faltering economy.

The banking industry has responded warily to the idea of looser credit, arguing that prudent lending practices have helped it avoid major losses and protect depositors' money.

Flaherty told reporters the budget, set to be brought forward on January 27, would contain an outline of how the country would eventually balance its books.

He spoke as the government conducts a series of pre-budget consultations across the country, with the issue of revamping unemployment insurance rules raised several times. He said Ottawa will have to take steps to cushion the blow to Canadians who lose their jobs, including retraining workers.

Flaherty also noted there was enthusiasm in many corners for tax cuts.

"Tax reductions are one way of encouraging investment, leaving more money in people's pocket so that they spend it," he said.

Flaherty deflected questions about how Ottawa would be affected by large tax cuts that U.S. President-elect Barack Obama is promising to introduce, saying Canada's economy was in much better shape that its U.S. counterpart.

"Canadians have good reason to be much more confident about Canada in 2009 than what the American economy is enduring," he told the CBC, stressing that no final decisions had been taken on what would be in the budget.

($1=$1.18 Canadian)

Additional reporting by David Ljunggren; writing by Jeffrey Hodgson, Ka Yan Ng, Jennifer Kwan and John McCrank; editing by Rob Wilson

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