January 7, 2009 / 8:31 PM / in 9 years

Canada to budget for large but short-term deficits

OTTAWA (Reuters) - Canada’s Conservative government plans to budget for large, but temporary, budget deficits to try to rescue the ailing economy, a top aide to Prime Minister Stephen Harper said on Wednesday.

“We’re prepared to run large short-term deficits in order to support our economic recovery package,” the aide told reporters as the minority government prepared its January 27 annual budget.

He also said the Conservatives, which must rely on the support of one of the three opposition parties to stay in power, were less inclined than before to make noneconomic issues matters of confidence that could topple the government.

“Our primary focus is the economy and the secondary matters are exactly that, secondary to the economy,” said the official, speaking on condition of anonymity.

“The expectation of Canadians is that the government and the opposition parties will put their focus on economic issues.”

The Conservatives were re-elected with a strengthened minority in Parliament in October but came within a whisker of being toppled last month over the government’s fall economic statement.

The opposition was angered by the government’s attempt, now withdrawn, to end public subsidies for the parties and complained that the fall statement should have contained immediate fiscal stimulus.

Canada is the only member of the Group of Seven leading industrialized nations still to be running a budget surplus and the government has signaled since the election that it would go into deficit in the fiscal year starting April 1.

The Harper aide said the key was to make sure that government stimulus measures would result in only short-term deficits. However, he said the global economic turmoil made it impossible to predict how long the deficits would last.

“Getting into long-term projections is a bit foolish at this time,” he said.

After last month’s high-stakes brinkmanship by both the government and the opposition, the guessing on Parliament Hill now is that the main opposition Liberal Party will block any attempt to bring the government down.

But there will be a string of confidence votes in the wake of the Throne Speech, the government’s broad policy statement, to be delivered on the afternoon of January 26, as well as after the budget, presented the following afternoon.

The new Liberal leader, Michael Ignatieff, has opened the door to compromise, refusing to commit to bring down the government over a budget he has not yet seen.

The Liberals had signed an agreement on December 1 with the leftist New Democratic Party and the separatist Bloc Quebecois to try to bring the Conservatives down and install a Liberal-NDP coalition. That agreement remains, on paper, but Ignatieff has since distanced himself from it.

Editing by Rob Wilson

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