L‘AQUILA, Italy (Reuters) - Canada said on Friday it would not have to cut spending or raise taxes to end its budget deficit, but said countries with structural deficits will need to begin thinking about exit strategies.
Speaking after a summit of the Group of Eight leading industrialized nations, Prime Minister Stephen Harper said it was too early to start cutting stimulus but this topic could figure prominently in next year’s G8 summit in Canada.
“I am not suggesting that any country begin to unwind its economic stimulus measures now. That would clearly be way too premature,” Harper told a news conference.
“I have suggested that those that are seeing the emergence of these structural deficits ... have to at least be thinking about how they are going to emerge out of a structural deficit position as the recovery begins to take hold.”
Right now, he said, the global economy was showing greater stability and the severity of the recession was easing. By next June’s G8 summit he hoped the recovery would be fully under way and exit strategies could be planned.
Fellow G8 member Germany has expressed concern about too much stimulus, while the United States and Britain have suggested more might be needed.
Harper said Canada entered the recession with a budget surplus and would be back in the black simply because of tax revenues increasing as the economy grew again.
By the end of the 2010-11 fiscal year, he said, he anticipated the Canadian economy would be in full recovery. Typically two years later, tax revenues should recover, but a balanced budget could take longer if the economic recovery were slower.
“Let me very clear on this. We will allow the deficit to persist if necessary. What we will not do is cut programs in the middle of a recession ... and we will not raise taxes,” Harper said.
He said it would be “a very dumb policy” to do so just to satisfy a timetable. He also said that to the extent that the independent parliamentary budget officer, Kevin Page, suggested that, it was a “dumb position.”
Page said this week that the federal deficit would remain past 2013-14 unless there were tax hikes or spending cuts.
Harper said Page was more pessimistic than most other forecasters, including the World Bank, the International Monetary Fund and the Organization for Economic Co-operation and Development.
During the G8 summit, which was expanded on its second day to include emerging nations, China spoke of developing an alternative reserve currency to the U.S. dollar, though this did not make its way into any communique.
Harper said he was not opposed to discussing the subject and said such talk could eventually be appropriate as “wealth and the power of the global economy broadens. But I think for Canada, giving our relationship and integration with the American economy, the American dollar will always remain a principle focus of our attention.”
Editing by Rob Wilson