December 23, 2010 / 6:06 AM / 7 years ago

Focus on deficits, Flaherty tells Canada provinces

<p>Canada's Finance Minister Jim Flaherty listens to a question during an interview with Reuters in Ottawa December 21, 2010.Chris Wattie</p>

KANANASKIS, Alberta (Reuters) - Canadian Finance Minister Jim Flaherty said on Monday he expected almost all of the country's provinces to eliminate their budget deficits by 2015, the same target the federal government has set for itself.

The one exception is Ontario, the most populous province, which took the biggest financial hit in the recession, Flaherty said.

He and provincial finance ministers met in the Rocky Mountain resort of Kananaskis, Alberta, on Monday to discuss deficits, the economic outlook and pension reform, an area of shared responsibility.

On pensions, Flaherty cautioned against making the country's public pension plan more expensive for employers at a time of economic uncertainty.

Most of the provinces expect to run budget deficits in the 2010-11 fiscal year.

"We did agree that we would all try to move to balanced budgets in the medium term," Flaherty told reporters following the meeting. "I think virtually all of the governments would be balanced by 2015, some earlier as a matter of fact."

Ontario, which has a shortfall estimated at C$18.7 billion ($18.3 billion) this year, will likely be the laggard. But Dwight Duncan, the province's finance minister, said Ontario beat its deficit-reduction targets in the first year of a seven-year reduction plan.

The Ontario government has said officially it plans to balance its books by 2017-18.

Flaherty said that now is not the time to heap more costs on employers by expanding the public pension plan, a move urged by Ontario, five other provinces as well as by labor groups.

At the meeting, the ministers agreed to keep studying the controversial proposals to expand the Canada Pension Plan (CPP) and to report back at their next meeting in June.

But Flaherty said he was wary of the impact on job creation.

"There are encouraging signs of improvement across a range of indicators, particularly on the domestic front," he said. "Ministers agreed, however, that the situation remains fragile, with concern over mounting public debt in many countries and its implications for long-term growth."

Alberta Finance Minister Ted Morton, who does not support increasing CPP payments, said Bank of Canada Governor Mark Carney told the meeting that the country's debt and deficit situation was better than those in the United States and the European Union, but that "the question is trend".

"I'm not going to be a scaremonger, or a fear-monger, but when both the governor and the finance minister say this is an important issue, everybody should listen," he said.

The group agreed on a framework to establish a new pooled retirement plan, separate from the public pension plan, aimed at the self-employed and small-business employees. It would be managed by insurance companies.

Flaherty said stimulus measures taken by his government helped the provinces weather the economic crisis and now governments at both levels need to cut the deficits that fueled the programs.

Canada's 2009-10 deficit totaled C$55.6 billion, or 3.6 percent of gross domestic product. Ottawa aims to shrink that to C$45.4 billion in 2010-11 and return to surplus in 2015-16.

($1=$1.01 Canadian)

Additional reporting by Louise Egan in Ottawa; editing by Peter Galloway

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