WASHINGTON (Reuters) - Canada’s finance minister warned on Wednesday that countries need to get their fiscal houses in order, saying that markets would act if politicians failed to do so.
Fresh from trouncing left-leaning parties to secure a majority Conservative government in Canada, Jim Flaherty said the 2007-09 financial crisis showed that markets would demonstrate what needs to be done if the governments don‘t.
“It is important for all of us ... that we have a plan in place to make sure that markets are comfortable and have confidence in the fiscal plan of our governments,” Flaherty told reporters on the sidelines of a business conference in Washington.
The Obama administration, Democratic and Republican lawmakers are struggling to come up with a plan to slash the nation’s $1.4 trillion deficit and slow the growth of its $14 trillion public debt.
Although the White House has proposed $4 trillion in deficit reduction to be phased in over 12 years or less, there is no firm plan in place and the administration is far from reaching an agreement with lawmakers.
Flaherty, who is planning on meeting with U.S. lawmakers, declined to comment specifically on the U.S. budget fight.
But he said that the recent history of Canada shows that “we can move from time of dramatic deficits ... to a time of stability and solidity with a good plan going forward.”
Canada’s Conservative government pledged during the election to eliminate the country’s budget deficit by 2014-15. Flaherty plans to unveil a budget in June that is largely similar to the one he proposed in March before his government was brought down.
Flaherty said the June budget will take into account the commitment his government made to compensate the French-speaking province of Quebec for harmonizing federal and provincial sales taxes.
The government’s aim is “to get an agreement with Quebec finalized by Sept 15,” he said.
Separately, Flaherty told the Council of the Americas conference that he did not believe in a weak domestic currency, despite the strong Canadian dollar’s recent drag on exports.
He also said Canadian interest rates are going to go up eventually and that while he was unsure of the source of the next financial crisis, he wants to make sure the Canadian government plans for fiscal room to respond.
Reporting by Rachelle Younglai, with additional writing by Claire Sibonney; Editing by Jeffrey Hodgson