November 30, 2008 / 7:58 PM / in 9 years

Canada says seeks to avoid U.S. stimulus mistakes

OTTAWA (Reuters) - Canada’s minority Conservative government will focus on long-term ways of stimulating the economy rather than repeating the U.S. mistake of sending out one-time tax rebate checks, Finance Minister Jim Flaherty said on Sunday.

<p>Canadian Finance Minister Jim Flaherty speaks to the economic community in Toronto November 28, 2008. REUTERS/Mark Blinch</p>

Flaherty, who announced he would present his next budget on Jan 27, 2009, said that while he preferred permanent stimulus measures such as tax cuts, Ottawa would also have to spend money helping out troubled sectors such as the auto industry.

Canada’s three opposition parties are threatening to bring down the government over what they say is its failure to help those suffering from the global crisis.

Flaherty said that thanks to previous government measures, the economy was experiencing stimulus equivalent to 1.4 percent of gross domestic product. That will rise to 2 percent at the start of 2009 as additional tax cuts build in.

“We believe in permanent and long-term measures which we’ve done ... so we’ll stay the course on that,” he told reporters on a conference call.

Earlier this year the U.S. government sent out just over $100 billion in tax rebate checks in a bid to reignite consumer spending. Officials said evidence suggests that many people used the money to pay off debts rather than spending it.

“I think there is a tendency by some of the opposition to take the American approach, which quite frankly has not worked,” Flaherty said, adding that there was no point using “the shotgun approach, spraying money across the economy and hoping that something works somewhere.”

He said the U.S. experience with rebate checks showed the positive impact lasted for just one quarter.

“You advance sales -- people buy things before they would have bought things -- and then you fall off the cliff the next quarter,” he said.

“That’s exactly what’s happened to the Americans this year and you’re left with a declining economy as they go to the end of the year. Our economy has been stronger because our changes have been structural and permanent.”

That said, Flaherty conceded the government would need to help troubled sectors with one-off payments.

“There will be further stimulus to the economy. That’s inevitable given the continuing challenges we’re facing ... We’re going to have to deal with the automotive issue, obviously,” he said.

“It’s important that if we do have to do some spending in a specific sector, that it be temporary, one-time, so that as the economy recovers we will come out of deficit.”

Ottawa predicts the government will stay in surplus the next five years, but only if it avoid major stimulus spending.

Flaherty said 2009 infrastructure spending would double to C$6 billion ($4.8 billion) from C$3 billion this year.

($1=$1.24 Canadian)

Editing by Mohammad Zargham

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