January 26, 2009 / 3:03 AM / in 9 years

Canada needs middle-class tax cuts, minister says

TORONTO (Reuters) - Canada needs broad-based tax cuts targeted at the middle class to stimulate the economy, a Conservative government minister said on Sunday, defending one of the strategies expected to be included Tuesday’s budget.

<p>Minister Diane Finley waits to testify before the Commons finance committee on Parliament Hill in Ottawa April 28, 2008. REUTERS/Chris Wattie</p>

“The middle class is the single biggest group that drives our country,” Human Resources Minister Diane Finley said in an interview on CTV’s “Question Period.” “We have to make sure they continue spending to keep the economy moving.”

Finley’s defense of tax cuts was the latest foray in the minority government’s offensive to build support for its budget, a month after opposition parties nearly forced its ouster.

On Sunday, the Liberals, the main parliamentary opposition whose support on the budget the government depends, said such tax cuts were likely to prove ineffective at a time when the sagging economy needs a quick shot of adrenaline.

The budget to be introduced this week will usher in the country’s first fiscal deficit in a decade. A government official leaked to reporters on Thursday that deficits over the next two fiscal years would total C$64 billion ($52 million).

Prime Minister Stephen Harper signaled on Saturday for the first time that the budget will contain permanent tax cuts, not just short-term reductions to lift the sagging economy.

The Liberals said on Sunday that broad-based tax cuts could lead to permanent deficits and were likely to be ineffective in encouraging consumers to spend more in a climate of extreme uncertainty.

“Broad-based, permanent tax cuts translate into large permanent deficits, which will saddle our children and our grandchildren with big debt,” John McCallum, the Liberal finance critic, told CTV.

“At this time, when people are so frightened, they’re likely to save most of the tax cuts, so it wouldn’t even be a good stimulus.”

Even so, McCallum said nothing to suggest that the Liberals were likely to bring down the minority government, reelected in October, in the budget vote. The party has said it would wait until Wednesday before announcing how it would vote.

“We have made it very clear (that) we will be asking: does this budget support the vulnerable; does it protect jobs .. is it regionally fair; and does it avoid saddling our children with massive debt?” McCallum said.

“If the answers to those questions are all satisfactory.. then we will probably support the budget,” he said.

Most of the stimulus measures in the package for the 12 months beginning April 1 are expected to be short term, such as infrastructure projects. Tax cuts for consumers and businesses are also expected to be in the mix.

Finley, the human resources minister, said on Sunday she expects to see the budget earmark C$1.5 billion for training workers eligible for employment insurance benefits, as well as funds to train the self-employed, homemakers and others who are ineligible.

The minister refused to be drawn on whether the budget would contain provisions to extend or increase benefits.

Finley said in the Sunday editions of the Toronto Star newspaper that the government is expected to invest some C$2 billion into social housing across Canada, including programs to help aboriginal people, the elderly and the handicapped.

$1=$1.23 Canadian

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