February 22, 2010 / 9:29 PM / 8 years ago

Canada's deficit plan will target public spending

OTTAWA (Reuters) - Canada’s plan to reduce its record deficit will center on slowing the growth in government spending, with the exception of health care, pensions and education, a senior government official said on Monday.

The March 4 federal budget will lay out the Conservative government’s plans to execute the second year of its economic stimulus efforts, the official said. The spending plan will focus on jobs and growth, he said.

But Ottawa will not bow to pressure to extend even the most popular temporary measures, such as a two-year freeze on employment insurance premiums or a home renovation tax credit.

The stimulus taps will be turned off at the end of the 2010-11 fiscal year, as originally planned, he said.

“As you know, we’ve always said that reducing the deficit and returning to fiscal balance will happen through slowing the rate of growth in federal spending, and that still applies,” the official told reporters in a background briefing, speaking on condition of anonymity.

“Having said that, I don’t anticipate that to occur for pensions, for health care or for education.” he said.

He declined to comment on whether Ottawa would introduce new fiscal targets, either in the short term or over a longer horizon.

Finance Minister Jim Flaherty has repeatedly said he will balance the books in the medium term, without raising taxes or cutting the federal government’s transfer payments to the provinces. The budget will simply be a plan for “staying the course,” he has said.

In fact, there will be no significant new measures of any kind in the upcoming budget, the official said.

Prime Minister Stephen Harper is under some pressure to satisfy some of his opponents’ demands in the budget, otherwise he could face an election. His minority government needs the support of at least one of the three opposition parties to stay in power.

The legislative vote on the budget is always considered a motion of confidence in the government, so its defeat could force a spring election although no party has appeared intent on pushing for one in recent weeks.

All three opposition parties have called for some extra measures in the budget either to protect the unemployed, provide incentives for businesses that create new jobs, or extend special support to specific industries hard-hit by the recession.

The main opposition Liberals want to see changes to the public pension system to allow contributors to top up their savings during good times, and reforms to bankruptcy laws to protect dismissed workers’ pensions.

The left-leaning New Democrats have also proposed the cancellation of corporate tax cuts already legislated by the Conservatives, with reductions planned in 2011 and 2012.

But the Conservatives argue that low taxes are the best formula for spurring growth and jobs, and will also push for more free trade deals.

“We will create optimal economic conditions for job growth by maintaining competitive tax rates and reducing the deficit once the economy has recovered,” the senior official said.

“And we will also seek to open new markets, allowing Canadians to compete and succeed in the global economy and we will tackle barriers to growth and job creation.”

Reporting by Louise Egan; editing by Frank McGurty

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