January 19, 2010 / 3:17 PM / in 10 years

Cabinet shuffle focuses on deficit-taming

OTTAWA (Reuters) - Prime Minister Stephen Harper shuffled his cabinet on Tuesday to put more focus on the economic recovery and he made clear the government would have to restrain the growth of spending.

As expected, Harper left Finance Minister Jim Flaherty at his post. He also moved Stockwell Day from the Trade Department to the Treasury Board, where he will be responsible for helping to tame the budget deficit.

Canada is set to run a C$55.9 billion ($54.3 billion) deficit this year and does not expect to be in the black for at least five years.

Harper says Ottawa can eliminate the deficit without raising taxes — an assertion some economists insist is wrong.

“As we look ahead ... (to) the need for deficit reduction once the economy has recovered, it will be essential for government to constrain the growth of spending,” he said.

In the past, Flaherty had said constraining spending growth was an option that would be used only if the deficit was not eliminated through economic growth and by the scheduled end of the government’s two-year plan of stimulus spending in 2011.

Harper spokesman Dimitri Soudas said that due to the fragile economy the prime minister wanted to keep his main economic team in cabinet intact .

“Mr. Flaherty is the minister of finance (because) we’re still going through the biggest world economic recession...He’s been a very good finance minister,” Soudas told reporters.

Michael Ignatieff, leader of the Liberals said Harper had only moved puppets around and said the government’s plan to restrain spending and arrive at a balanced budget is not credible.

Asked if he would boost taxes, Ignatieff noted that Canada is in tough economic times.

“Raising taxes now, raising taxes now,” he said, holding up his finger to emphasize the last word, “seems to me to risk cutting the return to economic growth dead in its tracks.”

Ignatieff would not rule out tax hikes later. Questioned on that possibility, he said: “Let’s stay where we are right now...Let’s not go to revenue increases now.”

Flaherty is scheduled on March 4 to present the government’s 2010-11 budget, including details on how he hopes to move out of deficit.

Harper also appointed new ministers for trade, natural resources and public safety.

One notable change was the demotion of Lisa Raitt from the Natural Resources Department to the less prestigious job of labor minister. She was replaced by Christian Paradis, who had previously been at the Public Works Department.

Last year Raitt was severely embarrassed when her press aide misplaced a tape recorder that contained embarrassing comments by the minister.

The natural resources portfolio is crucial because Canada is a major oil and gas exporter. The oil industry, under fire from environmental groups, resolutely opposes any attempts to restrict its growth.

Asked whether production in the heavily polluting oil sands of northern Alberta needs to be restrained, Paradis replied: “The key point in that is to balance the economy and the environment ... I expect that the industry will share its burden to reach that goal”.

Industry Minister Tony Clement, Defense Minister Peter MacKay and Foreign Minister Lawrence Cannon kept their jobs.

($1=$1.03 Canadian)

Additional reporting by David Ljunggren; editing by Peter Galloway

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