Ottawa will stay course on stimulus: Flaherty

Rather than turning off the stimulus taps or pouring more fuel on the economic fire, Ottawa will stand pat with the $61 billion in stimulus spending announced in January, Finance Minister Jim Flaherty said Friday.

"Budget 2010 will be year two of our two-year economic action plan. We will not undertake major new spending initiatives," he told a business audience at the Empire Club in Toronto.

Flaherty emphasized that Canadians shouldn't expect emergency stimulus measures to become permanent policy.

He said the temporary stimulus measures announced last January in his budget will end as planned by the end of the next fiscal year.

"Our focus will not be on new initiatives or added stimulus. Our focus will be on following through in getting the measures already announced out the door and into the economy. We will stay on course," he said.

Approximately 90 per cent of this year's portion of Ottawa's stimulus spending program was committed as of September, with 7,500 infrastructure projects identified and more than 4,000 already underway, Flaherty said. 

However, he said, economic recovery has been "tentative" so far with "no evidence of firm growth."

As the global economy shows signs of a recovery, some have suggested policy leaders need to consider withdrawing the unprecedented levels of stimulus they injected, or face rampant inflation.

Flaherty's message, of ensuring existing funds make it out the door while showing restraint with regards to future spending, struck the right tone with some economists.

"The recovery is very fragile and we haven't even seen a recovery in private investment yet. That's why public-sector investment through infrastructure spending is so important," said Glen Hodgson, chief economist with the Conference Board of Canada. "It's too early to talk about withdrawing stimulus."

No tax hikes, Flaherty vows

The government is forecasting a deficit of roughly $56 billion for the current fiscal year. About half of that, some $28 billion, consists of one-time stimulus and support to the automotive industry as well as temporary measures taken to increase benefits for unemployed workers and freeze EI premiums for individuals and businesses, Flaherty said Friday.

Although he was careful to allow the government wiggle room to alter course as events warrant, he was unequivocal on two points: the current government has no plans to raise taxes to balance the budget, nor will it cut transfers to pay off the deficit.

Transfers to provinces and individuals takes up some $100 billion of the government's approximately $200-billion annual budget.

"If we have to restrain growth when the time comes, we will find that restraint in the remaining $100 billion of federal program spending that is projected to grow at 3.3 per cent a year," Flaherty said.

Only when a "firm" economic recovery has taken hold will the government move to balance its budget, Flaherty added. The finance minister has said previously that stimulus spending and lower tax revenues will result in five years of budget deficits. 

"Act in haste and one risks precipitating another economic slowdown. Wait too long and the result could be chronic deficits Canadians worked too hard to abolish — the kind of structural deficits that other nations are dealing with right now," he said.

Flaherty was smart to safeguard transfer payments, as the Chrétien government's move to cut transfer payments was hugely unpopular in the 1990's, Hodgson said.

"Even thinking about transfers to other levels of government is very, very difficult," he said.