Canada’s respite from global economic upheaval that has kept the U.S. teetering on recession and the EU facing a sovereign debt crisis could be ending, a fact Finance Minister Jim Flaherty underscored in a recent speech in Calgary.
Flaherty emphasized Canada’s solid economic footing in comments at a luncheon with the Calgary Chamber of Commerce Tuesday, but his underlying message pointed to the challenging reality the country faces.
After recapping the praise the Canadian economy and financial system received from international publications and financial entities like the World Economic Forum, Flaherty shifted to the problems that are mounting.
“While this international recognition is certainly appreciated, I must stress again that our challenges are far from over. When I recently met with private sector economists they echoed this concern.”
Flaherty said he shares economists’ worries that Europe’s sovereign debt and banking crisis could hurt the global economy and Canada’s own prospects.
To that end, the government is changing its austerity plans to provide what Flaherty described as a “cushion” by halving next year’s increases in EI premiums and extending the work-sharing program that lets employees collect EI when their hours are reduced. This will allow businesses to keep workers on a part-time basis rather than laying them off.
The Canadian Federation of Independent Business had urged Flaherty to cancel the EI increases all together. The group said the reduction in increases will help, but promised to continue “fierce” efforts to lobby for a cancellation.
Flaherty described the government’s current plan as a balance between two extremes, one calling for massive spending cuts, the other for billions in new spending.
“Reducing debt frees up tax dollars otherwise absorbed by interest costs. This can then be reinvested in the things that matter to Canadians: health care, public services, or lower taxes,” he said.
Goal to Balance Budget Delayed
Projections released by Flaherty’s office that same day cancel the government’s earlier goal to balance the budget by the 2014-2015 fiscal year. While last year’s budget had projected a surplus by the 2015-2016 fiscal year, Flaherty had said the government would do so one year earlier, a goal left aside as global uncertainty rises.
The Canadian Taxpayers Federation (CTF) is upset at that change, and urges the government to hit the original timeline.
“By walking away from the Prime Minister’s promise today, Jim Flaherty has betrayed millions of Canadians who voted for a balanced budget,” Gregory Thomas, federal director of the CTF, said in a released statement.
With uncertainty high, other campaign pledges look in jeopardy, noted Thomas.
“Stephen Harper campaigned on balancing the budget, so he could double Tax-Free Savings Account contributions and extend income-splitting to working couples. If he doesn’t deliver a balanced budget, he’s not going to deliver tax relief. He’s only going to deliver more debt,” he said.
Flaherty’s office bolstered his announced changes with a list of supporting quotes from various sectors, including Canadian Labour Congress president Ken Georgetti.
“We welcome the fact that Ottawa is extending the Employment Insurance work sharing program. This is crucial at a time when the economy is slowing down and unemployment is likely to rise,” Georgetti said in a statement.
“While we understand that the slower economic growth will delay Canada’s ability to return to balanced budgets, we agree with the Minister that the government should not be adding to the deficit by increasing spending at this time,” reads a statement from Perrin Beatty, president and CEO of the Canadian Chamber of Commerce
But the NDP described Flaherty’s halving the EI premium increase as a “half step in the right direction” in an email to media.
The NDP has criticized the government for increasing payroll taxes while cutting tax rates for corporations.
