Canadian finance ministers to target debts and deficits in new year

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Canada will enter 2011 on a different path to economic recovery from the United States, trading stimulus spending for a renewed focus on debts and deficits.

Finance ministers pledged on Monday to insulate the country from further global economic shocks by making deficit and debt reduction a top priority, although their unity was less certain on the subject of whether Ottawa or Ontario's fiscal picture is of greatest concern.

Federal Finance Minister Jim Flaherty said Canada needs to get back on the strong financial footing that helped it weather the global economic recession better than many other countries. What he is seeking to avoid is the spectre of the debt crisis that is gripping many European Union countries.

"The situation remains fragile, with concern over mounting public debt in many countries and its implications for long-term growth," Mr. Flaherty said at a news conference in Kananaskis, Alta., after his day-long meeting with provincial and territorial finance ministers.

But he sought to strike a more conciliatory tone with Ontario by backing off his calls last week for all the provinces to balance their books by 2015. Now, there is no firm date, just a commitment to shed red ink in the "medium term," he said.

"We're all on track."

Ontario is projecting a deficit of $18.7-billion for fiscal 2010-11 and does not expect to balance its books until 2018.

"We'll see who gets to balance first," Ontario Finance Minister Dwight Duncan told reporters.

He noted that Mr. Flaherty has continually understated the size of the federal deficit - pegged at $55.6-billion for 2009-10 - and said his federal counterpart should do a better job of getting his own affairs in order before telling others how to manage theirs.

But Mr. Duncan is alone on this front. Virtually every other province expects to erase its red ink by 2015, and Saskatchewan and Newfoundland and Labrador are on track to post surpluses in the current fiscal year.

Bank of Canada Governor Mark Carney, who was also at the Rocky Mountain resort for the meeting, reinforced the importance of addressing debt and deficits, Alberta Finance Minister Ted Morton said.

"I'm not going to be a fear monger, but I think when both the Governor of the Bank of Canada and the Finance Minister say this is an important issue, everybody should listen," Mr. Morton told reporters.

He himself expressed concerns that Ontario, which accounts for 40 per cent of the Canadian economy, could drag down the entire country and said Canada could head in the same direction as the European Union.

Douglas Porter, deputy chief economist of Bank of Montreal, does not share that view. He questioned the urgency of imposing a new era of spending restraints just as the United States embarks on a stimulus plan to help its ailing economy.

With fiscal policy diverging between Canada and its largest trading partner, Mr. Porter said, the United States will likely see stronger economic growth, at least in the short term, than this country.

"No country wants to be anywhere close to where countries like Ireland or Greece or even Spain or Portugal have found themselves," Mr. Porter said. "But, frankly, I don't think Canada's in the same hemisphere."

Editors note: An earlier online version of this story and the original newspaper version of this story incorrectly stated the size of the federal deficit as "pegged at $55.6-billion for 2010-11." This online version has been corrected.