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Canada's Finance Minister Jim Flaherty speaks during a news conference in Ottawa March 1, 2013. The slowing Canadian economy means the government will have lower revenues than it initially forecast as it draws up the next budget, which is due soon, Flaherty said on Friday.

CHRIS WATTIE/REUTERS

Finance Minister Jim Flaherty will table his eighth budget on March 21 – what's being billed as another restraint package with spending cuts designed to balance Ottawa's books by 2015.

But a renowned economic forecasting shop is warning against significant reductions in government spending right now.

Economists Peter Dungan and Steve Murphy with the Policy and Economic Analysis Program at the University of Toronto cautioned in a note Thursday against deep cuts to public spending. They warned that consumer and business confidence appear to be "somewhat fragile" amid weaker-than-expected economic growth.

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"Given the budgeting problems that are facing governments in the U.S. and Europe, and the recent experience of cutting spending possibly too quickly in the U.K., there is enough evidence to suggest to Canadian governments both national and provincial that they should be cautious on how 'hawkish' they are on near-term spending cuts," Prof. Dungan and Prof. Murphy wrote Thursday.

"It is hard to believe that sending out a message that governments need to cut spending in the face of an economy that is growing more slowly than expected, but that consumers should continue to spend and, in particular, businesses should ramp up their investment spending will instill confidence," the note by the economists at the Rotman School of Management say.

"It did not in late 2008, and it will not now."

They said a "solid, credible medium-term plan to eliminate deficits," – one that recogonizes that "near-term uncertainty makes cutting now unwise" would provide the confidence that the Canadian economy requires.

Mr. Flaherty, however, told reporters Thursday that short-term economic pessisum is a "an interim concern, not a long-term concern" and that Ottawa remains on target to balance the budget in 2015.

The federal finance minister recently warned that slower economic growth will deliver a "significant" hit to federal revenues, but he won't back down from the Conservative government's pledge to balance the books by 2015.

Several private sector economists said they are now projecting 2013 GDP growth will be less than 2 per cent – down significantly from expectations last November.

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Mr. Flaherty has already signalled there would be deeper cuts and little new spending in the 2013 budget. The finance minister has also said he wants to squeeze more money out of tax cheats.

There are also growing signs that the budget will include a heavy emphasis on changing Ottawa's approach to skills training.

Mr. Flaherty has put provinces on notice that the 2013 federal budget will call for stronger accountability over the more than $2-billion a year Ottawa transfers to them for skills training.

With the 2013 budget, the Whitby, Ont. MP becomes the sixth-longest serving finance minister in Canadian history.

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About the Author
Parliamentary reporter

Steven Chase has covered federal politics in Ottawa for The Globe since mid-2001, arriving there a few months before 9/11. He previously worked in the paper's Vancouver and Calgary bureaus. Prior to that, he reported on Alberta politics for the Calgary Herald and the Calgary Sun, and on national issues for Alberta Report. More

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