With stimulus winding down, debate shifts to lost jobs

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The spending spree is over. Get ready for the fight over jobs.

After two years of unprecedented government stimulus, it's clear that thousands of high-paying full-time positions lost during the recession have failed to return - despite government assurances of a full rebound. And with both the Conservatives and Liberals losing their appetite for more spending, the debate in Parliament is shifting to a battle over jobs and employment insurance.

All sides were staking out their positions Monday as the government released its first progress report on stimulus spending since the March budget. The report boasted that Canada's job numbers are back to pre-recession levels and that virtually all of the stimulus is on schedule.

The Harper government must now decide whether it will lift the two-year freeze on EI premiums that is scheduled to expire on Jan. 1. Higher premiums are needed to cover the losses to the fund from the recession, but economists and business groups warn higher premiums will cost jobs and may threaten the recovery.

Both Finance Minister Jim Flaherty and Liberal Leader Michael Ignatieff stressed the importance of being flexible with projects that may miss the government's use-it-or-lose it deadline of March 31, 2011, for spending the stimulus.

Both men are also clear that neither has a strong appetite for new stimulus spending.

"We're not talking about another stimulus plan, a second stimulus plan. These guys have emptied the bank. There's no possibility of that," Mr. Ignatieff told reporters Monday. "But we are saying: Some flexibility, for heaven's sake."

Meanwhile, senior Liberals are suddenly unwilling to say whether they will continue to support legislation from the Bloc Québécois calling for increased EI benefits. The bill comes to a final Commons vote on Wednesday.

The Liberals and the NDP have so far supported the bill, but the opposition is being pressured by the Canadian Federation of Independent Business to change position, warning the bill would lead to even higher premiums that what the government plans.

Doug Porter, the Bank of Montreal's deputy chief economist, said he agrees the need for big fiscal stimulus is over.

"Now, whether it should come to an absolute hard stop on April 1 is a little bit debatable," he said in an interview. "I think at the very least, Ottawa and the provinces should maintain a little bit of flexibility just in case the U.S. economy stumbles even more heavily than what we've seen in recent months."

Mr. Porter also said the EI premiums freeze was a positive stimulus measure that should continue.

"To me, it's one of the purest and most direct ways the government has helped support the economy and can continue to help it," he said.

Erin Weir, an economist with the United Steelworkers, challenged the move to declare stimulus over.

"That does seem to be becoming the conventional wisdom, but that doesn't mean it's correct," he said, pointing to a slowdown in the rate at which the economy is growing and a burgeoning trade deficit. "I think that Canada might need an expansion of government investment and spending."

Because of the party numbers in the Senate, the Bloc bill is unlikely to become law even if it survives Wednesday's vote, but it forces the Liberals to take a clear position on EI as the Conservative government weighs its next move.

In releasing his stimulus report Monday in Montreal, Mr. Flaherty indicated that Ottawa is prepared to soften its use-it-or-lose-it stand on federal stimulus cash. The Finance Minister promised to be "fair and reasonable" in cases where projects are at risk of missing the March 31, 2011, deadline.

There has been concern that due to weather or slow approvals, some projects are at risk of missing the deadline. According to the rules, that would mean Ottawa could pull its portion of the funding, leaving municipalities and provinces on the hook to increase their share of infrastructure projects.

However Mr. Flaherty moved to assuage those concerns.

"If there are situations where there's only a little bit more to be done to complete the project, we're not going to be unreasonable about it," he said.