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U.S. downgrade spotlights Canada's deficit-cutting plans

A cabinet committee is expected to decide this fall which federal departments will be cut the most.

Sean Kilpatrick/Bloomberg News/Sean Kilpatrick/Bloomberg News

The deepening debt woes of Canada's largest trading partner have emboldened Ottawa to move full steam ahead with its own deficit-cutting plan, even as critics warn further spending cuts could be harmful.

The market and political turmoil triggered by Standard and Poor's surprise downgrade of the United State's credit rating has sparked renewed debate in Canada over Ottawa's plan to erase its deficit by the fiscal year that begins April 1, 2014.

Getting the timing right on Ottawa's move away from stimulus spending and toward new spending cuts is one of the most hotly debated questions facing the Harper government.

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Yet even in the face of heavy global stock market losses Monday – and a further 6.54-per-cent drop in the price of oil, a key Canadian export – the man in charge of Ottawa's restraint efforts said changing course is out of the question.

"I think there's a general consensus in our country that the sooner we get out of deficit, the better, even if it means making some tough decisions," Treasury Board president Tony Clement said in an e-mail Monday. "To change course would not be good for job creation or for Canada's long-term economic vitality."

Mr. Clement is in charge of a cabinet committee that is expected to decide this fall which federal departments will be cut the most as Ottawa aims to find $4-billion in permanent annual savings. The cuts, which won't be announced until next year's budget, are central to the government's pledge earlier this year to erase the $32.3-billion deficit by April 1, 2014 – a year earlier than previously promised.

Opposition MPs say the government's timeline is arbitrary and unnecessary given that Canada's debt-to-GDP ratio is far healthier than that of the United States or other debt-plagued countries.

"This is not a time for our government to be retrenching and to be increasing unemployment through significant cuts in the public sector," said NDP finance critic Peggy Nash, who is also urging new stimulus spending on pressing infrastructure needs.

The Liberals are also calling for new infrastructure spending in light of dramatic problems recently with overpasses and bridges in Montreal. Liberal Treasury Board critic John McCallum, a former Royal Bank chief economist, said it "would make no sense" to cut spending now.

Yet business groups – including the Canadian Chamber of Commerce, the Canadian Federation of Independent Business and the Council of Chief Executives – say the government's stay-the-course response is correct.

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The Council's president, John Manley, said erasing the deficit in the 1990s helped Canada manage the 2008 recession and erasing it again will help prepare Canada for the future.

"I think it's too soon to change government policy based on what we've seen so far," Mr. Manley said. "I don't think you make policy based on a couple of days in the markets."

Chamber president Perrin Beatty said Ottawa is doing what it can in the face of problems that are beyond its control.

"They are doing the appropriate things that can be done in Canada," he said. "The lack of confidence globally right now is precisely because of the inability of governments to bring their books back into balance. In Canada, we have the capacity to do that."

With files from Jane Taber in Ottawa

This article has been corrected from an earlier version.

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About the Author
Parliamentary reporter

A member of the Parliamentary Press Gallery since 1999, Bill Curry worked for The Hill Times and the National Post prior to joining The Globe in Feb. 2005. Originally from North Bay, Ont., Bill reports on a wide range of topics on Parliament Hill, with a focus on finance. More

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