Canada firm on budget cuts despite global risks

Canada will press ahead with billions of dollars in cuts to wipe out its budget deficit, despite an uncertain world economic outlook, and may even reduce spending more deeply than already promised, the federal minister in charge of the program said on Monday.

Dismissing opposition concerns that both the domestic and the global recoveries are too fragile to withstand cuts right now, Treasury Board Minister Tony Clement said eliminating the deficit was the best way to keep the Canadian economy strong.

This is a very different kind of economic situation than that which was facing the world three years ago, he told Reuters in an interview.

Here what we're facing is uncertainties in the marketplace caused by sovereign debt... The best way to deal with that as a government is to offer the fiscal virtue of lowering the deficit in stages to get back to balance with a plan that will get you there, that is a real plan, and is a legitimate plan.

Canada weathered the economic crisis of 2008 better than most of its trading partners, as its raw material exports stayed in demand and the government cut taxes and boosted government spending to bring the country out of recession.

By January it had won back all the jobs lost as the economy shrank, and last month Canada created six times as many jobs as expected, bringing the unemployment rate down to 7.1 percent compared to 9.3 percent in the United States.

But the stimulus program pushed a budget surplus that had been a source of national pride into a deficit, and Ottawa is promising to balance the books again by 2014-15 with some C$4 billion a year in savings by 2014-15.

That amounts to about 5 percent of government spending, small in international terms but alarming to public sector unions who fear big job cuts.

We're convinced that this is part of being fiscally prudent as a government, which is what markets and business investors are looking for, Clement said.

Prime Minister Stephen Harper and Finance Minister Jim Flaherty say they will be flexible if the world economy slumps again, indicating they would launch a second multibillion dollar stimulus program if need be.

I think it is important to have flexibility ... but that does not detract from the need to ensure that dollars are spent wisely, that if we can find savings and still deliver excellent public services to Canadians that we implement those savings. So none of that changes really, regardless of what the broader macroeconomic picture is like, said Clement.

He also said there was no reason to stop at C$4 billion in annual savings.

You don't stop just because you hit a C$4 billion number if by going beyond that you make additional savings but at the same time improve public services, he said.