Stimulus plan prompts first budget deficit in 11 years

Canada posted its first budget deficit in 11 years as the embattled Conservative government of Prime Minister Stephen Harper (pictured) unveiled a stimulus package worth 40 billion Canadian dollars.


AFP - Canada's budget plunged into the red on Tuesday for the first time in 11 years to pay for a hefty economic stimulus promised to G20 partners, with the government in a fight for its life.

The announced 40-billion Canadian dollars (33 billion US) stimulus amounts to a 1.9-percent boost in economic activity in 2009, and 1.4 percent next year.

But it will result in a 64-billion dollar (52 billion US) budget deficit over two years, the government said. And Canada is now not expected to see another surplus until 2014 -- if the stimulus works.

"We have to do what we have to do to protect Canada from a synchronized global recession," Finance Minister Jim Flaherty said of his budget, and "to build capacity to come out of it stronger."

Canada is the last of the Group of Seven (G7) industrialized nations to roll out a stimulus plan to help turnaround a global recession triggered by a collapse of the US subprime mortgage market last year.

While in a better position relative to its G7 peers, Canada as a major exporter has not escaped the downturn.

More than 100,000 jobs have been lost in the past two months and more cuts are likely before a turnaround takes root mid-year, said the central bank.

Canada's economy, forecast by the finance department to decline by 0.8 percent this year, "may get worse, and we may have to do more," Flaherty commented.

Canada's last deficit was 8.9 billion dollars (7.2 billion US) in 1996.

In the lead up to this most hotly anticipated budget since the start of Canada's envied era of surpluses, opposition parties vowed to defeat the ruling Conservatives if they did not present a powerful plan to bolster the economy.

Canadians remain split on the likely impact of a stimulus and in their support for deficits.

The government's grassroots lamented it was abandoning its conservative ideology with its massive spending plan to placate parliament and stay in power.

Pundits pointed out that the stimulus would do little to ease the global recession responsible for Canada's economic woes.

But few felt it would trigger Canada's fourth election in five years.

"Our government is making a deliberate choice to run a substantial short-term deficit," Flaherty told parliament, saying it is "necessary to stimulate our economy."

"Making new investments is more challenging in such a time; but it is also more necessary than ever," he said.

The stimulus includes 20 billion dollars (16 billion US) in personal tax relief over five years, aid for sectors in peril such as Canada's auto, shipbuilding, tourism and resource industries, and "one of the largest building projects in Canada's history."

As well, Ottawa has earmarked 200 billion dollars (163 billion US) for business loans.

"These actions fulfill Canada's commitment to its global partners at the G20 leaders' summit to provide timely stimulus to domestic demand, while maintaining long-run fiscal sustainability," Flaherty said.

"With this stimulus plan, Canada will emerge from this recession with a more modern and greener infrastructure, a more skilled labor force, lower taxes and a more competitive economy."

Later this week, parliament must vote either to support the measures, or topple Prime Minister Stephen Harper's minority government.

Both the leftist New Democrats and separatist Bloc Quebecois have vowed to vote against the budget. Liberal leader Michael Ignatieff said he would announce his verdict on Wednesday.

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