News

Canada already has a “stimulus package” in the form of tax cuts, Finance Minister Jim Flaherty said Friday, and anything more far-reaching will not be forthcoming unless the economy declines further.

In a speech to the Economic Club of Toronto, Mr. Flaherty said he considers the tax cuts already planned for 2009 sufficient to meet promises the Prime Minister made at the recent meeting of G20 leaders.

Canada committed to stimulus equal to 2 per cent of our gross domestic product, and the $31-billion in tax cuts to take effect next year are exactly that value, he said.

Still, he said after his speech, “if we need to do more, because of the deteriorating economic circumstances, we will do more.”

He didn't offer specifics, except to say that more infrastructure spending might be one way to pump even more money into the economy.

Tax reductions for next year include an increase in the income threshold below which individuals won't pay any income tax, the implementation of the Tax Free Savings Account, and reductions in corporate income tax.

Mr. Flaherty insisted that Canada is actually doing more than Britain or the United States, which have introduced, or have planned, sharp stimulus packages.

“When you contrast [Canada's stimulus] with the United Kingdom and the United States, you will see that both of those countries are trying to catch up with what Canada has already done in terms of stimulus,” Mr. Flaherty said. “Even [U.S.] president-elect Obama's plan for January would only be 1.1 per cent or 1.2 per cent of GDP, and it would be temporary.”

Canada's permanent tax cuts, some of which are already in place, are one reason our economy has outperformed other major industrial countries, Mr. Flaherty said. Temporary stimulus packages are far less effective and only give a brief boost to the economy, he added.

Some economists, however, questioned the value of counting on existing – or already announced – tax cuts to give a boost to the economy.

Moves such as the GST reductions “have already given their boost to the economy,” said Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc.

Some of the coming changes, such as the corporate income tax cuts, “are very welcome,” Mr. Porter said, “but I doubt they're really going to encourage too many businesses to go out on a capital spending spree in the kind of environment we're in.”

More visible stimulus would give the economy a better kick, he said.

While Mr. Porter said he would normally agree with Ottawa's go-slow approach, as it takes time to design a stimulus package properly, “these are not normal times.”

Mr. Porter's colleague at BMO, economist Michael Gregory, said in a report Friday that “stimulus delayed is still stimulus denied during these uncertain economic times.”