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Cuts, not stimulus, best as 'economy will grow,' Prime Minister insists

Canadian Prime Minister Stephen Harper walks with the President of Costa Rica Laura Chinchilla Miranda as he arrives at the Presidential palace in San Jose , Costa Rica, Aug. 11, 2011.


Stephen Harper said his government is sticking with its plan to chop billions of dollars in spending instead of enacting a new round of fiscal stimulus in the face of concern over the economic recovery.

The Prime Minister, speaking during a four-country, Latin American trade mission, said he still believes Canada is on track for "slow but steady" economic growth.

New data suggests Canada's second-quarter economic performance will be worse than the modest gains expected as Canadian companies struggle to sell abroad amid weakening U.S. demand and a stronger dollar.

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Statistics Canada said Canadian exports dropped significantly in June, generating a much larger than expected trade deficit.

The news comes after investor concern over the fiscal and financial crises plaguing the United States and Europe that has thrown global stock markets into turmoil.

Mr. Harper said he won't consider more stimulus spending as long as he believes Canada is still on the road to recovery from the 2008-2009 recession. "I am always cautious about making judgments on the most recent figure," he said.

The Harper government concluded a two-year stimulus spending package in March and is now trying to trim the operating cost of government to tame Ottawa's deficit by 2015.

"It continues to be our view that the Canadian economy will grow; it will grow gradually and slowly, along with the world recovery," Mr. Harper said. "As long as those remain the circumstances, the policy mix of the government of Canada is the appropriate one."

The Prime Minister pointed out that international experts who've expressed "so much alarm" about other countries' fiscal straits have not raised concern about Canada.

The Harper government's economic strategy includes tax cuts, spending on training and diversifying trade away from the ailing U.S. economy.

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To that end, Mr. Harper has been signing deals to gain preferential access to new markets and visiting fast-growing emerging economies to open doors for Canadian business.

He is expected, for instance, to announce Friday that Canada has concluded negotiations on a free trade deal with Honduras.

On Thursday, Mr. Harper announced talks to deepen market access for Canadian firms in Costa Rica, a country of five million people. This means expanding the 2002 free trade agreement to eliminate tariffs for farm and industrial goods and cover trade in the burgeoning services market, including banking and insurance.

"Costa Rica is an important partner for Canada in Central America, one of the most like-minded, in fact, with similar views on human rights, security and free trade," Mr. Harper said.

He said Costa Rica would now be eligible for assistance from a $15-million annual fund dedicated to countries in the Americas to help them fight an influx of cartel crime and drugs in the region. This includes training up to 250 Costa Rican national police officers annually through a three-year program run by the RCMP.

The Canadian government, which is trying to eliminate its deficit within four years, also cut a deal with Costa Rica that should help it identify individuals and companies evading taxes.

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Mr. Harper said negotiations on broadening the Canada-Costa Rica free trade deal would begin this fall.

"The existing agreement has not kept up with the expansion of business," the Prime Minister said. "It does not, for instance, cover cross-border trade in services or government procurement. Nor does it reflect current thinking about how labour and environmental co-operation are dealt with in free trade agreements. It is time to freshen it up."

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About the Author
Parliamentary reporter

Steven Chase has covered federal politics in Ottawa for The Globe since mid-2001, arriving there a few months before 9/11. He previously worked in the paper's Vancouver and Calgary bureaus. Prior to that, he reported on Alberta politics for the Calgary Herald and the Calgary Sun, and on national issues for Alberta Report. More

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