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Finance Minister Jim Flaherty has tightened mortgage insurance rules four times in four years in an effort to stem the growth of consumer debt and house prices. (Adrian Wyld/THE CANADIAN PRESS)
Finance Minister Jim Flaherty has tightened mortgage insurance rules four times in four years in an effort to stem the growth of consumer debt and house prices. (Adrian Wyld/THE CANADIAN PRESS)

Flaherty warns special interest groups of lean times ahead Add to ...

Jim Flaherty says his government is still hunting for spending cuts as he prepares a 2013 budget that will aim to erase the deficit within two years.

The Finance Minister put interest groups on notice Thursday that there will be little appetite in Ottawa for new spending. As with past budgets, Mr. Flaherty is ruling out tax increases or cuts to provincial transfers.

As he launched prebudget consultations with a speech to the Toronto Board of Trade, Mr. Flaherty made several references to reducing spending and cutting ineffective programs. The comments come as ministers are being urged to press harder with the federal bureaucracy in hunting for duplication and potential savings.

It’s an overall message that signals a bare-bones federal budget as the Finance Minister faces pressure from the Prime Minister and some Conservative MPs to balance the books sooner than he had forecast just last week.

On Nov. 13, Mr. Flaherty released a fiscal update that pushed back his target for erasing the deficit to 2016-17. Three days later, Prime Minister Stephen Harper said he wants the books balanced before the next election, which is scheduled for Oct. 19, 2015. Mr. Flaherty says that’s his target too.

“We can’t afford to take the risk of running deficits any longer than we must and we only must for a couple of more years before we can get to balance,” Mr. Flaherty said. “We’ll continue [to shrink the deficit] over the course of the next two years which will get us back to a balanced budget during the current parliamentary term and certainly before the next election.”

A potential source of new savings could come from a special cabinet committee that currently has no official targets in terms of spending reductions.

In September, the Prime Minister announced the creation of a new cabinet sub-committee on “government administration” led by Treasury Board President Tony Clement. The committee appears to be similar to the one Mr. Clement led last year that ultimately found over $5-billion a year in permanent savings.

Federal spending on government programs – including transfers to individuals and other levels of government – was $240.4-billion last year, up from $188.3-billion in 2006-07, the first year of the Harper government. Measured as a percentage of GDP, program spending grew from 13 per cent in 2006-07 to 14 per cent in 2011-12.

Mr. Harper faced heated questions in the House of Commons Thursday for his decision not to attend this week’s premiers’ conference in Halifax, which is focused on the economy.

NDP Leader Thomas Mulcair said it shows the Prime Minister doesn’t take the economy seriously and Liberal interim leader Bob Rae asked Mr. Harper to explain “what objection he has” to meeting the premiers. The Prime Minister did not explain his reasoning, other than to say he regularly meets with premiers one-on-one.

After its first election victory, the Harper government posted two years of budget surpluses before the global recession hit. It has since posted deficits of $5.8-billion in 2008-09; $55.6-billion in 2009-10; $33.4-billion in 2010-11 and $26.2-billion in 2011-12.

The government stresses that Canada’s deficit as a percentage of GDP is small – 1.5 per cent in 2011-12 – and Canada’s debt as a percentage of GDP is far lower than the other G7 nations.

Canada’s debt as a percentage of GDP was 32.2 per cent in 2006-07 during Mr. Harper’s first year as Prime Minister and was 33.8 per cent in 2011-12, according to the federal government’s public accounts and fiscal reference tables.

Last week’s fiscal update projected Canada’s debt as a percentage of GDP will decline to 28.1 per cent in 2017-18.

With a report from Brian Milner in Toronto

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