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The Globe and Mail

Flaherty faces pressure to explain stand on renewed stimulus

Finance Minister Jim Flaherty speaks to reporters at his summer policy retreat in Wakefield, Que, on Aug. 10, 2011.


Finance Minister Jim Flaherty will be asked Friday to spell out just how much bad economic news he 's prepared to swallow before the Conservative government shelves restraint plans and launches new stimulus spending .

After repeated government assertions that Ottawa 's stimulus taps are shut tight, analysts and opposition politicians are now questioning where the Conservatives stand in light of comments by Mr. Flaherty over the weekend suggesting stimulus could return if Canada 's economy enters a prolonged retraction .

Amid a stream of bad economic news from Europe and declining expectations for growth in North America, analyst speculation around Mr. Flaherty 's position intensified throughout this week .

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Indeed, analysts are no longer just debating the threshold for stimulus, but what that spending would look like .

The minister 's office moved to dampen this talk, stressing to The Globe and Mail that the government remains focused on erasing the deficit through spending cuts .

"Discussion of further stimulus spending is hypothetical, " said the minister 's spokesman, Chisholm Pothier .

Opposition MPs on the House of Commons finance committee say they will urge the minister Friday to lay out that hypothetical scenario so that Canadians can assess how prepared Ottawa is to respond should Canada 's economy take a turn for the worse .

The minister, who will appear at a special committee meeting for an hour prior to testimony from Bank of Canada Governor Mark Carney, will also be asked to outline how the 2011 budget numbers are being affected by this year 's slower-than-expected growth .

The source of this week 's speculation over stimulus is an answer Mr. Flaherty gave over the weekend when asked what it would take for the government to shift from spending cuts to stimulus. "It would have to be ... the oxymoronic word 'negative growth, '" he replied, in an interview with CBC 's The House. "But we 're looking at the year. I don 't look at just the quarters ... as long as the growth overall is the modest moderate growth we expect and some small growth in the United States, then in North America we will be relatively well-off. "

Mr. Flaherty 's spokesman suggested the minister 's comments should not be viewed as a pledge for more stimulus .

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"Those suggesting otherwise aren 't listening to our government 's clear message and our clear focus on the next phase of Canada 's Economic Action Plan including returning to balance, " he said in an e-mail .

In fact, the hypothetical scenario Mr. Flaherty laid out – prolonged negative growth – is highly unlikely to materialize at this point. While some economists are now warning that Canada may post negative second-quarter GDP growth this month, modest growth is still expected for the last half of the year and into 2012 .

Mr. Flaherty 's comments are being interpreted in several different ways this week .

"Markets are not going to like the idea of any government borrowing money for any reason in this new anti-Keynesian environment that has engulfed the world, " wrote Carl Weinberg, chief economist at High Frequency Economics, on Wednesday .

In contrast, David Madani, Canada economist with Capital Economics, told The Globe he viewed Mr. Flaherty 's openness to further stimulus as an effort to instill confidence in the Canadian economy .

Mr. Madani issued a report Wednesday speculating that new stimulus measures would most likely include new infrastructure spending, support to the auto, forestry and housing sectors, tax cuts and extra EI benefits .

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NDP finance critic Peggy Nash and Liberal finance critic Scott Brison both said they would give Mr. Flaherty the opportunity to clear up any confusion .

"For the first time that I have heard him, he sounded like he had some flexibility should we find ourselves, once again, in an economic downturn, which I saw as hopeful, as an opening, " Ms. Nash said .

Mr. Brison said he would be asking the minister to provide specifics as to what would trigger more stimulus and what measures would be included .

"If the U.S. goes into a significant downturn, " he said, "we have to be prepared to adjust our plans here in Canada. "

With a report from Jeremy Torobin

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