Liberals go for jugular

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Liberal Leader Michael Ignatieff called today for the removal of Finance Minister Jim Flaherty, after yesterday's disclosure that the government will run a record $50-billion deficit, almost one-third more than originally projected.

"Canadians just cannot trust this government with their money. Will the Prime Minister fire this Minister of Finance?" Mr. Ignatieff asked in the House of Commons this afternoon.

Mr. Ignatieff said the recent ballooning of the deficit is "incompetence on an historic scale. How can the Prime Minister or any other Canadian still have confidence in the minister of finance?"

Mr. Ignatieff's demand was aimed at eroding the credibility of the Conservative government for economic stewardship, an issue on which Prime Minister Stephen Harper focused deeply in contrasting himself to then Liberal chief Stéphane Dion during the election.

The Tories originally announced a deficit of $34-billion in the January budget, after several months of saying a deficit would not be forthcoming.

Mr. Harper answered that it's Mr. Ignatieff's credibility that is on the line.

"I can't fire the Leader of the Opposition," Mr. Harper said, before referring to a recent series of television advertisements released by the Tories about Mr. Ignatieff's 34 years outside the country.

"With all the tapes I've got on him. I don't want to."

He added that, despite a deteriorating financial situation across the world, the Canadian deficit is a third to a quarter of the size of the shortfalls faced by the United States, Britain and Japan and that the money is being borrowed at historically low interest rates to help create jobs and build infrastructure.

NDP Leader Jack Layton blamed both the Tories and the former Liberal government for making tax cuts that have led to deficits being necessary.

"The fact is, the Conservatives simultaneously created the biggest deficit since Mulroney and at the same time they have thousands of unemployed people who cannot get help," he said. "Will he not finally admit that he got it wrong?"

Mr. Harper answered that the deficit is due to short-term factors flowing from the recession and added that the Mr. Layton voted against a budget that brought in significant stimulus measures.

"There was a day when the NDP used to stand for something," he said. "Now it is just against everything."

Meanwhile, Mr. Ignatieff compared Mr. Harper to the late Richard Nixon, who resigned the U.S. presidency n the Watergate scandal.

"Every day that goes by, he's more like Richard Nixon. We are in the middle of the most serious crisis, economic crisis since the Second World War and the Prime Minister of Canada is wasting his time listening to tapes of me. And then, not content with that, he says it in the House of Commons so he'll intimidate me."

A day earlier, the Finance Minister offered an impromptu fiscal update, announcing that this year's budget deficit will balloon to more than $50-billion - a new record for red ink in Canada as the costs of the economic downturn mount.

He said Tuesday the rising deficit - which amounts to more than 3 per cent of the economy - reflects a triple whammy of extra costs, including auto-sector bailouts, rising Employment Insurance claims and a drop-off in tax revenue.

Mr. Flaherty released the number the same day new statistics showed the number of Canadians collecting jobless benefits soared 10.6 per cent in March, the biggest monthly increase since the labour market started to weaken last fall.

"We will run a substantial short-term deficit this year which I would estimate at more than $50-billion," Mr. Flaherty told reporters in the foyer of the House of Commons. "We are going through a deeper economic slowdown than anticipated … we also have the substantial auto payments that are going to be required."

The Finance Minister's new estimate is $16.3-billion - or nearly 50 per cent - higher than what he forecast just four months ago.

Tories say they released the deficit figure Tuesday to avoid "inaccurate" speculation on the shortfall that could confuse markets.

Sources say about half the deficit increase is due to higher EI payouts and sagging tax revenue. The other half is the cost of auto aid and other economic stimulus measures.

Ottawa has not yet divulged its final bill for auto aid, but calculations based on publicly available information suggest it could exceed $10-billion.

The rising budget shortfall comes amid growing concern that the federal government could end up mired in a structural deficit, one that requires tax hikes or spending cuts to eliminate. Economists, however, are divided on this. The International Monetary Fund has sounded a different note, saying Canada has plenty of room to run a deficit.

Analysts note that a $50-billion deficit - while numerically bigger than past shortfalls - is relatively smaller than the ones that plagued Ottawa in the 1980s and early 1990s.

That's because the economy has grown significantly since then and Ottawa is therefore better equipped to shoulder bigger deficits and debt.

A $50-billion deficit equals more than 3 per cent of Canada's economy but, as Parliamentary Budget Officer Kevin Page noted, past shortfalls exceeded 8 per cent of the economy in the mid-1980s and 5 per cent in the early 1990s. By comparison, the U.S. deficit this year is expected to exceed 12 per cent of the economy.

Still, Mr. Page said he's concerned about whether changes in Canada's economy during the recession are pushing Ottawa into a structural deficit. In other words, one that persists over the long term even when the economy is healthy and growing.

The Harper Tories say they're still confident their plan will enable Ottawa to climb out of deficit by the 2013-14 fiscal year, as they pledged in the January budget.