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No 'dramatic' spending cuts in the offing, says Flaherty Add to ...

Any spending cuts in the next federal budget will be smaller than the ones already announced last year, says Finance Minister Jim Flaherty in a year-end interview.

For weeks, the minister has been stating that there won't be any major new spending in the 2011 budget. Now he's saying there won't be major new cuts either.

A narrow, stay-the-course budget would leave the opposition with little new to attack as the three opposition parties decide whether to trigger a spring election when the government's spending plan is put to a confidence vote.

Mr. Flaherty insists restraint measures taken last year - totalling $17.6-billion over a five-year period - are significant enough to keep Ottawa's deficit on its planned downward trend.

"There is some significant pain," he said of the cuts already under way. "We're reducing the rate of growth of spending by national defence from about 8 per cent to about 2 per cent. We're freezing the level of foreign aid. … We have a two-year freeze coming up in the administrative part of the public service, a very large freeze. These are major initiatives that we're doing. I don't think we need to do anything dramatic this year, but we do need to make sure there are no big new spending programs, that's the major thing."

When asked if the 2011 budget will have cuts on the same scale as those in the last budget, Mr. Flaherty said, "I wouldn't expect anything dramatic, no. We will have some modifications here and there in order to control spending. I'm saying 'No' a lot. I'm not going to be very popular by the end of this process with my colleagues, I'm sure, but it's necessary this year to say no to a lot of ideas that are nice ideas, but they cost money. It's not the year for new programs," he said.

The biggest cut in the 2011 budget has been known for two years. In response to the recession, the 2009 budget approved two years of deficit-financed stimulus spending totalling $47.2-billion. Of that, $6.2-billion was in the form of permanent tax cuts. The rest of the stimulus spending ends in 2011.

The government forecasts a return to balance by 2015.

Canada's deficit stood at $21.5-billion over the first seven months of this fiscal year, suggesting Mr. Flaherty is on track to beat his forecast for a $45.4-billion deficit. However, the minister isn't making any predictions.

"We can always end up a little bit more, a little bit less, depending on a whole variety of factors," he said. "I think our estimates are proving to be about right and we're on track."

Mr. Flaherty took some chiding earlier this week from Ontario Finance Minister Dwight Duncan, who noted that the Harper government has a history of missing its deficit targets.

The 2009-10 deficit came in at $55.6-billion - $1.8-billion higher than forecast in the 2010 budget.

The credibility of Mr. Flaherty's deficit-fighting plan has also been challenged by Parliamentary Budget Officer Kevin Page, who argues Ottawa has not provided enough detail to confirm that promised cuts will materialize. Mr. Flaherty counters that Mr. Page is simply providing a personal opinion and that the cuts are real and on track.

Balancing Mr. Page's criticism is a glowing report out this week from the International Monetary Fund, which praises the Canadian government and the Bank of Canada for "their prudent and far-sighted policies" on economic matters.

The IMF report approves of Ottawa's decision to scale back planned increases to employment insurance premiums and for being flexible on the March 31 deadline for completing infrastructure stimulus projects.

"In the event that the envisioned program spending restraint is not sufficient, additional measures would be needed," states the Dec. 22 report by the IMF executive board.

The next budget will be Mr. Flaherty's sixth as federal finance minister. He plans to run in the next election and says he'd like to stay in his current job until he's "firmly established" Ottawa's finances are on a path to balance.

"I started with a balanced budget and paying down debt the first few years and I would like to get back firmly in the direction of a balanced budget," he said. "We're getting close to that position."

Spending cuts

Finance Minister Jim Flaherty says there is some "significant pain" in the spending cuts he announced in the 2010 budget. The cuts, which total $17.6-billion and run over the four years ending in 2014-215, include:

- scaling back planned growth in the defence budget: $2.5-billion;

- freezing the foreign-aid budget: $4.5-billion;

- cuts to public-service administration, including a two-year freeze on salary and operating budgets: $6.8-billion;

- strategic spending reviews by federal departments: $1.3-billion;

- closing tax loopholes: $2.5-billion

Bill Curry

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