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Jim Flaherty, Canada's finance minister, arrives for the G20 finance ministers dinner in London, Friday. (Chris Ratcliffe)
Jim Flaherty, Canada's finance minister, arrives for the G20 finance ministers dinner in London, Friday. (Chris Ratcliffe)

Ottawa to unveil road map to zero deficit Add to ...

The Harper government is preparing to unveil a new plan demonstrating how it would return deficit-swamped Ottawa to balanced budgets, seeking to bolster its fiscal stewardship credentials as an apparently inevitable fall election nears.

Finance Minister Jim Flaherty, eager to craft a political legacy in which Ottawa's plunge into deficit figures less prominently, announced Friday he hopes to soon lay out a blueprint to get back into the black in the years ahead.

The Tories plan to release it as early as this month - before a Liberal-led effort to defeat them - along with a promised update on the progress of federal stimulus spending.

Tories believe that swing voters accept the need for temporary deficits, but they still want evidence the government has a plan to return to balanced books. Strategists are aware that voters' opinions on how well a government manages Ottawa's money tends to spill into how they rate its stewardship of the economy.

For instance, Conservatives believe the federal sponsorship scandal that helped sink the former Liberal government undermined the managerial credibility the party had built slaying the deficit and paying down piles of federal debt.

Mr. Flaherty's announcement was made after Statistics Canada released figures showing a surprise jobs gain of 27,100 in August, the first such jump in four months. It's good news for the Tories insofar as it could help them beat back opposition charges that they are mismanaging the economy. But job numbers are a fickle statistic for politicians to rely on because they could also lose ground unexpectedly in the coming months.

The Finance Minister emphasized Friday that he's not trying to pull the plug early on the massive stimulus spending that is helping drive this year's projected deficit to $50-billion and next year's shortfall to levels approaching $40-billion. Cash for infrastructure projects and other job creation initiatives has trickled into the economy only slowly, and the bulk of its impact won't be felt until 2010.

But Mr. Flaherty said he sees no need for further stimulus beyond existing funds set to run out in the next budget year.

"We have done extraordinary spending now, which is absolutely necessary to protect our country and to help the unemployed during a difficult time, to stimulate the economy and get us back into positive growth. But that won't continue forever," Mr. Flaherty told reporters in London during a trip to a Group of 20 finance ministers meeting.

"What I expect to be able to do in our next report to Parliament is to outline how we will move back to surplus over several years in Canada."

The Conservatives' last attempt to map out a return to balanced budgets didn't fare well. In January, even as they oversaw Ottawa's slide into deficits for the first time in more than a decade, the Tories officially forecast that they expected to return to balanced budgets in just five years.

But within weeks of the January budget, the economic outlook dimmed considerably, leaving Ottawa's projections in the dust.

One of the challenges for the Finance Department is that Ottawa's tax revenue base has shrunk so much as a result of the global downturn that a fiscal rebound is even further off than expected last January.

In their new budget plan, the Tories will have to confront the fact that they cannot balance the books within four or five years by simply waiting for the economy to bounce back.

Senior economist Dale Orr estimates that it would take Ottawa about eight years - until the 2017-2018 fiscal year - to eliminate its budget deficit if politicians did nothing but wait for revenues to grow to such an extent that they covered the annual shortfall.

Mr. Flaherty's new road map is certain to draw controversy.

Accelerating the timetable to a balanced budget would require tax increases - something the Tories have ruled out - or tough restraint measures, such as spending cuts or reductions in planned increases to future program funding.

Liberal Leader Michael Ignatieff said Friday's job gains won't deter him from toppling the Tories, a goal he set on Tuesday when he announced that his party would no longer support the 101/2-month-old minority Harper government. "The economy is still struggling. A million and a half Canadians are looking for work, bankruptcies are up 50 per cent and we're staggering along with a $50-billion deficit."

He dismissed Mr. Flaherty's deficit-reduction plan, saying the Liberals have a better track record. "All I can tell you about our plan on the deficit is we have got credibility. We inherited a $42-billion deficit from Brian Mulroney, the last Conservative government. We dug the country out of it without raising taxes ... We did it before. We'll do it again."

Mr. Ignatieff said he doesn't doubt the economy will recover, but added that the key question will be who can lead Canada into the new economy, because many jobs lost in this downturn won't be recovered.

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