Federal Conservatives are facing pressure to act in response to dismal employment numbers that challenge the government's self-promotion as successful job creators.
Finance Minister Jim Flaherty has indicated the 2014 budget will not include major new spending, but opposition NDP and Liberal MPs say the minister needs to ease up on fiscal restraint, even if it means the deficit won't be eliminated in time for the 2015 federal election campaign.
Canada's disappointing jobs picture will also increase the attention on federal-provincial negotiations toward a new jobs-training regime. Ottawa wants to launch a new Canada Job Grant by April 1 and talks have recently heated up in an effort to get highly reluctant provinces on board.
Another job-boosting option available to the government would be to speed up infrastructure spending. Last year's budget announced a 10-year, $47-billion Building Canada Fund, but the program has yet to be officially launched.
Several private-sector economists cautioned however that while Friday's jobs numbers are bad, Ottawa should wait and see whether they represent a trend or merely a blip before abandoning its current plans.
"Should we really change our plan because of the latest labour market numbers? I'm not sure there's anything to suggest yet that we should," said Conference Board of Canada economist Pedro Antunes. However, if the expected U.S. recovery fails to materialize over the coming months, Mr. Antunes said Ottawa will need to consider delaying its 2015 target for erasing the deficit.
Prime Minister Stephen Harper and his ministers often boast that Ottawa has created more than one million new jobs since the recession, but Friday's job numbers take some of the shine off of Canada's performance. With the loss of 45,900 jobs in December, Canada's jobless rate now stands at 7.2 per cent, which is more than a full percentage point higher than it was before the recession.
The situation for youth is more grim, with a 14-per-cent jobless rate that is now three percentage points higher than it was before the recession.
"This should be a job creation budget," said NDP finance critic Peggy Nash. "Of course balancing the books is important, but not at the cost of slowing the economy and throwing more people out of work."
Parliamentary Budget Officer Jean-Denis Fréchette released a report in December stating that current federal restraint measures, such as operating budget freezes in federal departments, mean Canada will have 22,000 fewer jobs in 2016.
Industry Minister James Moore argued that balancing the books will ultimately increase employment through lower taxes.
"A government can balance a budget really quite quickly, if it chooses to, but we're arriving at a balanced budget in the medium term, we think, through prudent measures of growing the economy, adding modest spending reductions, and doing things that will arrive us at a balanced budget in a responsible way," said Mr. Moore at an event in Vancouver.
Liberal finance critic Scott Brison said Ottawa needs to change course by lowering employment insurance premiums and re-considering its deficit-elimination target.
"They're showing how out of touch they are with young Canadians and their middle-class families," he said.
Carlos Leitao, chief economist with Laurentian Bank Securities, said the immediate impact of the job numbers on Ottawa should be to erase any thoughts the government may have of balancing the books a year early in 2014-15.
"I don't think there's any need to do that," he said, but the 2015 target should remain for now. "The reduction in the deficit has been gradual and measured and that's entirely appropriate."
With a report from Iain Marlow in Vancouver