Flaherty considers additional tax reductions

Finance Minister Jim Flaherty said Ottawa and Canada's banks will create a working group to loosen tight consumer credit, which has been the "number one concern" voiced during pre-budget consultations.

"We all have responsibilities to ensure that the financial system functions properly in support of the Canadian economy," Flaherty said Tuesday after a pre-budget meeting with the Canadian Taxpayers Federation in Montreal.

The comments come a day after Flaherty met with Bank of Canada governor Mark Carney and the country's top bankers and regulators amid growing concern over freezing credit markets.

Flaherty also discussed a proposed stimulus package for the Canadian economy, which would invest heavily in infrastructure but will likely throw the country into deficit for the first time in more than a decade.

"What I've been hearing across Canada and also from my council of economic advisers has been that we need to invest more in infrastructure," Flaherty said before the meeting, adding that tax cuts are also a possibility.

"That is one way of course of supporting the economy, of stimulating the economy, but also we need to look at tax reductions, additional tax reductions, as another way of supporting the economy."

Flaherty said his main goal is to keep the economy in good shape.

"We need to take some steps in the short term to provide stimulus in the economy but we also have to, during this time of economic turbulence, take steps to build capacity in the economy so we come out of the slowness in a position of strength," he said.

On Monday, Flaherty met privately with senior bankers and Bank of Canada governor Mark Carney yesterday but only commented on the discussions at Tuesday press conference.

"I encouraged the heads of the banks, the CEOs to work with the government... to ensure the systemic strength of our banking system in Canada," he said.

Still, according to the Canadian Taxpayers Federation (CTF), Flaherty should do all he can to cut taxes and table a balanced budget later this month.

"Unfortunately, the one thing the finance minister was very clear on today is that he fully expects to run an important deficit this year," CTF spokesman Kevin Gaudet told CTV Newsnet Tuesday.

"It looks like taxpayers will be on the hook for the first deficit in some 15 years."

Key to the deficit spending is $4 billion in loans to the moribund domestic auto industry, which has already received $782 million of public funds over the past five years, said Gaudet.

"The government has a long history of throwing money at industries that are failing," he said.

However, Gaudet added that funding the automakers could be a waste of taxpayer's money, because two of the companies could end up bankrupt regardless of any federal loans.

"If you listen to what (President) George Bush said in his statement, he's planning for a structured bankruptcy of two or three of the Big Three. That means the Canadian tax money that's provided to these companies could very easily be flushed away."

While Gaudet said that "an alphabet soup of interest groups" has been pressuring the government for subsidies, he noted that Flaherty has recently signaled that tax relief for Canadian households may also be included in the budget.

Gaudet said the Tory budget will have to appease both Conservatives and the left-leaning opposition parties, meaning a mixed-bag of measures.

"So I think you're going to see the finance minister do a delicate dance between spending and tax relief."

Flaherty has already held pre-budget consultations in Saskatchewan and Atlantic Canada. He will be in Toronto on Friday and in Vancouver next Monday.

Meanwhile, the Canadian Centre for Policy Alternatives (CCPA) released its Alternative Federal Budget (AFB) fiscal stimulus plan.

According to the report, the one-year package would create 407,000 jobs and boost the economy by 3 per cent.

The plan calls for an injection of $32.9 billion, or 2.1 per cent of GDP, into Canada's economy to protect Canadians who experience loss of income, as well as strengthen and build hard and soft infrastructure to address the challenges of climate change, income inequality, and aging populations.

"We've laid out a bold and achievable set of initiatives that can protect Canada from the economic storm while building for future generations," CCPA Senior Economist Armine Yalnizyan said in a press release. "Our plan creates jobs and gives the economy a jolt of life just when it needs it -- now."