Economic point men battle over deficit

As Stephen Harper and Stéphane Dion battled over who should lead the country, their economic point men engaged in a war of words Wednesday over the size and length of future deficits and the cost of stimulus packages.

The increasingly heated exchanges inside and outside the House of Commons are part of a bigger debate over which party is better suited to manage the country in an economic crisis.

Following a Conservative caucus meeting Wednesday morning, Jim Flaherty, the Finance Minister, warned reporters that the country’s finances would be in peril under the proposed Liberal-NDP coalition. He said he was particularly concerned over the two-year fiscal stimulus package the coalition is proposing.

“I understand that the opposition [coalition] is planning a $30-billion package which would mean our country would go under permanent deficit like the Liberals did to our country in the 1970s,” he told reporters in a brief scrum.

The $30-billion is the equivalent of 2% of GDP, or what the Group of 20 nations agreed to commit toward fiscal measures aimed at pulling the global economy out of a recession. Liberal MPs Martha Hall Findlay and David McGuinty told the Reuters News Agency Wednesday that the stimulus package would cost roughly $30-billion.

The chief Liberal economic spokesman, John McCallum, called the Conservative allegations “entirely wrong,” adding the stimulus package the coalition has under consideration would cost “significantly less” than $30-billion. He also said there would be no structural deficit under the coalition because the policy framework calls for a return to surplus in the fourth year after it assumes power.

Mr. McCallum — considered one of two top contenders to be the coalition’s Finance Minister — said Ms. Hall Findlay and Mr. McGuinty were “wrong” because they had “misunderstood” the situation.

Until Wednesday, Mr. McCallum and other Liberals have declined to provide details of the cost of the coalition’s stimulus package. Under the coalition’s policy framework pact, the package would focus on infrastructure, housing construction and retrofits, as well as aid to the ailing auto and forestry sectors.

Mr. McCallum signalled the package could be pared back depending on the size of the deficit the coalition would stand to inherit.

“If the Conservatives are hiding a deficit of $15-billion, let’s say, we will obviously have less money at our disposal than if it is $5-billion,” Mr. McCallum said. “It would be irresponsible, and fiscally imprudent, for a future government to give any figure until we can see the books.”

Bay Street economists and analysts have warned the country risks sliding back down the slope to structural, or permanent, deficits if the Liberal-NDP stimulus plan costs $30-billion.

Douglas Porter, deputy chief economist at BMO Capital Markets, said the deficit could swell to $20-billion next year.