Flaherty says deficit fight doesn't need to be 'draconian'

Finance Minister Jim Flaherty said Canada is in good fiscal shape and doesn't need to be as "draconian" as other countries have been when they grappled with massive deficits.

The finance minister struck a positive tone, recognizing that people have lost their jobs but he saidthat "things are getting better in Canada."

"Fortunately the government of Canada is in [a]relatively good fiscal situation, so we don't need to be draconian. We're not the government of the United Kingdom, we're not in that situation, thank goodness, like Greece and Portugal and some other countries," Flaherty told reporters after meeting with a group of private sector economists in preparation for the budget he will deliver March 29.

"But we do need to look at the medium-term and the long-term and make sure that we create a viable, sustainable fiscal situation for the people of Canada going forward, and I think not only of my generation of course, but the next generation," he said.

The government is expected to lay out its plans for changing the Old Age Security program in the budgeta program it says is not sustainable for future generations. It will also be describing the results of its widespread spending review announced in last year's budget. But Flaherty has said the March 29 budget won't contain specific details.

The details of how each department is going to be cut will be announced by the ministers responsible, Flaherty said Monday. Every department was asked to trim five to 10 per cent of their budgets in an effort to cut overall spending by $4 billion annually.

Flahertymet with economists from the country's biggest banks and he said they had a good discussion about the Canadian and global outlook. Flaherty said they described Canada's economy as "resilient" over the last year and said they expect "modest growth" to continue.

The consultations will be incorporated in the government's budget planning. Later this week, the banks will begiving their most up-to-date forecasts to the finance minister. Flaherty always meets with the economists before the budget.

Flaherty said he and the economists share an ongoing concern about Europe's economy but said they seesigns of optimism in the United States.

He was asked about whether he is considering endingcorporate tax deductions for sports events and Flaherty rejected the idea, saying there are much bigger issues to be worried about. The idea was floated by Ontario's finance minister Dwight Duncan in a letter to Flaherty.

"Ontario has fundamental budgeting problems; they have major spending problems that they've built up over the course of eight years.I'm just not into scapegoats, I'm not into side issues and so I will review all of these issues as tax policy," he said.

Flaherty said he is constantly lobbied to allow golf course memberships to be written off as business expenses and that these requests are not priorities.

Provinces have serious debt problems: Flaherty

"Listen, we have serious issues in this country about sustainability of government programs, fundamental government programs. So I'm not about to do anything about golf courses or anything like that," he said.

"I think we need to addressthe fundamental issues that we have in this country, and that includes not just the government of Canada which is in relatively good shape but the provincial governments, the subnational governments that have serious deficit and debt problems."

The government is aiming to erase the federal deficit by 2015-2016 and Flaherty said the government is on track with its medium-term plans.

"I'm happy that the deficit looks like it's going to be lower this year. We'll see what the final numbers are," he said. "And I want to make sure it's lower next year and then within the next few years, the balanced budget. And that gives us scope then to reduce taxes more, to pay down the public debt more and that's what makes Canada look, quite frankly, so good in the world."

Flaherty asked the economistsfor their views on the housing market and on consumer debt. Flaherty said there has been some moderation in the housing market butsaid he's specifically concerned about the condominium market.

"I encourage Canadians to be careful in the amount of debt they take on in terms of residential mortgages because rates will go up some day and I would not want people to get caught," he said.

Some of the economists differ when it comes to concern over the housing market. Derek Burleton, deputy chief economist at TD Bank, said he shares Flaherty's concern about the condo market. A lot of buildings are going up, the inventory of unsold properties is rising, and withtoday's low interest rates, there is upward pressure onsales and pricing, he said.

"I do believe that there is some scope to take some further measured actions," said Burleton. Raising the minimum down payment from five to 10 per cent is one idea the government could consider, he said.

But Doug Porter, deputy chief economist at BMO, said Vancouver and Toronto have had their condo market troubles but the rest of the country is stable.

"I think this is a highly concentrated issue that we are talking about," said Porter.