Finance Minister Jim Flaherty is playing down the looming threat of the so-called U.S. fiscal cliff, saying he believes American lawmakers will come up with some sort of temporary solution to ward off the potential devastating economic results some have been predicted.
Republicans and Democrats have until the end of December to agree on a plan to deal with Bush-era tax cuts and spending programs that are set to expire at the end of the year, unless a plan can be reached to move forward.
Many economists predict that the double-whammy of increased taxes and reduced spending on government programs would have a crippling effect on the U.S. economy, triggering an instant recession which would then spill over into other countries -- including Canada.
But Flaherty played down that threat on Monday, speaking to CTV's Canada AM from Meech Lake, Que., where he is meeting with provincial finance ministers from across the country.
"It's more of a fiscal decline than it is a fiscal cliff," Flaherty said. "This would happen gradually in the months of January-February if the Americans are unable to come to an agreement with respect to taxes and reducing their spending on entitlements.
"It's about a medium-term plan to balance budgets, reduce deficits and start paying down public debt, all of which we're already doing in Canada."
Flaherty said the real risk is if American lawmakers fail to reach any deal whatsoever, and the full scheduled cuts come into effect, which would slow growth in the first quarter of 2013 in the U.S. and, by extension, in Canada.
"To be reassuring, I think I can say the Americans are working on this and I expect the odds are they will accomplish some kind of Band-Aid in January-February."
While the threat of the fiscal cliff is expected to be a major topic of coversation at the Meech Lake talks, provincial finance ministers also want to discuss federal transfer payments to the provinces since the equalization system is up for renewal in 2014.
Flaherty suggested Monday that the topic is a non-starter as the government is committeed to maintaining the current model and will not reduce payments to the provinces.
Some provincial leaders have also advocated recently for major changes to the Canada Pension Plan, as greater numbers of employees face retirement without the benefit of a company pension plan -- another topic that may come up during Flaherty's meetings with his provincial counterparts.
He told Canada AM now is not the time to introduce major changes to the program, which would put a burden on both employers and employees at a time of economic fragility. But he said he is open to enhancing the program in the future.
Flaherty was has held the federal finance post since 2006. When asked recently if he has any intention of leaving the role, Flaherty said no.
"I intend to stay for a while. …. We're getting back to a balanced budget. We had the great recession. We had to run a big deficit to protect jobs and the Canadian economy. But we'll be back to balanced budget by 2015, and I intend to see it through."
