11/25/2011 12:21 EST | Updated 01/25/2012 05:12 EST

Jim Flaherty At The Canadian Club: Get Spending Under Control, Pay Off Debt

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TORONTO - Despite calls from some quarters to increase economic stimulus, federal Finance Minister Jim Flaherty says the government must continue doing exactly what it has been telling consumers to do: get spending under control and reduce debt.

Flaherty, who will start national consultations for the 2012 federal budget early next month, said Friday he's looking to hear ideas from Canadians on how to create jobs and growth while still keeping taxes low.

In a speech to the Canadian Club in Toronto, Flaherty said he wants to focus on getting spending under control, and that means getting rid of programs or initiatives that do nothing for the economy. He did not name any specific federal programs that might have to be cut, nor did he say where Ottawa is looking to reduce its spending.

"As we do every year, we will hear from various groups including the Opposition, calling for more spending, new programs and bigger government," Flaherty said.

However, the finance minister reiterated that the Conservative government plans to stay the course on deficit cutting and tax reduction.

"By sticking to our target of eliminating the deficit in the medium term and finding savings within government operations, we will follow through on our pledge to Canadians, while focusing on what truly matters: jobs and growth."

Flaherty's remarks came as the government reported it is on pace to beat its budget deficit target of $32.3 billion for this fiscal year, thanks to higher-than-expected tax revenues.

Federal revenues were up $4.3 billion, or 3.9 per cent, in the first half of the year, almost all from taxes of individual Canadians. Corporate tax revenues rose about $900 million, but revenues from the GST fell $1.4 billion.

Both Flaherty and Bank of Canada governor Mark Carney have been warning for months that Canadians need to start reducing debts racked up during a long period of ultra-low interest rates, in case they are unable to pay them off down the road if rates move higher.

Flaherty called on his provincial counterparts "where necessary" to also get their financial houses in order.

"Since there is only one level of taxpayer, all governments must work together" and be prepared "for whatever economic crises heads our way in the future," said Flaherty, who will be meeting with his provincial counterparts in British Columbia shortly before Christmas.

Flaherty also renewed his call for Europe to deal with its sovereign debt and banking crises, which he called a "dire and pressing problem (that) threatens not only Europe but all other countries."

Flaherty defended the government's recent announcement to increase the threshold that requires the large banks to be held widely by investors to $12 billion in equity from $8 billion.

And he said there was nothing to be concerned about in the decision to give Ottawa the final say on foreign acquisitions that increase the assets of medium and large financial institutions by 10 per cent.

Flaherty said the changes were part of a regular five-year review and to deal with recommendations put forward by the Superintendent of Financial Institutions and the industry itself.

"This is just a matter of fiscal prudence, financial prudence, maintaining the integrity and reputation of our financial system and our banks in Canada," he said.

"It's brining things up to date, it's bringing Canada, in our view, into an even stronger position to protect our country in the event of another crisis."

Flaherty gave no indication he was worried about a serious contraction in consumer spending as a result of high debt levels and a Statistics Canada report earlier this week pointing to flat wage growth.

The finance minister noted that a "significant number of Canadians" have been paying down their household debt and in particular, mortgage debt.

And while wage growth was better in some areas that others, in particular resource and commodity rich Western Canada, "the good news in the Canadian context is that we do have job creation in this country, we do have (economic) growth in this country, which is different for example from Europe, which is in all likelihood in recession."

Flaherty also stuck by Ottawa's commitment to six per cent increases in health-care transfers to the provinces through 2016.

"Unlike the previous (Liberal) government, we're not going to reduce the size of the base transfers to provinces in Canada" in the 1990s, a move that he said proved "a very serous blow to the provinces and had very serious consequences to the quality of health care."

Earlier Friday, the Conference Board of Canada issued a report declaring the country's economy fundamentally sound and predicting further expansion barring a European meltdown.

The Ottawa think-tank's latest analysis of provincial economies says the economy will expand by 2.4 per cent next year and 3.3 per cent in 2013 — above the consensus of most economists.