Canada must avoid heading in the same direction as the European Union, where many countries are in the throes of a debt crisis, Finance Minister Jim Flaherty warns.
He kicked off a one-day meeting with provincial ministers in Kananaskis, Alta., on Monday by calling on them to eliminate their deficits by 2015. While most provinces now in deficit plan to balance their books within that time frame, Ontario will remain mired in red ink until 2018.
"This is our next challenge now to get our budgets back in order, stay on track. If we do that, it's a tremendous advantage for our country in the next four or five years," Mr. Flaherty told reporters Monday.
Ontario's eight-year plan to shed its deficit causes him concern, he told a small group of reporters Sunday evening, before joining his provincial counterparts for dinner. However, he said he does not think Ontario's fiscal situation "imperils the whole country."
The fiscal well-being of Canada is directly linked to Ontario, which makes up 40 per cent of the country's overall economy.
"We want to protect our country from ever being in a position like some of the European countries have got themselves into," Mr. Flaherty said Sunday evening.
His comments have stirred up a fresh round of tensions with Ontario Finance Minister Dwight Duncan, who is grappling with a projected deficit of $18.7-billion for 2010-11.
Mr. Duncan told The Globe and Mail that Mr. Flaherty should do a better job of getting his own fiscal affairs in order before telling others how to handle theirs.
The Parliamentary Budget Officer has questioned Mr. Flaherty's budget figures, Mr. Duncan said, adding that Ottawa has continually understated the size of its deficit. For example, he said, in November, 2008, Mr. Flaherty said the federal government would not have a deficit for the foreseeable future - a forecast that turned out to be wrong. Ottawa's deficit is now pegged at $55.6-billion.
"We knew they were simply not telling the truth to the Canadian people," Mr. Duncan said. "He ought to get focused on his own deficit problem."
But Mr. Flaherty is not the only one drawing comparisons to the European Union. Alberta Finance Minister Ted Morton said Canada could very well head in the same direction as the EU if it does not erase its combined federal and provincial deficits.
"If one wants to be cold blooded about the matter," he told The Globe, "there are similarities between the EU and Canada. We [also]have a financial union but a decentralized fiscal system. Obviously that has not worked out well in the EU in the past decade."
At the agenda-packed meeting, which is primarily focusing on Mr. Flaherty's surprise move on pension reform, he will also come under pressure from the provinces not to curtail federal transfers for health care.
The national health-care tab is widely predicted to balloon as baby boomers reach retirement age, but Mr. Flaherty said technology may actually lessen the demands on the public purse. Therefore, he said, it should not be assumed that the provinces will continue to need more health dollars at the rate of six per cent annual growth under a health accord that expires in 2013-14.
"On transfers and health care, there's more than one side to this equation," he told reporters on Sunday.
Many provinces have been working to replace paper-based medical records with a digital system, he said, which will help to produce cost savings.
"It's not inevitable that health spending will continue to grow at the rate that it has been growing on average," he said.
Ontario is already seeing some significant savings as a result of changes the province has made to health care, he said. "So this isn't an inevitability that we'll have health care growing at the same rate that it has grown in the past in terms of spending."
Mr. Flaherty insisted that he has made no decisions regarding transfer payments to the provinces once the Canada Health Transfer accord expires.
Mr. Flaherty also reiterated that work on enhancements to the Canada Pension Plan will continue - likely for another two years - but there isn't enough support at the moment to proceed with action on that front.
Instead, Ottawa and the provinces will work on creating a new Pooled Registered Retirement Plan that will be run by the private sector.
On CPP reform, Mr. Flaherty said he and others in the room are of the view that now is not a good time to move ahead given the state of the economy.
"Several of us are concerned about that, that right now is probably not the right time to impose any more burdens on employers in Canada because the economic recovery is fragile," he said. "We want to continue to create jobs in Canada so we have to be cautious and moderate in what we do and it needs more work in any event."