The Conservatives are planning on tabling a federal budget with a $40 billion deficit, Â鶹´«Ã½ has learned.
The deficit would be the highest since the 1993 budget and $10 billion more than Prime Minister Stephen Harper indicated in a late 2008 interview with CTV.
Harper is now saying a prolonged economic downturn will require massive government spending -- for possibly as long as three to five years.
Harper is asking for co-operation in drafting the federal budget, less than two months after his highly-partisan fiscal update caused a political crisis in Ottawa.
"Now is the time for everybody ... to try and reach consensus if that's possible, but especially to try and work together -- federally, provincially, internationally, across party lines -- to deal with the problems that everybody knows are urgent and large," Harper said Friday.
Harper's new, friendly tone came on the same day as a poll suggesting that new Liberal Leader Michael Ignatieff has helped vault his party into a virtual tie with the Tories.
Harper said Canada will post one of its biggest deficits in years when the budget is tabled on Jan. 27.
"We're working under the assumption this is going to be a tough time," he told reporters at a press conference in Montreal on Friday afternoon.
"This will be one of the biggest budgets in a long time. It will be a comprehensive budget to deal with a range of, not just economic challenges, but economic opportunities. We'll assume that we'll probably have to look at a period of three to five years of such action."
Liberal leader responds
Ignatieff told reporters in Halifax after a town hall meeting that "it's their budget, not our budget" and that he'll wait and see what the Tories put forward before agreeing to support the package.
But he did list a number of Liberal priorities for the budget.
"Are you going to protect the vulnerable? Are you going to get infrastructure targeted in the right way? And are you going to invest in the economy so we can get out of this (economic downturn) faster?"
Earlier on Friday, Finance Minister Jim Flaherty said this year's federal budget will have a "substantial deficit" to deal with the effects of the "synchronized global recession."
At a press conference in Thornhill, Ont., Flaherty also called on the private sector -- particularly banks -- to step up and help fill a "credit gap" to mitigate the effects of the economic slowdown.
Flaherty did not say how big this year's deficit would be, but he told reporters that his staff was crunching the numbers and could have a better idea of the figures next week.
He noted, however, that the deficit will be "substantial," while cautioning the Conservative government won't undertake large long term deficits.
Unemployment concerns
Flaherty also said he expects the budget to infuse funds into infrastructure projects and help Canada's jobless.
"We're going to have substantial job losses," he said, noting new statistics that showed that Canada's unemployment rate is already rising.
Statistics Canada reported Friday that the jobless rate jumped to 6.6 per cent -- a hike of three-tenths of a per cent.
Harper said he's concerned about the jobless numbers here in Canada and the U.S., which reported that it lost more than 500,000 jobs last month.
"Obviously, the figures today are troubling. Every time a Canadian loses his job this is something that really does pre-occupy us," he said.
"What I think is more troubling are the figures in the United States which really do indicate the period of difficulty we are entering in terms of the global economy."
Flaherty said Ottawa is now working out plans to help out-of-work Canadians -- including ways to ease access to educational and retraining programs.
"All important matters to help Canadians get through what is going to be a difficult year in respect to employment," he said.
Ignatieff said the Liberals will take a close look at how the Tories deal with unemployment issues.
"They're saying, 'let's invest in training.' But I don't think they're doing enough on the (Employment Insurance) side at all."
Ignatieff called EI 'a test' of the Tory budget.
Flaherty also called on Canada's banks to loosen consumers' access to credit. Earlier this week, he announced a working group to address the issue.
On Friday, he continued to push banks and credit unions on the matter, telling reporters that Canadians have in the past "stepped up to the plate" to support the banks.
"Our view is that they should work with us," he said.
It's a call that Flaherty has made repeatedly this week as he prepares his budget. But bank officials have countered that despite some tightening credit access, "it's business as usual" in Canada's lending sector.
But Flaherty noted that there are significant credit gaps, citing the auto leasing market as an example.
"We're prepared to work with the banks to do whatever we have to do to increase the availability of credit," he said.
"Quite frankly we need the banks to fill (the gaps)."
Pension worries
The federal government is also asking Canadians about what they want for corporate pension plan regulations.
Many private pension plans have lost much of their worth after the 2008 financial crisis put stocks into a freefall.
Currently, federally-regulated pensions with a deficit get five years to ensure their plans are fully funded.
Flaherty has said he would like extend the repayment period to 10 years, but some experts say it may take 15 or 20 years for companies to repay their pensions with the magnitude of the losses.
With files from the Canadian Press
