[PEN-L:1728] We're all Third World now

[D Shniad <shniad@xxxxxx>]

IMF PRESSING OTTAWA TO SLASH BILLIONS MORE IN DEFICIT
FIGHT

OTTAWA -- The International Monetary Fund has been
pressing the federal government to impose draconian
spending cuts that would take billions of dollars a
year more out of the pockets of the unemployed, the
elderly, the sick, and even war veterans.
   A confidential IMF documents, obtained by Southam
News, also reveals that the global financial watchdog
has urged Ottawa to consider increasing the GST, a
tax which the Liberal government has promised to
replace.
   The IMF has warned Ottawa that its pace of deficit
reduction, aimed at bringing the annual shortfall to
three per cent of gross domestic product or about $24
billion by 1996-97, is "unduly slow."
   Instead, it urged Finance Minister Paul Martin to
cut the shortfall to 1.5 per cent of GDP, about $12
billion, or risk a financial setback should there be
an unexpected jump in interest rates or slump in the
economy.
   Martin, in a brief interview, acknowledged that
the IMF is not satisfied with the speed at which the
deficit is being cut but insisted he is "sticking" to
his own targets.
   However, Canadian officials confided to the IMF
that Martin expects to do better than he's letting
on, the documents show.
   "The Canadian representatives stressed that the
fiscal outcome was likely to be better than projected
owing to the deliberate adoption of very conservative
economic and technical assumptions..."
   Martin will present Canadians with a financial and
economic update Wednesday during an appearance before
the Commons finance committee.
   However, the IMF, which acts as a lender of last
resort, has suggested a menu of options that it
claims would allow Ottawa to wipe out the deficit
before the end of the century.
   The proposed actions include cutting $4.5 billion
a year from unemployment insurance by 1998 to "reduce
its use as a long-term welfare system."
   The UI cuts proposed by the IMF would more than
double the savings expected from reforms that have
already been announced, including those unveiled last
week.
   The IMF also recommended chopping $3.9 billion
from old age security by means-testing benefits, and
eliminating $600 million in tax breaks for war
veterans and natives.
   It also urged that Ottawa axe $8 billion from
"overly generous" payments to the provinces for
health care, education, welfare and equalization
which goes to the seven poorest provinces.
   While the IMF viewed the February '95 budget as a
"significant effort" to reduce the deficit, it has
since "reiterated its view that the three per cent
target still would leave federal finances under
stress with the debt-to-GDP ratio declining only
slowly from a very high level."
   "Canada's fiscal problems remain serious," warns
the document, dated two months after the budget.
   The IMF can't force Ottawa to swallow the medicine
it prescribes unless the government needed to go cap
in hand to it for a loan.  Nonetheless, the
government acted on some of its recommendations,
first made just prior to the 1995 budget.
   For example, the document shows the controversial
strategy of using UI as a deficit-reducing cash cow
and cushion against another recession rather than
cutting premiums was the brainchild of the IMF.
   "Savings from structural reforms could be used to
build up a higher surplus in the short term while
other fiscal adjustment measures are phased in," the
IMF suggested just before the last budget.
   In the budget, Martin announced that rather than
cut premiums once the UI fund was balanced as
required by existing regulations, the government
would delay premium reductions until the fund had
accumulated a $5 billion surplus.
   The fund now has a $1 billion surplus which is
expected to balloon to $5 billion next year despite
the marginal cut in premiums announced last week.
   The government also plans to cut transfers to the
provinces as the IMF recommended, but not the degree
suggested.  According to the IMF document, the cuts
in provincial transfers announced in the '95 budget
would total only $4.6 billion a year.
   Further, Canadian officials told the IMF that
Canada is considering cutting foreign aid to 0.23 per
cent of GDP, a mere third of the amount the
government had promised.
   But the government, so far at least, has shied
away from other more politically sensitive deficit
reduction measures suggested by the IMF, including
reform of the "generous" old age security system.
   The government has also not shown any appetite for
some other IMF proposals, such as eliminating the tax
exemption on veterans' benefits, or slowing the
growth in transfers to natives, two measures which
the IMF says could save $600 million a year.

                       -- Southam News