Harper gov't looking into home-care plan: Flaherty

OTTAWA - The federal government has looked into using the tax system to help Canadians take time off work to care for elderly or sick family members, but the high cost may be too much of a barrier this year, says Finance Minister Jim Flaherty.

In an end-of-year interview with The Canadian Press, Flaherty said the problem was brought home to him during pre-budget consultations in the last few months. It has also been raised repeatedly by the opposition Liberals.

Flaherty didn't say he will propose measures in the next federal budget, but confirmed he has looked into the possibility and costs.

"There are some tax initiatives that have been suggested, we've costed some, and it's an area where we have spent a fair amount of time... It's fair to say the government is reviewing that area ... and the area of caregivers to persons with disabilities."

Flaherty admitted a family care program would be "expensive" and he plans no big spending items in next year's budget.

The challenge of the elderly is expected to become more acute in Canada starting next year, when the first wave of the Baby Boom demographic bulge enters retirement age.

The opposition Liberals have already promised a $1-billion family-care initiative if they form government. They plan to use the proposal to differentiate their priorities -- families -- from what they will portray as Conservative priorities of cutting corporate taxes and purchasing fighter jets.

While such a proposal would likely be popular in what is expected to be a pre-election budget, a major stumbling block is cost.

Flaherty has repeatedly warned that he intends to stick to his five-year schedule for eliminating the deficit, which ballooned to a record $55.6 billion last year and will add another $45 billion to the national debt this year.

The shortfalls are expected to fall off sharply after March 31 when almost all elements of the government's two-year $47-billion stimulus package end. As well, government revenues have been recovering with the economy.

"We're not going to have any big new spending programs in the budget, but there will be re-allocations of some spending," he said. "Government programs don't have to go on forever."

Flaherty also revealed that he is considering intervening for the third time in three years to discourage Canadians from taking on too much debt.

Canadian households' growing debt burden -- which has risen to a record high 148 per cent of disposable income -- was singled out as a key risk to the economic recovery by the International Monetary Fund on Wednesday. Flaherty and Bank of Canada governor Mark Carney have also repeatedly warned of the risk to some households once interest rates begin to rise.

Flaherty said he is concerned about Canadians buying "too much house" and becoming saddled with high mortgages, but after moving twice to tighten requirements, he said he has set his sights on a new problem -- home-equity loans.

"We're seeing increased home-equity loans, and that's another area I've been looking at recently -- carefully," he said.

"The banks have been encouraging the use of home-equity loans. I expect the banks to show prudence in their lending practices, quite frankly, without me telling them to do it. But if they insist ... we've done it before, we'll do it again."

According to Bank of Canada tracking, personal lines of credit from chartered banks have continued to expand throughout the recession, increasing to about $219 billion in October from $139 billion three years earlier -- a 57 per cent increase.

Flaherty cautioned that he does not believe there is a crisis in borrowing at the moment because low interest rates are keeping monthly payments at affordable levels. But he said he must take steps to ensure no crisis develops once interest rates rise.

Currently, Canadians can borrow up to 90 per cent of the equity they have on their homes, using the home as collateral. The most obvious hammer Ottawa can adopt is to increase the threshold to 15 per cent or even 20 per cent, said Bank of Montreal economist Douglas Porter.

But Porter said another action Flaherty could take is simply tell the banks to tighten their lending practices.

"If an edict came down from on high, I believe the banks would respond," he said.

Flaherty said he shouldn't have to tell banks to mitigate risks:. "At the end of the day, the government will do what it needs to do. But I do think there needs to be recognition not only of prudential regulation, but prudential lending practices."

The minister also does not expect to make many friends inside cabinet with his budget, anticipated for late February. He said he does not have the money to fulfil many wish lists, but added that Canadians should not expect a slash-and-burn budget either.

"That would be a mistake," he said. "The economic recovery is fragile, it's tentative and it's modest, so we have to make sure we don't do any harm there.

"We are not in a situation, thank goodness, that the Liberal government found itself in the mid-1990s, with a large structural deficit, with the IMF (International Monetary Fund) looking at Canada, with talk about the Canadian peso. So we don't have to take that kind of draconian action to get back to a balanced budget, but we do have to stop the extraordinary actions that we took during the Economic Action Plan."

Flaherty said his biggest fears about Canada's economy largely come from outside the country, the European sovereign debt crisis and the weak U.S. economy.