Finance Minister Jim Flaherty said Monday that there's no substance to worries that the country will head back into a deficit situation if the economy slows.

Flaherty's comments came as a new report by the Canadian Centre for Policy Alternatives (CCPA) warned that the federal treasury could easily record a deficit if economic growth slows more than the government expects.

"We have anticipated some economic slowing in Canada for months now, which is precisely why we took dramatic action on Oct. 30 [to cut business taxes]," Flaherty told reporters at a Vancouver news conference.

As for the future, the finance minister said he will "keep spending within the rate of growth of the economy, and quite frankly, I hope to do more than that … I want to make sure we keep the budget in surplus."

The CCPA says the tax cuts announced last October give Ottawa little wiggle room to stay in surplus should the economy turn sour.

The centre's report outlines four possible scenarios for the economy and even under its least pessimistic version — inflation-adjusted growth of one per cent this year and 1.5 per cent next year — the budget surplus would vanish in 2008-09 and become a $2.4 billion deficit by 2009-10.

The CCPA said the federal government "can and should" run a deficit if the economy turns down. "The biggest danger is that the feds will respond by cutting spending in order to maintain the budget balance, a move that would only worsen the downturn," said Marc Lee, the CCPA's chief economist and the report's author.

Flaherty launches pre-budget consultations

Flaherty was in Vancouver for the Finance Department's pre-budget consultations. Flaherty is touring the country, hearing ideas from business leaders about what they'd like to see in the budget.

The department also launched its online pre-budget consultation initiative on Monday. Last year's effort attracted almost 8,000 submissions from the public.

"Although our economic fundamentals are solid, we need to focus on the various risks and challenges that confront us," Flaherty said in remarks posted on the Finance Department web site. 

"These include the impact of an economic slowdown in the U.S. and ongoing turmoil in financial markets, the continuing need to adjust to a higher Canadian dollar and increasing global competition, as well as the aging of the Canadian population."

Flaherty and Prime Minister Stephen Harper have already cautioned that there may not be much additional tax relief or new spending in the budget.

"We will be extremely cautious in the year to come," Harper said on New Year's Eve as his government's latest GST cut was about to go into effect.

"We're not going to undertake any long-run spending or tax reduction initiatives unless we believe they are affordable on a long-term basis."

The next federal budget is expected in February or March.