Prime Minister Stephen Harper got it wrong when he told Canadians during the recent federal election campaign that Canada would not go into recession, and would not have a budget deficit, Liberal Leader Stéphane Dion said Tuesday.

"A few weeks ago, he said that talking about a deficit in Canada was stupid and ridiculous, but just last week he said that this was essential," Dion told the House of Commons during Tuesday's question period.

"So what's he going to say today, is a deficit ridiculous and stupid, or is it essential?"

Over the weekend, Harper acknowledged the country was headed for a "technical recession" at the end of this year or early in 2009. It came on the heels of a report by the parliamentary budget officer Harper appointed that said Ottawa is likely headed for deficits of about $3.9 billion next fiscal year and $1.4 billion the year after.

The Liberal leader also demanded the prime minister clarify exactly when he first knew the country would go into deficit, suggesting Harper was hiding the information from Canadians during the campaign that ended with the Conservatives returning to office with a strengthened minority government.

Responding for the government, Finance Minister Jim Flaherty said Canada is well prepared to deal with the global economic crisis thanks to personal income tax and business tax reductions brought in by the Conservatives.

Flaherty said he would have more details in Thursday's economic update, but he added the government will not artificially engineer a surplus for the next fiscal year.

"We'll do what is necessary, Mr. Speaker, to protect Canadian families, Canadian individuals, Canadian businesses, so that they have the necessary credit available to them, so they can invest and re-invest," Flaherty said.

Tories 'asleep at the switch': Layton

On Tuesday, the latest Organization for Economic Co-operation and Development outlook forecast the global financial crisis could hit Canada with a recession and boost the country's unemployment rate to 7.5 per cent.

But Flaherty told the House that the OECD report also says Canada will be the country leading the economic recovery by 2010. He accused opposition members of "talking down the Canadian economy."

NDP Leader Jack Layton said the Conservatives are "asleep at the switch" while other governments around the world are offering immediate stimulus packages.

"When is this prime minister and this government going to realize that we need action now, not months from now, to help Canadians get back to work and restore confidence in our economy?" Layton said.

The finance minister, in turn, cited the stimulus measures brought in by the previous Conservative government that the NDP voted against, including reductions to the GST, personal income taxes and small business taxes.

Flaherty said those measures provided a stimulus of almost two per cent for next year, which is more than the United States and other G7 nations have offered so far.

Government to clamp down on discretionary spending

Meanwhile, the Canadian Press reported that Flaherty will use Thursday's economic update to spread the pain of the economic downturn to politicians and top bureaucrats.

The media agency quoted a senior government official as saying the update will contain some high-profile measures to control discretionary spending.

The source wouldn't confirm details, but there will likely be compensation restrictions for senior public servants and MPs.

Last week's throne speech warned that the government intends to restrict the growth of compensation in the public service, but this is the first time politicians have been mentioned in the belt-tightening move.

The measures come as the government prepares for the worst economic climate since the early 1990s and likely the first budget deficit in more than a dozen years.

With files from the Canadian Press