The Canadian Press

The federal government shouldn’t be afraid to rack up an even higher budget deficit this year in order to create jobs and bolster the economy, says an independent research group.

The Canadian Centre for Policy Alternatives has issued its annual alternative budget, proposing a $65-billion deficit next year –well above the $56 billion forecast for this year.

The document calls for more stimulus spending, $10 billion in reforms to the EI program and more government money for green technology and industries.

It suggests bringing in a federal carbon tax by July 2011, along with sharp cuts to defence spending and changes to student support programs.

It would bring in a tax credit program to shield most people from the impact of the carbon tax.

The carbon tax is forecast to bring in about $10 billion in its first year, while defence cuts would total $6 billion over five years.

The centre is an independent, left-leaning institute specializing in social, economic and environmental policy issues.

It says its prescription would create 324,000 jobs and shrink the unemployment rate to 7.2% from the current 8.3%.

Job creation, not balanced books, should be the priority for Finance Minister Jim Flaherty when he brings down the budget Thursday, the centre argues.

It says the government stimulus package was “too little, too late” and has to keep going this year to produce needed jobs.

“Canada’s private sector isn’t stepping up to fill the void,” the budget document says. “The need for stimulus spending is still strong.”

“The global recession wiped out 486,000 full-time Canadian jobs within a year and those jobs aren’t coming back on their own,” said Armine Yalnizyan, the centre’s senior economist.

“It took seven years to regain the full-time jobs lost in the 1990-91 recession,” said David Macdonald, co-ordinator of the alternative budget project.

“Our plan would bring unemployment back to pre-recession levels by the end of 2011 and demonstrates there is a better way to reach fiscal balance through smart investments and smart taxation.’

In addition to defence cuts, the alternative budget proposes ending subsidies for bio-fuels and dramatic changes to eliminate most student tax credits, replacing them with grants.

It says cities should get a higher share of gasoline taxes to pay for infrastructure projects.

The document comes as some economists are urging Flaherty to cut the deficit, with a few brave souls even suggesting tax increases.

Flaherty has hinted at a hold-the-line budget, with no new taxes, no new spending programs and a reliance on economic growth to erode the deficit over time.

That’s not enough for the centre, though, which wants the purse strings to stay loose and the government to create the momentum needed to pull the economy out of its slump.

“By closing its eyes to the investments that need to be made, the Harper government is condemning Canadians to slower GDP growth and higher unemployment for years to come,” the centre’s budget papers conclude.