Finance Minister Jim Flaherty reportedly hinted today (January 6) that tax cuts may be included in the federal budget that he will unveil later this month.

According to the Flaherty, tax cuts are one way to stimulate the Canadian economy, which is now feeling the pressure of a global slowdown.

However, a plan released today by the Canadian Centre for Policy Alternatives argues that there is a better way to save the economy from recession and to protect ordinary Canadians.

The CCPA’s plan cites an analysis by the Milton, Ontario-based Centre for Spatial Economics indicating that the next round of tax cuts on the way will produce a fiscal-stimulus effect of only $2.5 billion.

“In fact, a TD Bank study of U.S. tax rebates found only 10% of their value resulted in actual stimulus to the American economy,” states the plan, entitled Leadership for Tough Times: Alternative Federal Budget Fiscal Stimulus Plan. “Yet the Conservative government has signaled its unwavering commitment to tax reductions.”

The plan also cites a calculation done by the Informetrica Limited, an Ottawa-based company specializing in economic research, showing that $1 billion in personal tax cuts increases  the gross domestic product  by $720 million and creates 7,000 jobs.

However, the CCPA paper notes, investing the same $1 billion on infrastructure creates more than twice the number of jobs with 16,000, and increases GDP by $1.78 billion.

The same investment in health-related services improves GDP by roughly the same amount, and produces 18,000 jobs.

The CCPA’s fiscal-stimulus plan calls for the injection of $33 billion into the Canadian economy in 2009-2010, and  forecasts that it would create 407,000 jobs.

Equivalent to two percent of the GDP, the plan asserts that the investment will pay for itself as it will boost the economy by three percent.

“Simply put, government spending provides more stimulus than tax cuts, because it creates more jobs,” the plan states. “People who have jobs spend. People who lose them do not.”