"We have taken immediate steps to find savings in the current fiscal year. We will take every step possible to ensure that we are able to provide the two billion dollars health transfer to the provinces and territories without going into deficit," Finance Minister Ralph Goodale said.

Goodale said the cabinet also had ordered a freeze on civil service hiring and promotion, and instructed ministers to make a "detailed scrutiny of every expenditure that remains to be made in the next three months."

Among the projects put on hold are two favored by former prime minister Jean Chretien -- the improvement of passenger rail services between Windsor, Ontario, and Quebec City and the opening of a new museum dedicated to Canadian politics.

Defence Minister David Pratt said the planned purchase of a fleet of shipboard helicopters to replace Canada's antiquated Sea King helicopters would be exempt from the freeze.

"When you send your troops into a theatre of war, or on search and rescue missions here in Canada, you want the best possible equipment," Prime Minister Paul Martin explained.

It is 10 years since the Liberal government cancelled plans to replace the helicopters, which are now between 30-40 years old and frequently break down.

Goodale said the anticipated budget surplus for the current fiscal year was now about 2.3 billion dollars, just enough to cover previous promises to provide two billion dollars in new money to health care.

But the margin, he said, was "razor-thin."

Opposition lawmakers attacked the government for not cancelling a planned tax cut instead of the drastic spending freeze.

Keeping the cut was "a huge corporate giveaway, stuffing money into the pockets of their friends," said Jack Layton, leader of the left-of-centre New Democratic Party, who said canceling the tax cuts would save four billion dollars (three billion US dollars).

TERRA.WIRE