OTTAWA - Canada's economy has deteriorated so badly since the federal government introduced its budget that more jobs have already vanished than the $40-billion stimulus was intended to create, the parliamentary budget officer says.

Kevin Page told the House of Commons finance committee Wednesday it was not his place to recommend more stimulus spending, but did urge that the stimulus already announced be implemented quickly.

However, both Liberal and New Democrat MPs on the committee said the government should at least consider improving benefits to Canadians who find themselves out of a job during the recession.

Page's latest report shows an economy that entered free-fall in the first quarter of this year and has wiped clean most of Finance Minister Jim Flaherty's projections when he tabled the budget in January.

"We think what we are seeing now is historic in terms of quarter to quarter decline," he said. "The premium should be getting the stimulus implemented."

Page noted that Flaherty had estimated the stimulus would save or create 190,000 jobs over two years, but that Canada has already lost 212,000 in the first two months of the year before a dime of the stimulus is spent.

As many as 385,000 jobs will vanish in the first half of this year, he said.

For all practical purposes, the government's stimulus can only start being spent starting April 1.

The budget officer, who is independent of the government, now suggests the economy will shrink at an annual pace of 8.5 per cent during the first three months of 2009, which would put him in line with Merrill Lynch economist David Wolf among the most pessimistic of near term decline.

Over the year, the economy will contract by 2.5 per cent, he said, about double the budget's estimate.

Worse, nominal GDP - which is the value of what Canada produces and a better determinant of government revenues - will plunge at an annual pace of 15 per cent this quarter and slowing to a four per cent annual pace in the April-June period.

The loss in government revenues will be staggering, Page says, resulting in a federal deficit at least $9 billion more than the budget's projected $64 billion over two fiscal years.

However, the budget officer hedged his estimate, saying he was unable to do a full analysis of the implications of the weakened economy in part because Finance Department is refusing to share important aspects of the information it has.

The Toronto-Dominion Bank recently said the deficit shortfall in the next two years could actually be $17.5 billion greater than the budget numbers, and Page agreed that may be closer to reality.

The budget officer did have some praise for Flaherty. He said the minister was "wise" for calculating a lower than consensus contraction this year, but unfortunately events have overtaken even that prudent outlook.

"The starting point is so much worse than Mr. Flaherty had in January," said Page.

"The policy challenge is much more significant because of what we've seen in first quarter of 2009. What we're saying is that the challenge we face right now because of the weakened economy is much bigger."

Liberal finance critic John McCallum, a former chief economist for the Royal Bank, said it would be a unseemly to ask for a revised budget when no part of the stimulus in the previous budget has even gone out the door, but he said more will be needed if conditions deteriorate.

His NDP counterpart, Thomas Mulcair, called for the government to act now, particularly on expanding employment insurance benefits.

"It would be easy to get that money flowing. It goes directly into communities, it's not something theoretical, it's not a project to build something six or 12 or 18 months ago," he said.

With jobs disappearing at an alarming rate - 295,000 in the past four months - and more carnage ahead, the budget's relatively modest expansion of EI has become a key attack point for the opposition parties.

The budget does extend benefits a maximum of five weeks, but all three opposition parties say the government should also increase benefits and expand the number of jobless Canadians who are eligible to receive EI. They say under the current rules, fewer than half of Canadians who will be laid off will qualify for benefits.