OTTAWA - The federal government will record a small $2.9 billion deficit this year after accounting for the costly income-splitting measure that Prime Minister Stephen Harper recently made retroactive to the 2014 taxation year.
The income-splitting plan, called the Family Tax Cut, will cost Ottawa $2.4 billion in foregone revenues in 2014.
The government also recently announced a cut in small business’ Employment Insurance (EI) premiums. Together with the Family Tax Cut, these measures will cost the government $3.2 billion in 2014, meaning that without the cuts Ottawa would have eliminated its budget shortfall this year.
In 2015, the government is forecasting a $1.9 billion budget surplus, the first of five years of surpluses predicted in the economic and fiscal update released Wednesday by Finance Minister Joe Oliver.
But the recent sharp drop in world oil and natural gas prices is expected to have a negative effect on the federal government’s revenues and fiscal prospects.
Oliver said Ottawa’s budgetary position will be negatively impacted by $500 million this year and by $2.5 billion a year in the following four years.
Despite the failure of the world economy to recover fully from the 2008-09 recession, Oliver cites private sector forecasts of modest but steady growth in Canada. The current year is expected to show 2.4 per cent growth, according to the update. Growth is expected to rise to 2.6 per cent next year.
The unemployment rate for 2014 is forecast to come in at 7 per cent, slightly above the 6.8 per cent jobless rate predicted in the 2014 budget in the spring.
For next year, the forecast for unemployment is 6.8 per cent.
“Canada has come a long way, however, the global economy remains fragile,” Oliver said as he announced the latest fiscal numbers. He presented the update in a speech in Toronto.