OTTAWA — With the Harper government knocked off balance by the oil price shock, Canadians will have to wait until at least April to find out if Ottawa can afford billions of dollars in new spending and tax cuts promised by the federal Conservatives.
Finance Minister Joe Oliver, whose much-trumpeted plan to balance the federal government’s books in 2015 has been thrown into doubt by falling petroleum prices, announced he is postponing the budget until April at the earliest.
“Given the current market instability, I will not bring forward our budget earlier than April,” Oliver said in a speech in Calgary on Thursday.
“We need all the information we can obtain before finalizing our decisions.”
The budget date is flexible, but to help MPs, provincial governments, business and others with their annual planning, the federal government usually delivers its economic and fiscal blueprint by the end of its fiscal year on March 31. This year’s budget had been expected in March or February.
In his annual fall economic update on Nov. 12, Oliver forecast a budget surplus in 2015 of $1.9 billion. But that estimate was based on an oil price of $80 a barrel.
Since then, the price has plummeted below $50 a barrel and private sector economists are predicting the impact of low prices on Ottawa’s tax revenues will be very large. Many analysts say that, unless oil prices rise sharply, the federal government will be on the verge of running a budget deficit in 2015 even after Oliver’s $3 billion rainy day fund is taken into account.
“It would have been pretty tough for the government to show a surplus in 2015-16 unless it started generating more revenues or reduced spending somehow,” said TD Bank senior economist Randall Bartlett. “It would have been quite challenging for them, so in that sense, I’m not surprised that the uncertainty around oil prices has made them sort of rethink their budget plan.”
Opposition MPs said the Conservatives are hoping always-volatile oil prices will start to trend upward before April so low prices — and the resulting negative impact on the economy — will not play havoc with the government’s budget strategy.
“They’re pushing the panic button,” NDP finance critic Nathan Cullen said. “It becomes clear that their plan for the Canadian economy has failed and now they are in panic mode, suggesting that somehow things will be remarkably different three months hence.”
The political stakes of Ottawa’s financial performance are high. Prime Minister Stephen Harper has long maintained that 2015 will be the year his government eliminates the budget deficit and fulfills a raft of tax-cut promises from the 2011 election. Those pledges had been made contingent on balancing Ottawa’s books.
In the fall, claiming the budget slain, Harper announced $5 billion a year in new spending on families and family tax cuts for 2015. These included the promise of income-splitting for income purposes for families with children — a key pledge from the 2011 Conservative platform. But two other 2011 election promises — doubling the amount that can be contributed to a Tax-Free Savings Account and an Adult Fitness Tax Credit — are still outstanding.
“This is fiscally irresponsible,” said Liberal finance critic Scott Brison. “They’re just trying to delay a budget which will actually tell Canadians how deeply in deficit these vote-buying schemes will put us.”
Economists say if oil prices don’t bounce back soon, the Conservatives will face tough budgeting choices.
“I think the government would have dearly loved to have offered more additional measures (for taxpayers) in the budget,” BMO chief economist Doug Porter said. “But it looks as if the reality is they just won’t be able to offer anything significant.”
In his speech, Oliver said, “The impact of lower oil prices on the Canadian economy is complex and creates both benefits and harm. Consumers are benefiting at the pump, as lower gas prices act like a tax cut for drivers,” Oliver said Thursday. Manufacturers will benefit, too.
On the other hand, petroleum companies’ profits decline, hurting investment and employment, Oliver stated.
“And of course royalty payments to provinces fall, in Alberta’s case, significantly. As well, Canada’s terms of trade deteriorate and reduced corporate taxes from the oil sector impact adversely on provincial and federal revenue.”
- With files from Joanna Smith