Joe Oliver will release a fiscal update next week that will show just how much surplus cash will be left after the government enacts its multibillion-dollar package of family-focused tax cuts.
The federal Finance Minister confirmed that the fall economic update will be released Wednesday in Toronto and suggested it will not include new tax or spending measures. While fall updates are occasionally used as a form of mini-budget, Prime Minister Stephen Harper and Mr. Oliver chose to unveil budget-style tax breaks last week at a Vaughan, Ont., community centre.
That package of measures included an income-splitting tax cut for families with children under 18 worth up to $2,000 a family. The government also announced an expanded Universal Child Care Benefit, higher child-care expense-deduction limits and the elimination of the Child Tax Credit.
The government has said it expects to post a small deficit in the current year before returning to surplus in the 2015-16 fiscal year.
The Parliamentary Budget Officer (PBO) has estimated that the new measures will roughly cut in half the amount of surplus available in future years that could be put toward debt payments, new spending or tax cuts.
Paul Boothe, a former senior Finance Canada official who is now a professor with the University of Western Ontario’s Ivey Business School, said it is clear that the tax-cutting package leaves little room for anything else.
“They’ve used up pretty much all of the fiscal room going forward,” he said in an interview. “So there really isn’t room for announcing big additional measures on the tax or spending side.”
That reality will weigh heavily on the political debate over the coming year as opposition parties will be forced to either scale back their 2015 election pledges or promise to reverse Conservative tax cuts to fund other initiatives.
Fall fiscal updates provide an overview of how broader economic trends will affect federal revenues.
One key economic change since the Feb. 11 budget is the price of oil. The price per barrel in the leading North American crude market has dropped from a June high of $107 to about $78. The dramatic drop will hurt Ottawa’s bottom line and resource-heavy sectors of the Canadian economy. Provincial finances in Alberta, Saskatchewan and Newfoundland and Labrador will be hardest hit. But economists say lower oil prices can also provide a boost to manufacturing economies in central Canada and will also leave more money in the pockets of consumers. Recent strength in the U.S. economy and a lower Canadian dollar are also viewed as positive developments for Canadian manufacturing and exports.
The timing of the update means it will be delivered during the one week in November that the House of Commons is not in session. Former finance minister Jim Flaherty delivered his first three fiscal updates inside Parliament – either via an appearance before the House of Commons finance committee or through a speech in the House of Commons. After that he chose to release his updates away from the House of Commons, a practice the opposition has criticized as a hindrance to questioning the government.
Parliamentary Budget Officer Jean-Denis Fréchette recently released an updated forecast that took into account the impact of the government’s latest tax-cut package.
In the view of the PBO, these tax cuts will still allow the government to post a $600-million surplus in the current 2014-15 fiscal year, followed by surpluses of $5.5-billion in 2015-16, $5.8-billion in 2016-17 and $3.4-billion in 2017-18.
RBC chief economist Craig Wright said that even with the recent tax cuts, there will still be a significant surplus over the coming years. After several years of deficits, restraint and limited new spending, Mr. Wright said it is clear Ottawa’s finances are improving.
“The problem with those projections of a large and growing fiscal dividend is the bigger [the surpluses] get, the less likely they are to occur as it gets used rather than people waiting for it,” he said.Report Typo/Error