Joe Oliver is clearly ruling out spending cuts even as new forecasts warn low oil prices are here to stay this year, meaning billions less in federal revenue as the Finance Minister prepares the 2015 budget.
Monday’s return to Parliament coincided with new forecasts from the Toronto-Dominion Bank that cut expectations for economic growth this year, a development that will have major implications for Ottawa’s bottom line.
The bank’s chief economist, Craig Alexander, said a balanced budget remains possible provided the Conservative government changes course by boosting revenue or cutting costs. But the Finance Minister appears to be ruling out those options.
“We will not be cutting expenditures,” Mr. Oliver told the House of Commons on Monday. “Our government will balance the budget and put money where it belongs, in the pockets of hard-working Canadians.”
However, Mr. Oliver said he may have to use the $3-billion the federal government normally sets aside as a contingency to keep his promise of a balanced budget.
“I am not precluding the use of the contingency fund,” Mr. Oliver told reporters. “That is something that the budget will reveal.”
When the Conservative government delivered its fiscal update in November, it relied on a forecast of nominal gross domestic product growth of about 3.7 per cent for 2015 after including an adjustment for contingencies and an additional calculation that assumed North American crude prices of $81 a barrel.
According to TD, that figure for nominal GDP growth is now expected to come in at just 1.1 per cent, largely because the bank assumes oil will average $47 a barrel in 2015. Nominal GDP, which is a mix of real GDP and inflation, is used by government to estimate income growth and the tax base.
While TD has not yet calculated what this lower growth will mean for Ottawa’s bottom line, former Finance Canada official Peter DeVries said it would mean about $6-billion less in revenue than what Mr. Oliver assumed in the fall fiscal update, which projected a $1.9-billion surplus and the $3-billion contingency reserve.
The government announced last week that it would delay the release of the 2015 federal budget until at least April to have more time to assess the economic and fiscal implications of lower oil prices, which have dropped by more than half since June. NDP and Liberal MPs say the bank’s actions prove the government’s economic plan isn’t working.
The Official Opposition NDP says it will use its first opposition day of the new sitting to introduce a motion demanding a fiscal and economic update.
The Finance Minister’s message appeared to contradict recent comments from Employment Minister Jason Kenney, who said that “additional spending restraint” may be required to balance the books.
On Tuesday, Parliamentary Budget Officer Jean-Denis Fréchette will release the first in-depth analysis of how low oil prices will hurt Ottawa’s bottom line. To date, some economists have made relatively simple calculations as to how lower economic growth will affect federal revenue.
The PBO report will go beyond that work by attempting to calculate the broader negative and positive fiscal impacts of lower oil prices and lower inflation, looking specifically at large transfer programs such as Old Age Security and equalization. The PBO has said the overall impact of lower oil prices will be negative for Ottawa’s bottom line and the report will present a range of possibilities, depending on what assumptions are used for the price of oil.
Mr. Alexander, TD’s chief economist, said that while his forecasts suggest Ottawa is heading for another year in the red, he takes the government at its word that it will find a way to balance the books.
“The government’s going to have to take into account the fact that they’re going to be receiving significantly less revenues because of the oil shock,” he said.
Treasury Board President Tony Clement, who is responsible for managing the government’s internal spending, suggested the answer may lie with a continuation of a trend toward lower spending.
“Just watch us,” he said, when asked where the government will get the money to balance the books. The government, he said, has been operating in a prudent and responsible way “that has meant that, for four years running now, our operating expenditures as a government have declined.”
The New Democrats accuse the government of eliminating its financial wiggle room with the introduction of an income-splitting tax cut that it says will benefit only the wealthy.
“The government must lay out the state of the nation’s finances in light of the unstable economic situation including job losses, falling oil prices and declining government revenue,” said Nathan Cullen, the NDP finance critic.Report Typo/Error
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