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Joe Oliver, Federal Minister of Finance met with private sector economists during a meeting on Oct 14 2014.Fred Lum/The Globe and Mail

The Conservative government's long-promised surplus for next year is shrinking fast due to recent spending announcements and falling oil prices, leaving virtually no room for new measures in the 2015 budget.

Economists say the latest sharp drop in oil prices since Ottawa updated its projections just two weeks ago will shave off an additional $1.5-billion a year in federal revenues should prices hold at current levels.

When combined with Prime Minister Stephen Harper's announcement this week of new federal infrastructure spending, that could bring Ottawa's recently projected $1.9-billion surplus for next year down to about $100-million.

"It puts the surplus in 2015-16 potentially in jeopardy," said senior TD Economics analyst Randall Bartlett, who previously worked as an economist for Finance Canada and the Parliamentary Budget Office.

Mr. Bartlett said he still thinks the surplus is likely to materialize given that Ottawa does put money aside for contingencies, but recent developments will make it harder for the Conservatives to deliver on two remaining tax-cut promises from the 2011 campaign. The government has promised to increase the contribution limit for tax-free savings accounts and to launch an adult fitness tax credit, which TD estimates would have a combined starting cost of $500-million a year.

"By reducing your surplus to $100-million, you put the introduction of those measures into jeopardy without showing a deficit," he said.

For Finance Minister Joe Oliver, the quickly shifting revenue forecasts will mean there is less money available for tax cuts or new spending as he prepares the Conservative government's 2015 pre-election budget.

Throughout the fall, the government used a large amount of the previously projected surpluses. A recent package of family-focused tax cuts combined with a tax credit aimed at small-business owners had the effect of reducing the projected size of the 2015-16 surplus by $5-billion.

Mr. Oliver's Nov. 12 fiscal update made significant downward adjustments to federal revenue forecasts to account for the impact of North American crude prices dropping from $98 (U.S.) a barrel in September to $81 (U.S.) a barrel around the time of the update.

However, the price of oil has fallen even further since, closing Friday at $65.15 a barrel after the Organization of Petroleum Exporting Countries announced Thursday it would not cut its production.

The fiscal update did maintain a $3-billion annual contingency for unforeseen events that would cover the recent drop in oil prices. In an interview with BNN Thursday, Mr. Oliver made no apologies for allocating future surpluses before they materialize.

"The surplus is not there to look at. The surplus is there to provide benefits to Canadians," he said.

Mr. Oliver's department released a report Friday showing the federal government ran a $379-million surplus in September because of higher revenues and lower program spending.

The Conservative government is forecasting that it will post a $2.9-billion deficit in the current 2014-15 fiscal year – which would be the seventh consecutive annual deficit – before returning to surplus in 2015-16.

Also on Friday, Statistics Canada reported that economic growth came in stronger than expected in the third quarter, which should be a positive development for federal tax revenues.

RBC economist Laura Cooper said the government's forecasts do include enough of a "buffer" to account for the recent decline in oil prices and now the question for Ottawa is where prices go from here.

"It really depends on how long these low levels are sustained," she said.

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