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Politics Tories’ balanced-budget bill plans questioned over ambiguities, deficit plans

Finance Minister Joe Oliver is shown on Oct. 14, 2014.

FRED LUM/THE GLOBE AND MAIL

A Canadian policy expert in balanced-budget legislation says Finance Minister Joe Oliver's plans for a new federal law are vague and "a bit mystifying" given the large leeway it will allow for future governments to run deficits.

University of Manitoba economics professor Wayne Simpson, who has studied balanced-budget legislation used by some provincial governments, said Ottawa will need to provide more information as to how such a law would work.

"This doesn't sound like balanced-budget legislation in the sense the provinces have used it, since it allows for deficits but rather requires a plan to eliminate the deficit," he said. "As is so often the case, the devil is in the details."

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In a speech to Toronto's Economic Club Wednesday, Mr. Oliver confirmed the Conservative government's plans to bring in balanced-budget legislation. He provided a few details, but did not release the bill as the House of Commons is not sitting. The minister did not stop to answer questions from the media after the speech.

Mr. Oliver said the legislation would allow deficits in response to a recession, war or natural disaster, provided the event reduces federal revenues by at least $3-billion. He also said that a finance minister who proposes a deficit would have to explain to a Commons committee how the government plans to return to balance.

Any deficit-elimination plan would have to include a freeze on operating spending and a wage freeze for cabinet ministers and deputy ministers.

The legislation comes as the federal government is on the verge of returning to surplus after several consecutive years of deficits that have added more than $150-billion to the national debt.

The government appears to be checking off its few remaining economic promises in the run-up to the April 21 budget.

Earlier this week, Mr. Oliver strongly hinted that the government will deliver on a 2011 promise to double the annual contribution limit for tax-free savings accounts.

The promise for balanced-budget legislation was first made by the government in its 2013 Speech from the Throne.

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Mr. Oliver's Toronto speech included a heavy focus on the economic record of Liberal prime minister Pierre Trudeau, the father of Liberal Leader Justin Trudeau. Mr. Oliver accused the elder Trudeau of tripling government spending during the 1970s.

"It was driven by the ideology of the man at the wheel and on the reckless assumption that commodity prices would remain high," Mr. Oliver said. The Finance Minister said the current opposition parties are advocating similar policies.

"They need your money to pay for their schemes," he said. "It is the seventies all over again."

Liberal finance critic Scott Brison, who attended the Toronto speech, said Mr. Oliver's comments about Pierre Trudeau shows the Finance Minister is out of touch with current economic concerns. He also said Liberal governments were able to balance budgets without the need for legislation, yet the Conservatives have repeatedly run deficits.

"It's near toxic levels of hypocrisy on the eve of an election," he said.

Both Mr. Brison and NDP MP Matthew Kellway said the balanced-budget legislation – coupled with planned tax cuts, such as doubling the tax-free savings account, that will reduce federal revenues over time – are an attempt to cement Conservative policy over the long term.

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"It appears very much like this is the last act of a government that knows it's on the way out, trying to tie the hands of its successors," he said.

Business groups such as the Canadian Federation of Independent Business and the Chartered Professional Accountants of Canada said the legislation will have a positive influence on future government decisions.

"It helps to support a culture of fiscal discipline," CPA president Kevin Dancey said. "I think the flexibility [to allow deficits] actually helps because I think sometimes with balanced-budget legislation it's very arbitrary. It's almost illegal to have a deficit."

C.D. Howe Institute vice-president Finn Poschmann said the legislation appears to be a "mostly harmless" economic move that could have the effect of warding off future spending impulses.

However, he said it is essentially "a legislative pinky swear" that could be undone by a future Parliament.

The Parliamentary Budget Officer warned in a report last year that the government should not take balanced-budget legislation too literally and should balance the potential risks and benefits.

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The PBO said the benefit of well-crafted balanced-budget legislation is that it could increase national savings and lower debt and interest costs.

However, risks include tying the government's hands to support the economy with deficit-financed stimulus spending during economic downturns. It could also encourage the federal government to offload costly spending programs onto the provinces.

The PBO report also warned that balanced-budget legislation could force the federal government to sell Crown assets at low prices to balance the books.

Mr. Oliver also announced this week that the government is selling its remaining shares in General Motors, which were originally purchased as part of the Conservative government's deficit-financed support of the auto sector during the global financial crisis.

Ottawa is expected to raise about $3.2-billion from the sale, based on a report from Bloomberg on Tuesday that said the shares were purchased by Goldman Sachs & Co. for $35.90 (U.S.) a share.

That one-time revenue is expected to help the government forecast a surplus for 2015-16 in spite of the revenue hit from falling oil prices.

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Since forming government in 2006, when federal finances were in surplus, the Conservatives have run two annual surpluses followed by six consecutive years of deficits.

It is unclear whether the government will post a small surplus or deficit for 2014-15, the fiscal year that ended March 31. Prime Minister Stephen Harper has said the government won't return to surplus until 2015-16, but monthly tracking of Ottawa's bottom line shows the federal government ran a surplus of $1.3-billion over the first 10 months of the 2014-15 fiscal year.

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