Prime Minister Stephen Harper is escorted by security as he arrives at the Langevin Block in Ottawa on Monday.Sean Kilpatrick/The Canadian Press
TD Economics made headlines on Tuesday when it said the plunge in the price of crude oil will turn Ottawa's predicted surplus of $1.9-billion into a deficit of $2.3-billion. That's not that big a deal, fiscally speaking. On expected revenues of about $280-billion, the difference in either direction is less than 1 per cent.
Politically speaking, it's a disaster. Hence the headlines. Prime Minister Stephen Harper promised as recently as a month ago that Ottawa will return to surplus in 2015. He did so in response to a drop in the price of crude that was starting to worry economists.
"You should be under no doubt that the government will balance its budget next year," he said in mid-December. "Even with dramatically lower oil prices, we will balance the budget."
In Mr. Harper's defence, few thought oil would fall as low as it has. When he spoke, it was going for $60 a barrel. This week, the same barrel costs well under $50. If there is a bottom to the price, it hasn't become discernible yet. The Bank of Canada warned on Tuesday that the price could drop further and then lie motionless on the floor for a while.
But even taking into account the unexpected change in oil's fortunes, it is Mr. Harper's fault that nothing less than a surplus will be politically acceptable. His promise to balance the budget in 2015 and even pad in a small surplus is a major plank in his re-election platform.
If the oil-price drop turns the expected surplus into a modest deficit, the Prime Minister may have to scramble to redefine what he meant by "balanced budget."
Just as troubling for him, he will find it problematic to implement the election-friendly (and costly) programs he has announced, such as the Universal Child Care Benefit and income-splitting. He certainly won't be able to announce new initiatives.
Mr. Harper could simply admit that he can't deliver on all he promised because of an oil-price slump that no one foresaw. That would at least qualify as honest and refreshing.
His more likely tack will be to use the $3-billion Ottawa sets aside for contingencies to nudge the budget back into the black. Not the best bookkeeping, but the thought of posting a deficit in an election year undoubtedly qualifies as a national emergency in his mind.