Balanced federal budget on track
Harper refuses to let slump in oil derail his plans
For Canadian Prime Minister Stephen Harper, it’s as if the oil shock never happened.
Harper is sticking to his plan to balance the budget this year and deliver tax cuts and transfer payments as the country prepares for a general election by October. He must convince voters the plan is credible, given an oil rout that has eroded most of the government’s fiscal wiggle room.
“The challenge is that the surpluses that were previously projected aren’t going to materialize in the near term because of the drop in oil prices,” said Craig Alexander, chief economist at Toronto-Dominion Bank. “The government is going to balance the books, the only question is how.”
Harper’s leaving that to Joe Oliver, the rookie Canadian finance minister who, in his first budget, will need to paint a positive picture of the economic outlook to bolster confidence Harper can deliver. Oliver is scheduled to release the budget date Thursday in Toronto, a government official said on condition they not be identified because the date hasn’t been made public.
Until the rout, which has seen prices for Canada’s largest export fall by half since July, everything was going as planned for Harper, with his government on pace to produce a balanced budget with plenty of room left over for tax cuts, just in time for the election.
Oliver, who delayed the budget to gauge the impact of oil’s collapse, will probably borrow some optimism from Bank of Canada governor Stephen Poloz, who said last week the parts of the economy are starting to pick up.
“The rest of the economy seems to be doing much better and I think it will be the dominant story by mid- year,” Poloz said in London. The central bank surprised markets by cutting its benchmark rate in January as “insurance” against the damage from collapsing oil.
Relative stability in energy prices in recent weeks and a positive outlook will also allow Oliver to relax forecasting cushions in his fiscal plan that would limit the government’s ability to finance new measures.
Harper announced $ 27 billion in additional tax cuts and transfer payments over six years in October. That included a controversial measure that will allow couples with children to divide their income for tax purposes. Harper said those cuts won’t be financed by deficits — effectively borrowing — a practice he pledged to end this year.
The two main opposition parties — the New Democratic Party and Liberals — are criticizing Harper’s tax cuts as fiscally reckless, ineffective for boosting jobs and growth and good only for the well- off.
“The big question of how will they reverse a very anemic job market is what Canadians will be voting on in the fall,” said Nathan Cullen, the NDP finance critic. “If the tax plan were working, we would be a stronger economy.”
Indeed, the oil math is jarring. The parliamentary budget officer reported in January the drop in oil prices since the government’s last fiscal update in November means annual revenue will be on average $ 7.6 billion less than forecast.
Harper’s message is more simple: we cut taxes, the opposition will raise them.