Finance minister says Ottawa will be back in black by 2015
Conservatives anticipate $3.7B surplus
OTTAWA — The Conservative government’s refreshed fiscal plan for balancing the books in 2015 — and posting a healthy surplus — will see it use billions of dollars from asset sales, department savings and a spending freeze to find substantial financial breathing room heading into the next election campaign.
Finance Minister Jim Flaherty released an annual fall economic update Tuesday that has important policy implications for Canadian taxpayers, but also acts a backdrop for a looming fight among the Conservatives, NDP and Liberals for middle-class voters heading into the 2015 election.
Opposition parties worry the update is a harbinger of a fire sale to come on government assets and deeper cuts to federal programs, simply so the Conservatives can keep their promise to return to surplus by the next election.
The government says its plan is a prudent approach that will allow it to pursue new initiatives and offer additional tax breaks once the deficit is eliminated.
Tuesday’s economic and fiscal update shows the Conservative government is forecasting almost $3 billion in unexpected disaster costs in 2013-14, driving this year’s budget shortfall a bit higher.
However, the Harper government still expects to balance the books in 2015-16 with a $3.7-billion surplus, which includes a $3-billion downward revenue adjustment for risk (that acts as a financial shock absorber), meaning the surplus could be larger that year if the risks don’t materialize.
If federal departments continue to spend billions of dol- lars less than budgeted, Ottawa could potentially balance the books in 2014-15, a year earlier than expected. The Conservatives are currently predicting a $5.5-billion deficit in 2014-15 (including $3-billion adjustment for risk).
“Our plan was always to get to a balanced budget in 2015-16 to create room so that other initiatives can be undertaken, whatever they are, whatever the prime minister and cabinet decide at that time,” Flaherty told reporters Tuesday after a question-and-answer session at the Edmonton Chamber of Commerce.
As part of its efforts to return to black ink, the Conservative government is instituting a two-year departmental operating budget freeze, which it expects will save $550 million in 2014-15 and $1.1 billion in 2015-16. Annual wage increases owed to federal employees must be absorbed within current department budgets, says the economic update. The government is also conducting a review of pay and benefits for federal workers.
Further helping the bottom line is that the government expects federal departments and agencies will spend $7 billion less than authorized in the current 2013-14 fiscal year alone. Billions more in savings are projected over the next few years, which could get Ottawa out of deficit sooner than expected.
The Harper government has now reduced federal direct program spending three years in a row, something Flaherty said has never happened before in Canadian history.
“You can do it if you have the resilience to follow through and take some of the flak that comes with that. But things happen, like the flooding in Alberta this year,” Flaherty said. “So the deficit will be a little bit higher than I wanted it to be this year.”
The government estimates it will be on the hook for $2.8 billion this year in disasterassistance costs for the Alberta floods and at least $60 million for the train derailment and explosion in Lac-Mégantic, Que. For the current 2013-14 fiscal year, the government has actually increased the expected shortfall by $700 million (before adjustment for risk) to $16.4 billion from $15.7 billion in the March budget.
With a $1.5-billion downward revenue adjustment for risk, the government is now projecting a $17.9-billion shortfall for 201314, compared to an $18.7-billion deficit predicted in the budget (which included a $3-billion adjustment for risk).
NDP finance critic Peggy Nash was critical of the way the government was reaching its targets, including deep budget cuts to departments that are compounded by those departments under-spending their budgets by billions of dollars.
Liberal party finance critic Scott Brison said the Conservatives don’t have much to boast about on the economy because they will have added more than $160 billion to the federal debt by the time they post a surplus.