The Parliamentary Budget Office, in a new report released Friday, says the government’s decision to freeze EI premium rates for the next two years at higher-than-necessary levels “continues to be a concern” and is effectively providing much of the fiscal breathing room to offer billions of dollars in tax breaks.
The budget office also projects the government’s recent sale of the rest of its General Motors shares will contribute about $2.2 billion in total toward a balanced budget in the new 2015-16 fiscal year.
Based on the current fiscal situation, before any potential new measures are announced in Finance Minister Joe Oliver’s budget on Tuesday, the federal government will post a $3.4 billion surplus in the 2014-15 fiscal year that ended March 31 and a small $1.3 billion surplus for the new 2015-16 year, the PBO says.
Going forward, however, the PBO forecasts the government will post a small surplus of $1.3 billion in 2016-17 before returning to small deficits of $2.1 billion, $2.9 billion and $900 million in the three subsequent years up to 2019-20.
Prime Minister Stephen Harper has said the government will likely post a small deficit in 2014-15 but has promised a balanced budget on Tuesday for the new fiscal year, just months before a scheduled Oct. 19 election.
But the PBO says a combination of billions of dollars in new family tax cuts, lower oil prices and reduction of EI premiums in 2017 will effectively gobble up what was, according to the government just last fall, expected to be more than $30 billion worth of total surpluses over the next five years.
“The surplus that was previously forecast over the 5-year outlook has been eliminated by a combination of policy announcements and the impact of lower oil prices on nominal tax bases,” says the report released by the PBO, which is led by Jean-Denis Frechette.
“Small deficits are expected beginning in 2017-18. The deterioration is a result of the decrease in the 2017 Employment Insurance premium rates required to eliminate the balance in the operating account that was accumulated by the 2015 and 2016 rate freeze,” the report adds.
The government’s income-splitting plan for couples with children under 18 and enhancement of the Universal Child Care Benefit (UCCB) will cost the treasury around $5 billion annually going forward, the report says.
The Conservative government projects income-splitting and UCCB enhancement will cost the treasury close to $27 billion between 2014-15 and 2019-20.
The PBO notes, however, the projected budget deficits in future years are “negligible” and that it wouldn’t take much manoeuvring for the government to balance the books. The government also remains on track to reach its target of reducing the federal debt-to-GDP ratio down to 25 per cent by 2021.
The budget officer was critical of the government’s decision to freeze employment insurance premium rates at $1.88 per $100 for 2015-16 and 2016-17, noting that’s well above what’s needed to break even in the EI account.
“The setting of the EI premium rate in 2015 and 2016 continues to be a concern. The rate freeze was presented as necessary to avoid further increases, although lower breakeven rates were forecast by Finance Canada at the time,” the PBO says in its report.
“This acted against the government’s objective of ensuring EI premiums are set transparently and used only for EI benefits and administration expenses. In effect, much of the immediate fiscal room for the recent tax and spending measures is available only by ignoring these objectives.”
The government sold earlier this month the last of its GM shares for an estimated $3.3 billion, against a book value of $1.1 billion, which will allow it to use $2.2 billion toward balancing the books. The government had already budgeted for asset sales of $1.2 billion in 2015-16, meaning an extra $1 billion is available to eliminate the deficit.
This acted against the government’s objective of ensuring EI premiums are set transparently and used only for EI benefits and administration expenses
Barring any major last-minute surprises, the government will have reduced direct program spending in 2014-15, with about $3 billion more in so-called lapsed spending than was budgeted (lapsed spending is approved federal expenditures the government decides not to spend).
That would make it the fifth consecutive year that direct program expenses have decreased — something that has never happened in records dating back almost 50 years.
For the broader economic picture, the PBO projects real GDP growth will slow from 2.5 per cent in 2014 to two per cent in 2015, and then average 1.8 per cent between 2016 and 2020.
The impact of lower oil prices — which have sunk around 50 per cent since last June — will ultimately be negative on the Canadian economy, “albeit relatively modest,” the report says.
Lower oil prices lead to reduced business investment, but the ensuing depreciation in the Canadian dollar is a boost to non-energy exports and reduces imports, the report notes.
As municipalities urge federal and provincial governments to invest in infrastructure like transit, roads and bridges, the PBO says that higher-than-expected capital spending by governments between 2015 and 2017 could push the economy closer to its potential.
Original Article
Source: nationalpost.com/
Author: Jason Fekete
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