Joe Oliver is expected to come out of his cloister Thursday morning with a promised “announcement” at the Canada Goose garment factory in Toronto. Will he finally name a date for releasing the budget? Will he announce a tax holiday for makers of high-end parkas? At this point your guess is as good as ours; a budget date announcement seems likely, but nothing in this government’s pre-election fiscal strategy has gone according to plan so far.
Truth is, the media has been giving Oliver and Prime Minister Harper a rather easy ride on their budget policy peek-a-boo. The budget is the most important policy document a government releases in the course of a year. This government gave itself a do-over back in January, when Oliver admitted the budget would not be released until after April 1. He blamed it on a rapidly-changing economic climate being rattled by the fall in oil prices — an excuse that may have fooled a few Canadians under age 15, provided they don’t keep up with the news.
Oliver’s real reason for postponing the budget was only indirectly linked to economic volatility. The Conservatives’ entire economic argument for re-election was based on oil selling high. Cheap oil has forced them to come up with another story — or at least to blur the numbers enough to claim the old story still works.
But here’s the thing: Finance ministers don’t postpone budgets because of economic volatility. In fact, periods of volatility demand up-to-date budgets. If the economy is headed into a hurricane, the last thing you want to do is signal you don’t know what to do.
And it’s not like everyone else charged with the management of the Canadian economy took a month off just because of oil’s tailspin. Bank of Canada Governor Stephen Poloz and a number of private sector economists have made public their updated forecasts for the economy; they’ve all agreed with Poloz’s description of oil’s effect on the economy as “unambiguously negative”.
The Parliamentary Budget Office is hard at work on economic and fiscal updates for the Commons standing committee on finance, which we should see at the end of the month. The province of Alberta — which has been hit harder by oil’s decline than any other jurisdiction — didn’t delay its budget. Neither did British Columbia, Saskatchewan and Quebec. They’re all dealing with volatility. They didn’t use it as an excuse to avoid making decisions.
Let’s get one thing straight: Federal finance ministers don’t do what Oliver did. Unexpected economic developments have, in the past, speeded up the delivery of budgets and fiscal updates — because markets abhor an information vacuum.
During the 1980s, the Mulroney government released economic and fiscal updates, with policy actions, in reaction to dramatic falls in grain and oil prices. In 1990, the budget was moved up to deal with rising interest rates and inflation. In 2001, a budget was quickly introduced in response to the aftermath of the September 11 terror attacks.
And in late 2008, when Prime Minister Harper and Finance Minister Jim Flaherty finally woke up to the fact that the economy was in a recession, they quickly tabled a budget in January 2009, well in advance of the traditional budget date.
Someone should have told Harper in 2006 that it’s never a good idea to build your entire economic, fiscal and political strategy on a single, highly-volatile commodity price. In the November 2014 Update of Economic and Fiscal Projections, the Department of Finance assumed that the price of oil would remain at US$81 per barrel throughout the five-year planning period. Until recently, crude oil prices have fluctuated around US$50 per barrel. They have risen recently because of events in Yemen.
For the budget, much depends on whether Oliver sticks with the standard practice in Finance, which is to assume that the current price of crude will remain unchanged over the planning period. Using that benchmark, the fiscal impact of the decline in oil since November 2014 would be at least $5 billion in lost revenues per year — and growing. So forget about budget surpluses, especially in the short term.
If, on the other hand, Mr. Oliver changes the methodology to something more upbeat and assumes oil prices will bounce back during 2015, he could project a surplus for 2015-16. In the budgets they released last week, Alberta and Saskatchewan both assume oil prices will start rising in the near term. Alberta forecasts oil averaging US$54.84 per barrel in 2015-16, rising to US$83.83 in 2019-20. Saskatchewan’s assuming an average oil price of US$53 per barrel for 2015, rising to US$88 per barrel in 2019.
Mr. Oliver has already stated that he knows oil prices will rise; he just doesn’t know when, or by how much. He is hoping — perhaps praying — that the economists he consults on April 9 will forecast oil prices rising high enough, fast enough for him to show a balanced budget for 2015-16.
He will justify this change in forecasting methodology by arguing that Alberta, Saskatchewan and the private sector economists are in a position to know where oil will go. They aren’t, of course. Nobody is.
In a recent Bloomberg article, the authors noted that the median view of 39 analysts predicts the price of oil (Brent crude) will average $69 a barrel in the fourth quarter of this year. The highest prediction was $90 a barrel, the lowest was $50 — the widest forecast range since first quarter 2007. In other words, no one has a clue.
Even wishful thinking might not be enough this time. Not even the more optimistic forecasts for oil prices could revive the kind of budget surpluses Mr. Oliver was forecasting last November. The government may be able to squeak through a balanced budget in 2015-16 by using the contingency reserve and other creative accounting manoeuvres — but they’ll have nothing left for new initiatives.
Last week, the government tabled legislation with respect to the so-called “family tax package”, income-splitting and the increase in the Universal Child Care Benefit (UCCB). The family tax package measures are already in place through the tabling of a Ways and Means motion, which gave the Canada Revenue Agency the authority to make changes to the 2014 tax forms. The government is determined to see this legislation receive Royal Assent before the summer recess so that the incremental UCCB payments, for the period January to June, can be made in July or August.
Tabling legislation now, rather than as part of the budget and the budget omnibus bill, allows the government to delay the budget even longer. It also means that the budget — if there is one — won’t contain any major new initiatives. Hell of a way to start an election campaign.
Original Article
Source: ipolitics.ca/
Author: Scott Clark and Peter DeVries
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