“Mission accomplished” for the Conservatives? Not quite.
Prime Minister Stephen Harper will be happy. Finance Minister Joe Oliver will be happy, as will every member of the Conservative caucus. Most importantly, the Conservative base is probably happy. The rest of the country probably doesn’t care that much.
Eliminating the deficit in 2015-16 has been the Conservatives’ obsession for the past five years. Canadians have been constantly reminded of the tiresome rhetoric that the only thing that matters for the economy is the elimination of the deficit.
We can only hope now that this “deficit shrill” will stop and we can move on to debating and discussing more important economic and social issues, like strengthening economic growth and job creation.
Regrettably, this isn’t likely to happen, because these future budget surpluses are built on sand.
Oliver is now forecasting a surplus of $1.4 billion for 2015-16, almost the same as he forecast last November. Oliver is still forecasting a deficit of $2.0 billion for 2014-15. However, current financial results clearly indicate that the budget will be balanced in 2014-15, despite the booking of a $1.6 billion liability for increased veterans’ benefits. However, the PM’s commitment was to balance the budget in 2015-16 and not in 2014-15.
This is where the “rabbits” come in:
First, the government changed the methodology the Finance Department uses to forecast oil prices. Oliver is now forecasting that oil prices will increase in the coming years, averaging $54 a barrel in 2015, $67 in 2016, $75 in 2017 and $78 a barrel in 2018 and 2019.
Previously, the Finance Department had always assumed an unchanged oil price over the five-year planning horizon. Every $1 increase in the price of oil results in approximately $150 million more in tax revenues, money needed to fund future spending promises. But it goes the other way too — so if the price of oil stays at its current levels, all bets are off for future spending.
The second rabbit was the selling off of capital assets to cover one-time spending. In the budget, asset sales amounted to an incremental $1 billion in 2015-16, resulting from the sales of the government’s GM shares. These shares were sold at a steep loss solely to achieve a political commitment — a balanced budget in 2015-16 — and not to realize the best possible value for Canadians.
Making it even more questionable, the timing of the sale was likely one reason why the Oliver delayed the budget to the new fiscal year.
The third rabbit was the cutting of the federal government’s contingency reserve — the rainy day fund intended to cover unforeseen economic developments. In previous budgets, Finance included a contingency reserve of $3 billion per year. The contingency reserve is also there as a buffer in the event that economic results do not turn out as expected. The contingency reserve was cut to bone Tuesday — to just $1 billion in each of the next three years.
According to the budget document, there are major external risks to the economic outlook “stemming from uncertainty surrounding both the future path of oil prices and global growth.” So Finance is ignoring its own warning — it has cut the contingency reserve by two-thirds less than one month into the fiscal year.
So much for fiscal prudence. So long credibility.
In fact, the government announced new budget measures totalling more than $5 billion in 2015-16 — which means the contingency reserve was used to finance some of these new initiatives, not debt reduction.
Had the contingency reserve been kept to its usual $3 billion level, there would be a small deficit of $600 million. This deficit would have been $1.6 billion without the GM sales — even higher, had Oliver made no change in the forecasting methodology.
The fourth rabbit was an increase in the “lapse” — the amount of funds appropriated to departments and agencies by Parliament but not spent during the course of the year. The lapse for 2015-16 and the next two fiscal years has been increased — which may be justifiable, but the budget documents do not indicate by how much or why.
The fifth rabbit was the government’s decision to continue to assume higher-than-required Employment insurance (EI) premium rates. This generated an additional $1.8 billion in 2015-16. The Conservatives criticized the Chretien/Martin government for keeping rates higher than required to fund new policy initiatives. Turns out they don’t mind doing it themselves.
The final rabbit — certainly not the least controversial — is government’s forecast of $900 million in 2015-16 resulting from legislating “a modernized disability and sick leave management system” on public sector unions in the budget bill yet to be tabled.
So where does all this wishful thinking leave the credibility of the budget, and the government’s reputation as a sound fiscal manager?
Harper’s government has not recorded a surplus in seven years, and with the current risks and uncertainties, it is very likely there won’t be a balanced budget this year. Oliver has to hope that nothing will go wrong in the five months leading up to the election. We won’t know the final budget outcome until the fall of 2016.
Under Harper’s leadership, the federal debt has increased by $150 billion — compared to a decline of $90 billion under Chretien and Martin. Oliver is so desperate to assert the government’s fiscal bona fides that, in the budget, he claimed that under the Conservatives, federal debt was reduced by $37 billion prior to the global recession. Unfortunately, in arriving at this number, he included 2005-06 — even though the Conservatives were not elected until January 2006.
This budget is built on a foundation of sand which will be continually shifting the coming months. The budget lacks durability and credibility and the reputation of the government as sound fiscal managers continues to be a fiction of its own making.
The government is still planning to legislate balanced budget legislation. Given the risks to this forecast, they may want to rethink that commitment.
Original Article
Source: ipolitics.ca/
Author: Scott Clark and Peter DeVries
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