Ottawa to show magnitude of expected surplus


OTTAWA – The Harper government will deliver its fall fiscal and economic update Wednesday, an outlook expected to answer a key question: How big will the projected 2015 election-year surplus be?

Finance Minister Joe Oliver has remained confident the government will eliminate the deficit next year, even as the world economy struggles and Canada deals with the sudden drop in the price of oil — a significant influence on Ottawa’s bottom line.

Analysts and budget observers, meanwhile, have forecasted Canada’s bank balance will grow along with the expanding U.S. economy.

Amid the careful optimism, the government has already begun earmarking the projected surplus.

In recent weeks, the Conservative government unveiled a multibillion-dollar tableau of cost-cutting initiatives for families with children under 18.

Oliver, who will issue the update at a downtown Toronto hotel, is expected to reveal Wednesday just how much cash is left over.

Prime Minister Stephen Harper has predicted the government would achieve a small surplus next year, even with Ottawa’s family-friendly measures. Harper has also announced Canada will run a small deficit this fiscal year.

The suite of family measures, which includes a controversial income-splitting initiative promised during the 2011 election campaign, will ensure cheques from Ottawa land in the mailboxes of Canadian families ahead of the October 2015 election date.

Harper has also dropped a strong hint Ottawa will follow through on another 2011 Conservative pledge: hiking the annual limit on tax-free savings accounts to $10,000, from $5,500. On top of that, the Conservatives still have an outstanding promise to introduce an adult fitness tax credit.

It remains unclear how the government might allocate any leftovers. The finance minister’s office has said the fall update won’t feature any new fiscal measures.

Carleton University economics professor Ian Lee says the data and reports he’s studied recently signal there should still be plenty of surplus room, even after the new measures. The initiatives are expected to cost government coffers more than $26.7 billion between 2014-15 and 2019-20.

“I think that we finally have turned the corner,” Lee said Tuesday of the Canadian economy.

“All the forecasts are (saying) that there’s going to be a surplus, so all we’re really going to be quibbling about over the next six, eight, 12 months is the size or the magnitude of the surplus.”

Lee believes the fall update will be heavily influenced by the coming election and attempts to head off any flak directed at the government’s family spending plans.

“He’s very aware that they could be criticized for prematurely squandering the deficit, so they’re going to put forward a compelling-enough argument, a substantial-enough argument, to justify doing that,” Lee said of Oliver.

In doing so, he expects Oliver to maintain his “cautiously optimistic” approach when he delivers the update.

Earlier this week, Oliver expressed some concern about the dropping crude prices, which he noted had fallen by more than 25 per cent since July due to an increase in supply and shrinking demand.

“This will affect our economy in a variety of ways and adversely impact our fiscal situation,” Oliver said in Montreal, before reiterating the government’s optimistic outlook for the economy.

“Nevertheless, we remain confident that we will achieve a budgetary surplus next year.”

His concern follows Bank of Canada governor Stephen Poloz’s remarks that an extended period of cheap oil could trim the growth of the country’s gross domestic product by a quarter-point next year.

Budget watchers have released estimates on how the Conservative family measures might affect public finances.

The parliamentary budget office predicts the government remains on track to run a series of surpluses: $600 million in 2014-15; $5.5 billion in 2015-16; $5.8 billion in 2016-17; $3.4 billion in 2017-18; $4.6 billion in 2018-19 and $6.4 billion in 2019-20.

Mostafa Askari, assistant parliamentary budget officer, said the improving economy means tax revenues are beginning to pour in. On top of that, he said the government’s direct program spending has remained stagnant, dumping even more cash into Ottawa’s coffers.

The latest numbers from the federal government’s public accounts show federal departments spent nearly $7.3 billion less than they had been allotted in 2013-14.

“Over time… it’s almost going to be impossible to sustain that because the services are going to be affected so much that you’re going to have to go back and increase the budget,” Askari said.

He also cautioned about using the surplus to introduce expensive, permanent measures because several expenses, such as some defence spending, have been deferred to future years.

Estimates by Randall Bartlett of TD Economics showed the Conservative family proposals, combined with lower oil prices, could come close to wiping out the approximately $5 billion in total surplus room the bank predicted for 2014-15. Bartlett has predicted a $5.8-billion surplus for the 2015-2016 fiscal year.

The falling oil prices have also created considerable debate about their impact on the federal government’s piggy bank.

To varying degrees, experts believe the cheaper prices at the pump will offset the sting of losses by oil producers because it will encourage more consumer spending. Meanwhile, the weaker Canadian dollar is viewed as a factor that could help boost exports.

Another report by TD Economics released earlier this week predicts the overall impact on Canadian crude production to be “less severe” than expected. The research note projects oil prices to gradually climb back up as global demand increases.

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