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Flaherty’s new goal: Not merely balanced budget, but useful surplus for 2015


 

OTTAWA – After one of the more disappointing years in the current recovery cycle, Finance Minister Jim Flaherty is expected to offer some positive news for a change when he issues the government’s fall economic update Tuesday afternoon.

Unlike last year’s update which went down like a spoonful of cod-liver oil — tastes awful, but good for you — Flaherty has signalled he expects to report a better-than-projected deficit this fiscal year and a bigger surplus in 2015.

As it turned out, last year’s doom and gloom update, with its warning of a $6 billion hole in revenue intake and elevated global risks, never did pan out. Last month the government reported that it had beat its low bar for a $25.9 billion deficit by a tidy $7 billion — mostly because of government cost-cutting and stable revenues.

That has led some to speculate the minister may be able to eliminate the deficit one year earlier that the self-imposed 2015-16 fiscal target, although most analysts think that is a leap too far given that last year at this time the update had set back the balanced budget year to 2016-17.

Don’t expect such a big surprise Tuesday but do expect Ottawa to report it is somewhat ahead of schedule on deficit reduction, says Bank of Montreal chief economist Doug Porter.

“I suspect they will do a little better than what was in the budget, but not by a lot,” he said. “Basically we’re running neck and neck with last year.”

The monthly tracking to August shows Ottawa $400 million ahead of pace to meet this year’s official forecast for a $18.7 billion shortfall. However, that represents less than half of the fiscal year and misses that the economy has performed above expectations since August.

Two weeks ago, private sector economists handed Flaherty a revised consensus for growth showing a stronger second half to 2013 and a 2.4-per-cent pace for 2014, basically in line with the Bank of Canada’s expectation.

Some say a reasonable guess for this year’s deficit is $16 billion-$17 billion, given that Ottawa still has to calculate emergency and rebuilding costs in the aftermath of the Alberta flooding and the Lac-Megantic train derailment in Quebec.

“I will not speculate about the numbers but I think it will be a pleasing number, a number that will make the balance budget aim by 2015 very achievable,” said CIBC deputy chief economist Benjamin Tal, who was in the economists’ meeting with Flaherty.

Flaherty, who will be issuing the update at a speech to the Edmonton Chamber of Commerce, is expected to continue stressing the fragility of the recovery and global risks.

But the fact remains that in the midst of the weakest growth year since the recession, fortune appears to be turning his way. The global economic terrain looks far more tranquil this November than it did 12 months ago, or even at the time of the March budget.

Still, the Harper government is committed to a stance of frugality. Last month’s throne speech was almost fire-breathing about the need to contain spending, announcing yet another round of restraint by way of an internal spending freeze, other targeted reductions, a balanced budget bill, and continued war on the public service in terms of going after sick-day benefits and pay levels. There was also renewed talk of selling assets.

Officials say the update will touch on these themes while offering few specifics.

“It certainly will reiterate that we are sticking to our plan, including continuing to watch government spending, continuing to review assets for potential sales. But there are no measures in it. It’s not a mini-budget,” said one official.

Financially, it’s doubtful any of that is necessary to meet the 2015-16 target, but as Treasury Board President Tony Clement broadly hinted Sunday, the object is no longer to balance the budget in time for the October 2015 election campaign, it’s to report a healthy surplus.

“His (Flaherty’s) goal now is to have a comfortable surplus in 2015,” Clement told CTV. “And the reason being … there’s some promises that we made in the last election that we’d like to fulfil in terms of lowering taxes. So in order to do that on schedule, we’ll need to see a comfortable surplus in 2015.”

In the 2011 election campaign that gave Stephen Harper his first majority in four tries, the Conservatives promised to introduce partial income splitting for couples with children, a pricey crowd-pleaser estimated to cost Ottawa almost $3 billion in revenues.

Clement noted it will not be enough to simply balance the budget in 2015, it will be necessary to have a sufficient surplus so that income splitting won’t send Ottawa back into the red.


 

Flaherty’s new goal: Not merely balanced budget, but useful surplus for 2015

  1. It would be nice if the Cons could put things back the way they found them….but it ain’t gonna happen.

  2. What about repaying some of the $100 billion+ in debt you’ve wracked up before you start giving out goodies?

    • Federal law dictates that any surplus is used to pay down the debt. Which is why the government will lower taxes somewhat, and use the remainder to pay down debt.

      Unless you’re proposing that no government ever increase spending or cut taxes ever again until the debt is paid down…. pretty tough for a Liberal or Dipper to campaign if they can’t promise to spend additional money.

      • No, I’m suggesting they repay some of the debt they’ve run up since they took office before implementing new policies that increase spending or reduce revenues.

  3. partial income splitting for couples with children, a pricey crowd-pleaser

    It’s not a crowd pleaser, in fact it’s very poor policy. hopefully Canadians are decent enough people that when they realize it gives $ to a one-working parent couple who earn $90,000, but nothing to a two-income household of two $45,000 incomes or a one parent household that brings in only $10,000, they won’t vote for it.

    And selling off assets to fight deficits is generally bad, because it only generates the revenue once while the deficit is usually annual.

    • Most people don’t care about the details of a tax cut, only that they are getting one.

      Did anyone care that most economists said that cutting the GST was a bad idea and that they should cut middle income taxes? Nope.

      It only mattered the optics.

      That’s what politics is now all about. Not about good policy but how can we get more votes.

  4. The real issue is to separate out one-time-adjustments from ongoing commitments. While Flaherty is a decent chap by most definitions, he is not by the Coyne definition. i.e. there is no doubt that he mixes ongoing & onetime costs& benefits to his benefit.

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