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.