PBO even more optimistic than Flaherty of balanced budget in election year 2015

OTTAWA – The Harper government may need to depend on artificially high EI premiums, asset sales and spending restraint to balance the budget in time for the 2015 election, the federal budget watchdog says in a new report.

But the new assessment from the parliamentary budget office also projects that the government will be able to achieve its target of a balanced budget in 2015 and even amass a bigger surplus in the critical election year than the government projects.

The report says its baseline projection puts the 2015 budget surplus at $4.6 billion — almost $1 billion more than the official estimate contained in last month’s economic update paper.

As well, the budget office projection shows next year’s deficit at $3.5 billion — $2 billion lower than Ottawa’s estimate in last month’s economic update — and within an eyelash of a balanced budget, once a $3-billion cushion for surprises is factored out.

But the report shows that the improvement from the economic update is dependent not so much on a strong economy but on extraordinary measures and keeping payroll taxes higher than need be.

“If direct program expenses do not materialize as planned, if a governor-in-council decision is made to reduce EI premiums and if sales of public assets are delayed or do not occur, most, if not all, of the … surplus the government projects for 2015-16 would be eliminated,” the report said.

A big chunk of the 2015-16 and 2016-17 surpluses is based on Flaherty’s stated intention to keep EI premiums frozen until 2016, the report states.

Under normal rules, the budget office said, premiums should start coming down in 2015 when the EI fund flips from deficit to surplus.

The fiscal impact of keeping premiums artificially higher for two additional years is that it will contribute $1.8 billion to the 2015-16 surplus and $3 billion to the 2016-17 surplus, the report said.

The budget office also believes Ottawa will realize greater savings from a recently announced two-year departmental spending freeze and the departmental spending lapses that have averaged $10 billion annually over the last three years.

The freeze and lapses — approved money that is not spent — will net Ottawa about $2.7 billion in the critical 2015-16 fiscal year, the PBO says, and $7.2 billion over the five-year projection period.

In addition, the report points out that the surplus partially depends on Flaherty going ahead with announced asset sales, such as the sale of the Ridley Terminals and Dominion Coal Blocks in British Columbia announced in last month’s update, as well as the government’s remaining stock of General Motors shares.

The findings back Liberal finance critic Scott Brison’s contention made after the update’s release last month that Flaherty’s surplus was being constructed on “smoke and mirrors,” and not on a strong economy.

Still the PBO gives Ottawa 65 per cent probability of achieving its target of balancing the budget in 2015, even though the office believes economic growth will actually be weaker than Ottawa is counting on.

That is welcome news for the Harper Conservatives. Although economists say financial markets are unconcerned about the exact timing of attaining a balanced budget, achieving the 2015 target is of singular importance to the government’s re-election prospects.

In the 2011 campaign, the prime minister said he would offer Canadian couples with children under 18 the option of splitting their income to reduce taxes — but only once the budget was balanced. By some calculations, that would deprive Ottawa of about $2.7 billion in revenues.

Harper also promised several other boutique tax cuts, as well as a doubling of the $5,000 annual limit on contributions to tax-free savings accounts, all of them contingent on balanced books — pledges that would shave a total of about $600 million more from tax revenues.

Flaherty said last month he prefers a cautious approach to spending the surplus, but that may be dependent on just how large it turns out to be.

The PBO’s projections suggest that surpluses won’t be massive going forward, however, in part because after 2015-16 the government’s restraint programs are scheduled to end and in part because the economy — which is now in catch-up mode — will likely slow to cruising speed of about two per cent a year. As well, with interest rates anticipated to rise, Ottawa will need to pay more to service a national debt that will be well north of $600 billion.

The PBO estimates that after achieving a $4.6 billion surplus in 2015-16, the surpluses in the next three year will come in at $5 billion, $4.7 billion and $7.5 billion.




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PBO even more optimistic than Flaherty of balanced budget in election year 2015

  1. This is exactly why Harper will win re-election in 2015. People care FAR more about a balanced budget than some fictitious senate “scandal” involving nickels and dimes. It’s proof that the only person who can manage Canada’s economy properly is Stephen Harper. This will do far more to help the middle class than Trudeau’s plan to legalize marijuana or Mulcair’s plan to raise taxes.

    • By that logic, the Liberals (y’know, the party that had all those surpluses) would have never lost an election.

      • Quite possibly. Except for the fact that “all those surpluses” were a pretty clear sign to the entire electorate that taxes were higher than they needed to be. It had become quite clear to most that at the end of the Liberal reign, they were more concerned with spending as much as they could, and didn’t care about reducing Canadians’ tax burden. Much like the current Liberal party.

        • I’m not paying any less taxes than when the Libs were in except the 2% GST reduction. But on the other hand my wages have stagnated and everything else has gone up. Utilities 50% more, Health Care Premiums 50% more, Food easily 50% more, Gasoline 50% more. I could go on. I know the Harper Cons aren’t totally responsible for all of that but let’s look at the whole economy not just a few tax breaks for the top 20%

          • And what do you think would have happened to those prices if there hadn’t been corporate income tax cuts? Even higher prices you’d be paying.

            Then there’s also the fact that your utilities & healthcare bills are entirely provincial responsibilities, and have nothing to do with the federal government. And food and gasoline prices are global, not Canada-specific.

            Wage stagnation, again, you should be happy that you live in Canada and we have a relatively low unemployment rate. If you were in the US you’d be happy just to have a job with a pay cut.

          • OK but how come in the US where taxes are supposed to be lower the economy is even worse?
            Gasoline prices are kind of Canada specific and don’t tell me it is all taxes. The extra taxes we pay on gas does not account for the 50% premium at the pump.
            Same as just about all goods and services.
            As for the health care and utilities, yes provincial but we have right wingers here in BC that boast the lowest personal income taxes in Canada in my income bracket but it seems like you get an awful lot of robbing from Peter (average Joe) to pay Paul (guy who really benefits from low taxes)
            We also have a whole lot more user fees and less government services provincial and federal.
            Food bank lines seem to be getting longer.
            Personal debt is increasing (not me personally but the population as a whole).
            Trickle down ain’t working for me and most of the regular folks and I don’t think we need more of the same.

          • Gee your provincial controlled utilities and healthcare are up 50%. Must be Ontario or B.C.

          • I mentioned BC in my post but don’t call the bunch we have Liberals they are mostly Socreds that took that name so they could get elected. Christy Clark has a bunch of ex Harper advisors working for her and received campaign contributions from Alberta Oil. Our ex premier Campbell (also a fake Liberal) was a buddy of Harper and got a nice cushy position as High Commissioner in London when we sent him packing for lying about introducing the HST. Call them what you will they are a bunch of crony capitalists and like to privatize and sell off assets for cheap to their buddies so it looks like they balanced the books. Sounds like Conservatives to me. Everyone complained about the high taxes when the NDP were in but the working folks made more money and weren’t having their disposable income trashed by user fees and higher insurance rates and utilities.

      • You mean the Ontario Liberals or the B.C. Liberals?

    • And how will the public feel about the massively larger debt that the Harper Conservatives have saddled Canadians with while still not being able to achieve a surplus without selling Canadian’s assets?

  2. ““If direct program expenses do not materialize as planned, if a
    governor-in-council decision is made to reduce EI premiums and if sales
    of public assets are delayed or do not occur, most, if not all, of the …
    surplus the government projects for 2015-16 would be eliminated,” the
    report said.”

    Sooo….. a one trick pony just in time to cloud the voters eyes and minds. Really, any sustainability in there?

    • Only “IF”

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