Accuracy is a virtue for many occupations: airline pilot, math teacher, GPS programmer and professional knife thrower all come to mind. So too federal finance minister. Yet Joe Oliver seems to have taken this job requirement too literally. Or, to be more accurate, he’s lost sight of his real obligations to the Canadian public.
Last week Oliver announced that in light of falling oil prices, he’s delaying the federal budget past its traditional February or March date. “Given the current market instability, I will not bring forward our budget earlier than April,” he told the Calgary Chamber of Commerce. “We need all the information we can obtain before finalizing our decisions.” If he can’t figure out where oil prices are going, he’ll simply hold the budget until he can.
The precipitous and unexpected drop in oil prices over the past half-year—from a high of US$107 last summer to around US$50 today—is having a substantial impact on government finances across the country. Alberta Premier Jim Prentice has seen his $1.5-billion surplus turn to a $500-million deficit in just a few months. The situation is so dire that Prentice has begun discussing the possibility of a provincial sales tax for Alberta, something long considered politically impossible.
The impact of falling oil prices on the federal budget is less clear than in Alberta or other oil-dependent provinces. It will certainly hurt corporate tax revenues. On the other hand, lower energy costs may spur growth elsewhere in the country (as well as in the United States, which should provide a lift for our non-oil exports) and may lower equalization payments to provinces unburdened with oil and gas. While the overall impact on the public and private sectors is complicated, Bank of Canada deputy governor Timothy Lane recently observed that “lower oil prices are likely, on the whole, to be bad for Canada.”
Regardless, Oliver’s main responsibility as the federal budget-maker is to deliver the facts on Ottawa’s spending intentions for the coming year. And in a timely fashion. The federal budget has traditionally been delivered in February or March because the provinces must consider federal moves when crafting their own budgets in the following months. Excluding election years, the last time a regularly scheduled budget occurred in April or later was 1989. (Although the Chrétien government occasionally skipped them altogether.) Pushing the budget into the fuzzy future is an abdication of Oliver’s obligations to taxpayers and other levels of government.
While uncertainty in oil prices may make Oliver’s budgeting task inconvenient or difficult, this is not a convincing reason for putting it off indefinitely. If oil was heading higher in an equally rapid and unpredictable fashion, for example, there’d be no talk from Ottawa of putting off a budget until it became clear where prices would peak. The decision is entirely political: low oil prices imperil the Harper government’s re-election strategy, which is premised on its self-image as a reliable steward of the economy (and that Liberal Leader Justin Trudeau lacks the maturity necessary for such a job). Delivery of a long-promised surplus in 2015 was to be the crowning proof of all this. By delaying his budget, Oliver is clearly hoping oil prices will rebound over the next few months and provide a last-minute reprieve for his government’s surplus vow.
Then again, the price of oil could just as easily keep falling. In its April monetary policy report, the Bank of Canada announced it has given up trying to estimate the future price of oil and now simply uses its current value for baseline projections. It does the same thing with exchange rates. No one knows with certainty where prices are going, so you might as well use the price that’s in front of you right now. Oliver ought to follow the central bank’s lead, plug US$50 a barrel into his budget and tell Canadians the truth about what this means. According to calculations by TD Economics, such a scenario yields a $3.2-billion deficit for the coming year. Unpleasant news, perhaps, but not necessarily fatal; voters are smart enough to recognize that oil prices are beyond the control of any Canadian government. If circumstances change in dramatic fashion, Oliver can always release a budget update later in the year: it’s what finance ministers do.
By and large the Harper government has done a creditable job managing the economy—to the extent an economy is best managed by avoiding interference in the marketplace, facilitating trade and keeping taxes and spending low. Prompt and honest financial accounting is another crucial aspect of good management, however, and one that Oliver neglects at his peril.