Economic analysis

Harper almost has his surplus

It seems pretty clear that the Conservatives will be able to announce a small surplus when it brings down its budget in April

Stephen HarperThe federal budget is almost, but not quite, balanced. According to the Fiscal Monitor, the balance for the calendar year 2014 is a deficit of $317 million, down from $16.4 billion in the calendar year 2013. These are not official numbers: The balance for the fiscal year that ends in March 2015 will include adjustments for revenues and expenditures that are not assigned to a particular month. But judging by current trends, it seems pretty clear the Conservatives will be able to announce a small surplus when they bring down their budget in April.



Here is the breakdown for total revenues and expenditures:


It’s easy enough to see the Conservative strategy for balancing the budget: Hold the line on spending and count on an increase in revenue. Revenues were sluggish through 2012, but have picked up since then. What is more remarkable is that total expenditures have been held roughly constant for three years in a row now.

Regular readers must now be weary of this point ([1], [2], etc.), but the key to this spending restraint is direct program expenditures: Transfers to individuals and to the provinces continue to increase in proportion to nominal GDP. At first, the Conservatives were content to simply hold the level of spending constant, but that period of slow revenue growth has obliged them to make actual cuts in spending.


Thanks to those changes in accounting rules, it’s hard to say what has happened to direct spending over the past three years. But spending has fallen by almost $9 billion—roughly eight per cent—in the last year alone.

There may be a reduction in revenue growth in the next few months, so it may not be enough for the government to simply stay the course during the rest of the fiscal year. But, given the results so far, it doesn’t look as though it would take much additional effort to announce a surplus for 2014-15.

Next year, of course, will be a different story.