OTTAWA – The federal government squeaked through with a $1.9-billion surplus in 2014-15, nudging Canada’s books back into balance ahead of schedule and halting a streak of six deficits.
The Finance Department released figures Monday for a fiscal period the Harper government’s own predictions said would generate a $2-billion deficit.
That government forecast, included in its April budget, only called for a return to balance in the current fiscal year.
So, how did the country clamber out of the red one year earlier than anticipated?
The annual report, released about a month before the Oct. 19 election, said the $3.9-billion swing from expected shortfall to surplus was largely due to revenue growth $3 billion higher than projected.
Taking a closer look at the numbers, the categories of personal and corporate income taxes each raked in $1.5 billion more than projections.
The document also identified another major contributor: lower-than-expected expenditures, led by $1.5 billion in funding not spent by government departments. The report did not contain a detailed breakdown of which departments underspent their budgets, figures that are released at a later date.
Overall, however, total program expenses only registered $800 million below the projections because the spending lapses were partially offset by greater-than-anticipated pay outs for seniors and employment insurance benefits.
The year-end numbers also revealed that public debt charges were $100 million below predictions due to lower average interest rates.
Still, for many economic experts, a 2014-15 surplus was hardly a bombshell.
“When you looked at the budgets and the fiscal projections, the size of the deficit was so small it wouldn’t have taken them much to get into positive territory,” said Craig Alexander, vice-president of economic analysis for the C.D. Howe Institute.
“The data told us that it was likely to be a surplus and, politically, there was every reason to believe that the government would want to announce a surplus. …
“It’s anything but a surprise.”
Alexander added that Canadian governments have a long history of “underpromising” and then “overdelivering.”
He’s not alone. In April, the parliamentary budget officer predicted the government would post a $1.8-billion surplus in 2014-15.
Economic experts argue that balancing the books, rather than allowing a slim deficit, is more important from a political perspective than an economic one. They say falling a couple of billion dollars short of balance amounts to a rounding error relative to the whole $2-trillion economy.
Still, achieving balance for the first time since the government ran a $9.6-billion surplus in 2007-08 will provide more fiscal wiggle room for the party that wins the election, said Scotiabank economist Mary Webb.
“And in the challenging economic environment, that flexibility is very valuable,” said Webb, who specializes in fiscal analysis.
Looking forward, the Tories’ spring budget also predicted a $1.4-billion surplus for the current 2015-16 fiscal year, but since then the weakened economy has prompted analysts to lower their expectations.
Political opponents have insisted the government will fail to deliver a surplus in 2015-16 because the economy contracted over the first two quarters of 2015 and pushed the country into a technical recession.
The parliamentary budget officer released an analysis in July based on downgraded Bank of Canada projections that showed Ottawa was headed for a $1-billion shortfall in 2015-16. The calculation whipped up doubt about the Conservatives’ long-standing promise to balance the election-year books.
On Monday, Conservative Leader Stephen Harper reiterated his message that experts have predicted the economy will bounce back over the second half of the year. He has insisted the government will produce a surplus in 2015-16.
“I think it’s actually very clear that there is very strong upward momentum in the Canadian economy,” Harper said on the campaign trail.
He once again pointed to early 2015-16 numbers released by the Finance Department as evidence the country is on track. Last month, the department reported a $5-billion surplus for the April-June quarter.
Harper’s opponents have dismissed that as preliminary data, a tally that received a $1-billion boost from a one-time asset sale of taxpayers’ General Motors shares.
Government officials and experts routinely warn that a few months of information do not necessarily paint the picture for the whole year.
Alexander said the data for the first quarter of 2015-16 doesn’t provide a lot of insight as to what the rest of the year might look like.
He said it didn’t reflect the impact of the fall in oil prices and what that will do to corporate revenues and corporate taxes.
“There’s obviously no question that as we go forward the fiscal numbers over the course of the year are going to deteriorate,” Alexander said, noting it will be more of a political concern than an economic one.
“I don’t know if it’s going to be a small surplus or a small deficit, but ultimately from an economic point of view it’s really not going to matter.”