Feds can’t avoid $1-billion deficit, budget officer says
Weak economy undercutting the federal government’s fiscal hopes, the parliamentary budget officer says.

thestar.com
July 22, 2015
By Les Whittington

The federal Conservatives will fail to accomplish their key promise of balancing Ottawa’s books this year, instead running a $1-billion budget deficit in 2015, the parliamentary budget officer says.

Budget watchdog Jean-Denis Frechette said Wednesday that the economic picture had changed since the Conservatives’ budget in April, which predicted surpluses in 2015-16 and over the next several years.

“Economic data has since indicated declines in real GDP (gross domestic product) that were not reflected in the government’s assumptions,” Frechette said.

He noted that the Bank of Canada, in its quarterly forecast last week, had chopped its prediction for economic growth this year from 2 per cent to about 1 per cent.

The worse than expected economic conditions will reduce federal tax revenues, trimming $3.9 billion from Ottawa’s fiscal accounts in 2015, the budget watchdog said. But taking into account the $1 billion set aside as a rainy-day fund by Finance Minister Joe Oliver and factoring in other impacts, Frechette said the Conservatives will run a $1-billion deficit this year.

With an eye on the Oct. 19 election, opposition parties seized on the report to slam the Conservatives’ handling of the economy. Prime Minister Stephen Harper has promised for years that 2015 would be the year his government puts an end to a seven-year string of budget deficits.

“That was supposed to be the Conservatives’ hallmark branding, wasn’t it, balanced budget?” NDP leader Thomas Mulcair asked during a campaign-style swing through southern Ontario. “We now know that’s not going to be the case.”

Mulcair said Harper put the economy at risk by relying too much on the oil and gas industry as an engine of growth. “The Conservatives put all of our economic eggs in the resource extraction basket, and now that that sector is having considerable difficulty, it’s affecting everything else in the Canadian economy.”

Liberal MP Scott Brison said the budget watchdog’s report leaves Harper’s economic record “in tatters.” Harper “has failed to provide a plan for jobs and growth, he’s failed to provide support for middle-class families who need it the most and now he’s failed to balance the books,” Brison told the Star.

Finance Minister Joe Oliver, who attended an announcement with Toronto Mayor John Tory on Wednesday, dodged reporters’ questions about the budget watchdog’s findings.

But Rob Nicol, a spokesperson for the prime minister, brushed aside the report. “We remain on track for a balanced budget in 2015. We included room in the budget to account for continuing weakness in the global economy,” he said in an email.

“Just this week, we provided much-needed money to Canadian families through the Universal Child Care Benefit,” Nicol added in a reference to the increased family allowance cheques that arrived in some Canadians’ mailboxes on Tuesday.

The billions of dollars worth of increased support payments for parents and tax breaks for families had been contingent on balancing Ottawa’s books. These goodies were announced last fall by Harper, who said at the time that Ottawa would soon be leaving budget deficits behind.

In the April budget, Oliver predicted a $1.4-billion surplus this year. But recently, both opposition parties said recessionary economic conditions were undermining the Conservatives’ promise to eliminate the budget deficit in 2015. The NDP and Liberals have both been urging Oliver to bring out a special economic update that takes into account the unexpectedly weak economy.

On Wednesday, the Finance Department released its Fiscal Monitor publication. It showed that in April and May, Ottawa ran a total budget surplus of $3.9 billion, partly as a result of increased revenues arising from the one-time sale of the government’s shares in General Motors. The finance department’s news release said the government is still in a position to balance the books this year.

The budget watchdog said the federal government will run a $600-million budget surplus in 2016 and a $2.2-billion surplus in 2017.

Fréchette’s report was only the latest in a series of developments raising the stakes around economic issues as Canadians prepare for a federal election. On July 9, the International Monetary Fund sharply reduced its forecast of economic growth this year in Canada to 1.5 per cent, down from 2.2 per cent in its April outlook.

Last week, Bank of Canada Governor Stephen Poloz acknowledged the country was recording below-zero growth in the first six months of 2015, meeting the usual definition of a recession. The central bank sought to head off more damage from the oil-price collapse by lowering the bank’s trend-setting overnight interest rate to 0.50 per cent from 0.75 per cent.

And the Canadian dollar has taken a nosedive on exchange markets. On Wednesday, the loonie lost 0.53 of a cent to close at 76.70 cents (U.S.), a level it hasn’t reached since Sept. 1, 2004.