Federal budget 2015: Economists making it difficult for Joe Oliver
Bank of Canada latest to warn anticipated surplus could sink with oil
The math is getting trickier and trickier for the Finance Minister Joe Oliver.
Speak to any Conservative in the know since 2011, and they would say the same thing: "The budget will be balanced in 2015. Not later, not sooner."
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That was always the plan, not for economic reasons, but for political ones.
Unfortunately for Conservatives though, economics are starting to get in the way of politics.
Economists vs. politicians
In his November Economic and Fiscal Update, Oliver projected the Canadian economy would grow by 2.6 per cent this coming year and his government would post a meagre budgetary surplus of $1.9 billion.
Just enough to cover his party's election promises, but no one else's.
Oil was trading at just below $80 US a barrel back then, and now few economists believe a return to that range is feasible in the foreseeable future.
Signs of unease
Last week Oliver surprised many when he announced "market instability" meant he was delaying his budget until at least April, but still confidently predicted "the next federal budget will forecast a surplus of about $1.6 billion."
On Wednesday, the Bank of Canada dropped jaws on its own when it moved its trend-setting interest rate for the first time in four years and four months – and not in the direction it had been warning of for a long time.
Going to ¾ of a per cent from one per cent is one thing. What is of more concern to those trying to keep budget promises is the cut to expected growth.
The Bank governor, Stephen Poloz, said the plunge in oil prices has caused an "oil shock" to the Canadian economy and he predicts will stifle GDP growth to 1.5 per cent for the first half of the year before its surprise rate-cut, low-dollar, and stronger US economy provide some steam in the economy and bring the average for the year to 2.1 per cent.
Using the government's own numbers, a drop in GDP like that would shave $1.6 billion off the budget's bottom line, without factoring in more direct loses of oil revenues.
This comes on the heels of similar reports which drew similar conclusions, but usually with more drastic drops.
When TD Economics crunched the numbers it predicted oil would cost the government $2.6 billion.
The Conference Board of Canada said $4.3 billion.
And those may end up being rosy projections.
TD's calculations are based on oil averaging $67 a barrel this year. The Central Bank and Conference Board are assuming $60.
Oil hasn't been above $50 since Jan. 6.
What does it all mean?
The Conservatives had a plan, but seem to have grown impatient and veered from it.
The "Family Tax Cut" is meant to replace the Conservative campaign promise to introduce income splitting for families.
It's something that was meant to be introduced "once the budget is balanced," or so went the promise.
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Instead, Prime Minister Stephen Harper unveiled it last October and made it retroactive for the 2014 tax year – which the government still predicts will post a $5.2-billion deficit.
If you are going to significantly change an election promise, it's best to do so as far from the next election as possible.
To make up for the change to the promise, the Conservatives also threw in a boost to the Universal Child Care Benefit.
All told, the net price tag for the measures is expected to cost $4.6 billion dollars this year.
There's also still the matter of a promised boost to the contribution limit on Tax-Free Savings Accounts and the introduction of an Adult Fitness Tax Credit; which will strip hundreds of millions of dollars more from the government's revenues.
The government has promised to:
- Balance the budget this year.
- Provide huge tax cuts to families and others.
- Make no further cuts to the services Canadians receive.
Three promises government MPs continue to stand by even if they now seem mutually exclusive.
NDP Leader Tom Mulcair and Liberal Leader Justin Trudeau have, not surprisingly, been quick to point out these dark clouds on the horizon of Canada's economy as a sign of Conservative mismanagement of the economy.
Neither leader is willing to point to exactly what it is they would cut or do differently to balance this budget this year.
But then again, neither of them made the promise to electors to do so.
With the course set, the Conservatives are showing no signs of changing.
Harper's voice can already be heard on some radio station commercials saying his is the only party that will "put more money in the pockets of every Canadian family with children."
The ads don't mention whether or not that money is going to keep the country in deficit, and therefore being borrowed from the very same children.