THE START OF THE 2015 ELECTION
For the first three months of fiscal year 2014-15, which ended March 31, the federal government posted a surplus of $400 million, an improvement of $3 billion from the deficit of $2.6 billion recorded in the same period in 2013-14.
In the February 2014 Budget, a deficit of $2.9 billion was forecast for 2014-15. This forecast included a “risk adjustment factor” of $3 billion, which if not needed would imply a balanced budget, if not a surplus for 2014-15.
The current monthly results, along with the surprising better-than-expected economic growth for the second quarter of 2014, strongly suggest that the federal government will post a surplus in 2014-15, one year ahead of their political commitment to balance the budget in 2015-16.
The likelihood of a surplus for 2014-15 is further enhanced by our expectation that the final results for 2013-14, which will be released in late September/early October, will show a deficit of around $10 billion substantially lower than the $16.6 billion forecast in the February 2014 Budget. The Parliamentary Budget Officer has already forecast a deficit of $11.6 billion for 2013-14.
In the 2014 Budget, the Government forecast an improvement in the budgetary balance of $14 billion between 2013-14 and 2014-15. Applying this improvement to an expected revised deficit outcome of $10 billion for 2013-14 would result in a surplus of $4 billion for 2014-15. This would still include a “risk adjustment factor” of $3 billion, implying a possible surplus of $7 billion for 2014-15.
Most, if not all, of this better-than-expected outcome will very likely carry forward into 2015-16 and beyond..
In our view it would be very difficult for Mr. Oliver not to show a surplus this year without being accused of faking the numbers.. The economy would have to go into a “stall” for the last six months of the year for this not to happen. Having said that it is virtually impossible to forecast this government’s behavior.
But why should the government not take advantage of the good fiscal numbers?
The government has been selling itself as “sound economic managers” for years. This was a theme in the 2011 election and it will certainly be a theme in the 2015 election. The Fall Update would provide the government with excellent opportunity to strengthen this reputation by making the case that it is because of the government’s sound financial management that there will be larger surpluses in the 2015 budget that will be returned to Canadians through tax cuts.
In the Fall Update, the government will not only be able to show the elimination of the deficit (something no other G-7 country has achieved) one year earlier than targeted, but also to show a declining debt ratio, rapidly approaching the government’s target of 25 per cent, the lowest since the 1960s
Best of all, the government will be able to show larger surpluses in the outer years, after 2015-16, than forecast in the February budget. This will give the government more room to enhance their political promises, particularly tax reductions for Canadians.
These much improved budget surpluses, however, don’t just belong to the Conservatives. They also belong to all political parties. They too can use them in developing their own election promises.
Much of the election debate will be over who can devise the best plan to use the projected surpluses to help Canadians and support economic growth.
The Conservative government has the opportunity to kick off this debate in the Fall Update with some very good fiscal news.