The government has painted itself into the proverbial “political” corner”. In the March 2011 budget, the government made a commitment “to return to balanced budgets by 2015-16 at the latest”.  

Prime Minister Harper and Finance Minister Joe Oliver were so confident that this commitment was a “no-brainer” that the Prime Minister announced in a “mini-budget” in October, the Family Tax Cut, and increases to the Universal Child Care Benefit along with a number of other small initiatives.  The net cost of these initiatives is $3.3 billion for 2014-15 and $5.0 billion in 2015-16.


Since then, everything has turned upside down for the PM and Joe Oliver. The price of oil is now trading around $50 a barrel; down from $81 a barrel in October, and $110 a barrel at the time of the 2014 budget. Joe Oliver has delayed the budget until sometime after March 31, and both he and the PM have shown themselves to be in a deep state of confusion and denial.


The PM and Joe Oliver are still claiming that the budget will be balanced in 2015-16, despite mounting evidence that is not likely to happen.


Despite all their boasting about being good fiscal managers and the evils of accumulating debt, the Conservative government doesn’t seem to really care that much about reducing debt.


In the November 2014 Update, Joe Oliver stated categorically that “if the set-aside for contingencies (i.e., the $3 billion) is not required, it will be used to reduce the federal debt”. The contingency reserve would not be used to finance new policy initiatives, such as the Family Tax Cut and the increase to the Universal Child Care Benefit.


With falling oil prices and the upcoming 2015 election, the priority given to debt reduction over fulfilling 2011 election promises was quickly and quietly trashed.

This is no surprise, because as everyone knows, the Harper government had no qualms about increasing the federal debt by over $150 billion since they were elected. Why would anyone in the government care about reducing the debt by a measly $3 billion? Better for the government to spend the contingency reserve to “putt money in the pockets of Canadians”.


Harper and Oliver have made “deficit elimination” in 2015-16 such a big political deal that everyone is now waiting for the budget to see what “magic tricks” (e.g., unspecified asset sales, re-profiling) the Finance department will come up with to make it happen. Harper and Oliver with their obstinacy and blind ideology have been the creators of their own fiscal misfortunes.


It didn’t have to be this way.


Eliminating the deficit by 2015-16 was never based on any economic logic. It was always a political commitment and a very risky one at that. Setting specific fiscal targets is a very dangerous game to get into. The evidence in other countries that have done this is overwhelming that these types of specific deficit elimination targets are rarely ever met.


Harper who claims to be an economist and who was highly critical of the previous Liberal government for its economic and fiscal forecasting “errors” surely should have understood this.


The reason for avoiding these deficit elimination targets is pretty obvious. The budgetary balance is the difference between two very large numbers: budgetary revenues and total expenses.  Slight errors in either of these two components can have a large impact on the budgetary balance.  All components of budgetary revenues and total expenses are influenced by economic developments over which the governments have little or no control. 


Originally, the Harper government seemed to understand this and committed only to balancing the budget over the medium term, without specifying a date. 


After the 2009-10 recession, budget 2011 stated “the Government is projected to return to balanced budgets by 2015-16 at the latest. The Strategic and Operating Review will support the return to balanced budgets, possibly one year earlier.”


This is in fact what is likely to happen.


In light of recent developments, too bad Harper didn’t stick to his 2011 commitment – to balance the budget over the medium term, without specifying a specific year.


In the 2013 Speech from the Throne, the Government for some mysterious reason committed to balancing the budget in 2015-16 and that is the corner they have now painted themselves into.


There was a way out of this corner. But the PM and Oliver were too much in denial to see it.


What Harper and Oliver seems to have missed in their confused claims that the deficit will be eliminated in 2015-16 is that the deficit will in fact be eliminated this year, one year ahead of their commitment, even allowing for the family tax cut. That is a pretty important achievement that the government has completely ignored.


Financial results just released by the Finance department for the first eight months (April to November) of the 2014-15 fiscal year show that the federal government posted a deficit of $3.3 billion, an improvement of $10.1 billion from the deficit of $13.4 billion recorded in the same period in 2013-14. 


This means that over the balance of the current fiscal year, the government only needs to post a surplus of $3.3 billion in order to balance the budget in 2014-15.  This is well with reach.


 In 2013-14, a surplus of $8.1 billion was recorded over the same December to March period, along with the end-of-year accounting period adjustments.  As a result, there is a very likely that a balanced budget or even a surplus will be recorded in 2014-15.


You would think the government would be doing fiscal “high-fives” and boasting to everyone that they did better than promised, rather than resorting to fiscal “gimmicks” to show a balanced budget in 2015-16. Eliminating the deficit in 2015-16 is a losing proposition, since absolutely no one believes it can be done in a believable and credible way.


The logical and practical thing for any government to have done would have been to “boast” of a balanced budget in 2014-15, one year earlier than promised; accept that the unexpected decline in oil prices will have a small and transitory impact on the deficit; “boast” that because of the strong fiscal actions the government has implemented since 2012, the government’s debt burden will fall to historically low levels. Trust us we know what we are doing.


But everyone knows the Harper government would never think like this.


Thank God for that!
























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