Will falling oil prices create a federal deficit? It doesn't matter.

Please chip in to support more articles like this. Support rabble.ca for as little as $5 per month!

Like this article? Chip in to keep stories likes these coming.

Ottawa has been abuzz for weeks over how badly the Conservatives' brand-defining quest for a balanced budget will be damaged by falling oil prices. Economists agree the oil crash will burn through most or all of the modest surpluses projected for coming years (already reduced by $27.5 billion in tax cuts announced last year). This week the Parliamentary Budget Office (PBO) chimed in with a full report on whether Ottawa will sink back into deficit. Its answer: a firm "maybe." Sinking oil will cut federal revenues by $7 billion per year moving forward (assuming oil prices now stabilize). But whether that translates into an actual deficit depends on many other budget adjustments -- several of which are firmly under Ottawa's control.

In short, prudent Canadians, please relax and stop biting your nails. There is less chance of Ottawa reporting a deficit for fiscal 2015-16 than there is of the Maple Leafs winning the Stanley Cup. Not because the books are actually in good shape -- but because the Conservatives have invested so much political capital that they'll make sure it happens. There are any number of accounting changes, timing adjustments, and balance sheet restatements that can easily erase a small deficit, when push comes to shove.

Indeed, from the outset the battle to slay the deficit was all about political optics, not economics. Canada's deficits after the 2008-09 meltdown were among the smallest in the world. Our debt burden (the more important concern) is small, compared to other countries and other periods in history. Indeed, as a share of GDP the debt has been shrinking since 2012. So whether Ottawa has a small surplus or deficit next year (or any year) is economically and financially irrelevant. 

But for this government it's a political imperative. Nothing will prevent the Conservatives from forecasting balance next year. Their reputation for "economic management," already battered by lacklustre growth and job creation, would be tarred by a deficit. And they explicitly promised in the last election that future tax cuts depended on eliminating the deficit. Rest assured, they will make it happen.

In fact, all the current hand-wringing over the budget balance merely assists the Conservatives in setting up a showy but hollow declaration of victory. But there is a more genuine fiscal problem we should consider, that has nothing to do with whether the deficit is vanquished next year. The bigger issue is how much was needlessly sacrificed in pursuit of that balanced budget -- and how quickly the Conservatives squandered those sacrifices when it politically suited them.

Running spending cuts since 2011 now total over $14 billion per year. Canadians experience real consequences from those cuts every day: shuttered veterans' offices, deteriorating statistical data, questionable railway and food safety, ridiculous waits for statutory benefits, and more. Federal government employment has plunged by 47,000 jobs since 2011 -- explaining much of Canada's lousy job market performance. These sacrifices were not necessary. Worse yet, the government threw away the savings with their tax-cutting political agenda.

Indeed, if the government truly believed balancing the books was the most important priority, we could be back in the black right now, never mind next year. Before opening the cookie jar in October for income-splitting and other giveaways, Ottawa was headed for a $3.3-billion surplus for the fiscal year ending March 31. Falling oil prices, according to the PBO, knocked $1.2 billion off that balance, still leaving a $2.1 billion surplus. But the government spent $3.2 billion on the immediate first-year cost of the tax cuts -- incredibly pushing itself back into deficit. Without the tax cuts, therefore, the budget would already be balanced, even with low oil prices.

It's not prudent to count your chickens before they hatch. The Conservatives were so anxious to lock in tax cuts and corner the opposition, that they consciously pushed the budget back into the red. Now, with plunging oil, that deficit looks bigger. No wonder Finance Minister Joe Oliver is delaying his budget.

The government's focus since 2011 on eliminating the deficit at all costs was misguided and destructive, and undermined the economic recovery. We should stop worrying whether there's a small surplus next year, or a small deficit. It doesn't matter. What does matter is why so much was sacrificed in the single-minded pursuit of a supposedly overarching goal -- one which the government quickly threw away for short-term political benefit.

Jim Stanford is an economist with Unifor. A version of this commentary was originally published in The Globe and Mail.

Photo: Carissa Rogers/flickr

Related Items

Thank you for reading this story…

More people are reading rabble.ca than ever and unlike many news organizations, we have never put up a paywall – at rabble we’ve always believed in making our reporting and analysis free to all, while striving to make it sustainable as well. Media isn’t free to produce. rabble’s total budget is likely less than what big corporate media spend on photocopying (we kid you not!) and we do not have any major foundation, sponsor or angel investor. Our main supporters are people and organizations -- like you. This is why we need your help. You are what keep us sustainable.

rabble.ca has staked its existence on you. We live or die on community support -- your support! We get hundreds of thousands of visitors and we believe in them. We believe in you. We believe people will put in what they can for the greater good. We call that sustainable.

So what is the easy answer for us? Depend on a community of visitors who care passionately about media that amplifies the voices of people struggling for change and justice. It really is that simple. When the people who visit rabble care enough to contribute a bit then it works for everyone.

And so we’re asking you if you could make a donation, right now, to help us carry forward on our mission. Make a donation today.


We welcome your comments! rabble.ca embraces a pro-human rights, pro-feminist, anti-racist, queer-positive, anti-imperialist and pro-labour stance, and encourages discussions which develop progressive thought. Our full comment policy can be found here. Learn more about Disqus on rabble.ca and your privacy here. Please keep in mind:


  • Tell the truth and avoid rumours.
  • Add context and background.
  • Report typos and logical fallacies.
  • Be respectful.
  • Respect copyright - link to articles.
  • Stay focused. Bring in-depth commentary to our discussion forum, babble.


  • Use oppressive/offensive language.
  • Libel or defame.
  • Bully or troll.
  • Post spam.
  • Engage trolls. Flag suspect activity instead.