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If oil prices stay more or less where they are for the next four years the Canadian government stands to lose $7.6 billion a year in tax revenue.
Nobody knows where the price of oil will be four months from now, let alone four years on, so that figure is highly hypothetical.
The Parliamentary Budget Office (PBO) came up with that number as part of an exercise in calculating the impact on government finances of the drop in revenue from fossil fuels.
Since Liberal Paul Martin was Finance Minister, the federal government has padded its budget with a contingency reserve of $3 billion.
The reserve has been there to accommodate unforeseen events, such as war or natural disaster — or any unpredicted economic turmoil that could cause a drop in government revenues.
What normally happens when that reserve is not spent is that it is used to retire debt.
But current Finance Minister Joe Oliver has made it clear he is quite willing to gobble the entire $3 billion in order to get his budget in balance.
The PBO says, in effect: Nice try, but it won’t work.
Oliver and Harper give a “revisionist” version of the PBO report
Even if Oliver uses the whole contingency reserve he will still run a deficit this year, says the PBO — unless of course he increases taxes, somewhere, or cuts spending.
Oliver has said he will do neither, and yet, oddly, when asked in the House about the PBO report, he and the Prime Minister both tried to claim that the report said a balanced budget could happen this year, notwithstanding oil prices.
That, however, is not at all what the PBO report says.
The PBO says that, come what may, its calculations show a small deficit ($400 million) for this year. And that figure assumes the government exhausts every penny of the $3 billion contingency reserve.
More important, the PBO cautions, “The fiscal impacts of lower oil prices considered in these scenarios reflect only the impact of lower economy-wide prices and do not include impacts from lower real GDP that would likely materialize. As such, the fiscal impacts should be viewed as lower bound estimates.”
In other words, the government’s revenue shortfall as a result of lower oil prices could very likely be greater than the PBO’s estimate. Harper and Oliver are not being quite forthright with Canadians in insisting they will run a surplus without new tax measures or additional spending cuts.
Conservatives scurry to claim they plan no new austerity measures
During the parliamentary break period, Employment Minister Jason Kenney was probably closer to the truth when he said the government was contemplating extending some austerity measures, such as public service staff reductions.
Anonymous Conservative spokespeople shot Kenney’s foray into candour down almost as soon as he uttered it.
Meanwhile, economists of all stripes are scurrying about, desperately warning the government that imposing further austerity measures now when we are experiencing economic dislocation would be a terrible idea. Such measures would make matters worse, not better, they all say.
In the face of such admonitions, and NDP demands that the government come clean on the state of its finances sooner rather than later, the Harper government simply says the federal budget comes but once a year. This year is no different, even if the delivery date will be somewhat later than usual.
NDP proposes small-c conservative tax breaks for businesses
Nature abhors a vacuum, and NDP Leader Tom Mulcair is filling the economic policy vacuum with a few ideas of his own.
In a speech Tuesday to the blue-chip Economic Club of Canada, Mulcair proposed lowering the tax on small business from 11 per cent to nine per cent, introducing an innovation tax credit and extending another tax measure designed to encourage business investment, the accelerated capital cost allowance for manufacturing and processing machinery.
That last measure allows businesses to rapidly write-off investments over a short time period, where previously the write-offs would have to be spread over many years. This tax break provides a major short-term income boost to businesses that invest in new equipment. In 2011, the Canadian Manufacturers and Exporters association said this measure, then a Conservative policy, would save businesses more than $2.5 billion over five years.
The capital cost allowance is due to expire this year and Mulcair wants to extend it, it seems, indefinitely.
What is perhaps most remarkable about all of these NDP proposals is their utter moderation.
Mulcair does not talk about redistributive tax measures or propose any major direct federal government expenditures. Some of that may come in future policy pronouncements — but don’t hold your breath. The NDP says it is entirely focused, these days, on the middle class, the class to which most voters, it appears, believe they belong.
For now, any journalist or commentator who might try to read anything at all socialistic or radical in what Canada’s Official Opposition party of the moderate left proposes would be engaging in an exercise in fantasy or deliberate distortion… or both.
Photo: flickr/Jeremy Schultz