POLITICS

Harper: Federal Deficit To Come In At $5.2B, Down From $16.6B

10/02/2014 11:59 EDT | Updated 12/02/2014 05:59 EST
CP
OTTAWA - Prime Minister Stephen Harper says last year's federal deficit will be more than $10 billion smaller than forecast, but he's refusing to predict the rapidly improving bottom line will mean balanced books this fiscal year.

Harper dropped the new, $5.2 billion deficit figure for 2013-14 — down from the $16.6 billion shortfall projected in last February's federal budget — during a presentation to a business audience Thursday in Brampton, Ont.

But the good fiscal news didn't make it into a news release from the Prime Minister's Office, and Harper insisted there won't be a surplus until the 2015-16 election year.

"The government has no plan or no intention to move this year into a surplus," Harper said.

"We continue to intend to run a small deficit this year before returning to surplus."

Downplaying the Conservative government's fiscal position may be more about politics than bookkeeping.

Economists and budget watchers, including the independent Parliamentary Budget Office, had calculated Ottawa may already be en route to a surplus this fiscal year, which ends next March 31, before the prime minister's announcement further improved the bottom line.

"The monthly fiscal monitor numbers for 2014-15 effectively show that the government is skimming along balance," Kevin Page, the former PBO, said in an email.

"From a political perspective it may be better to break out the proverbial champagne just before the next election and with a budget that lays political claim to potential fiscal surpluses," said Page, now with the University of Ottawa.

A surplus would trigger a series of 2011 Conservative election promises that were contingent on balanced books, including a pricey and controversial plan to allow income splitting for tax purposes by couples with children under 18. Doubling the annual Tax Free Savings Account maximum to $10,000, doubling the children's fitness tax credit and implementing a new adult fitness tax credit were also Conservative pledges tied to a surplus.

Meanwhile, the Harper government has implemented waves of cost-cutting that have slashed everything from Statistics Canada research to departmental libraries, Coast Guard stations, veterans offices and even ammunition purchases by the Department of National Defence.

As the PBO stated in a report last April, improving odds of a surplus this year were attributable to a "combination of an improved economic outlook and measures in budget 2014, in particular further planned restraint in direct program expenses."

"You've got to believe the benefits of last year are carried forward to this year in terms of revenues and that sort of thing," Scott Clark, an economics professor at Carleton University and former senior Finance Department bureaucrat, said in an interview Thursday.

"It's virtually impossible for him not to run a surplus this year."

Last month Clark and his former Finance colleague Peter DeVries published a report that found Ottawa on track to a $4 billion surplus — not including a $3 billion "risk adjustment" cushion built into the 2014 federal budget. They based their estimates on last year's deficit falling to about $10 billion.

"For that not to continue, (Harper) would have to be assuming that this year is somehow going in the tank, economically speaking," Clark now says.

That is certainly not the government line. In fact, the Conservatives praise Canada's economic fundamentals at every turn.

Harper suggested to his Brampton audience that "one-time factors" — a richer than expected spectrum auction comes to mind — were responsible for a "significant part" of last year's improved bottom line.

"So you won't see all of this projected forward into the future, but some of it clearly will be," said the prime minister.

"And so, as I say, our certainty that we'll move into surplus in 2015 will continue to be the case, obviously."

The timing is hardly a happy coincidence for the Conservatives, who are positioning themselves for a bonanza of pre-election tax cuts or targeted spending in next spring's budget — while keeping the opposition parties in the dark about the true size of the surplus and the possibilities that presents, for as long as possible.

Nathan Cullen, the NDP finance critic, called the moving budget numbers "the same stunt the Liberals played for years," fudging the books to engineer better-than-promised bottom lines "and then expecting to get kudos for it."

Cullen and his Liberal counterpart, Scott Brison, both said Harper should have announced the 2013-14 budget figure in the House of Commons where he could be grilled on the deep spending and service cuts they believe are in large part responsible for the improved bottom line.

"We don't know whether this wildly different number is a result of stealth cuts or one-time sources of revenue, but it looks clearly like padding the books on the eve of an election budget," said Brison.

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