OTTAWA - The Harper government was slapped with grim reminders about the broad economic and political implications of low oil prices Tuesday as experts delivered a fresh round of dire warnings about the potential fallout.
The bad news included a projection by one of the country's biggest banks, which predicted the rapid fall in oil prices would transform the federal government's long-promised 2015-16 surplus into a deficit.
On top of that, a Conference Board of Canada forecast said collapsing crude would likely drive energy-rich Alberta, the country's economic and political engine, into recession.
And before the day was over, a senior Bank of Canada official was warning that the benefits of low oil — cheap gasoline, for instance — would be outweighed by the overall damage it would inflict on the Canadian economy.
Politically, the red flags threaten to complicate the Harper government's efforts to present itself as a stable steward of a strong economy in the leadup to a federal election that's currently scheduled for October.
For his part, Finance Minister Joe Oliver stuck to the script.
"While threats to the global economy loom — including falling oil prices — our Conservative government's plan for the economy is working," he said in a statement.
Oliver and Prime Minister Stephen Harper have repeatedly maintained the country will balance the books in 2015-16 despite tumbling oil prices, which started to freefall in October.
That's the same month the Conservatives introduced their controversial, multibillion-dollar family tax and benefit package, which made the party's zero-deficit goal even more difficult.
The family-friendly measures — including an income-splitting plan — will carve an estimated $27 billion out of public coffers over six years, including $4.6 billion in 2015-16. Critics have said the $2-billion per year income-splitting component will only help around 15 per cent of Canadian households.
Overall, the measures also prevented Canada from balancing the books before the end of the 2014-15 fiscal year and contributed to the government's thin surplus forecast of $1.6 billion for 2015-16.
"Basically, on the eve of an election, they're ignoring fiscal responsibility to promise the moon to try to buy Canadians with their own money," said Liberal finance critic Scott Brison.
"It's very clear that the fiscal framework is on pretty shaky ground right now and this is no time for expensive, poorly thought-out schemes like income splitting."
In its November fiscal update, the government said the oil-price collapse would drain $500 million from federal accounts in 2014 and some $2.5 billion every year between 2015 to 2019.
Since then, the oil-price plunge has accelerated, falling from about US$80 per barrel to below US$46.
On Tuesday, a report by TD Bank warned the low crude prices would turn next year's federal surplus of $1.6 billion into a $2.3-billion shortfall.
The bank also said the government's $4.3-billion surplus projection for 2016-17 is on track to become a $600-million deficit unless new revenue-generating or cost-cutting measures are introduced.
"The conclusion is unambiguous," the TD report said. "Falling oil prices are expected to have a significant impact on federal coffers."
TD's projections were based an average per-barrel price of US$67.50 in 2015 and US$80.25 in 2016. However, the bank said if the price dropped to US$40 and stayed there, the federal deficit could balloon to $4.7 billion in 2015-16 and $2.4 billion in 2016-17.
The TD report also warned that low oil prices will make it difficult for the Conservative government to deliver on two outstanding 2011 campaign pledges: an adult fitness tax credit and doubling the annual contribution limit on tax-free savings accounts.
In their 2011 platform, the Tories estimated the adult-fitness tax credit — a plan to allow Canadians to claim up to $500 in eligible fitness registration fees — to cost $69 million in its first year and $275 million the following year.
The party listed the expected cost of its TFSA expansion at $7.5 million in the first year and $30 million in the second year of implementation. The proposal calls for the annual TFSA contribution limit to increase to $10,000 per year.
On Tuesday, the per-barrel price of oil slipped below US$46, its lowest level in almost six years. Crude has plunged nearly 60 per cent since its recent high last June.
A deputy governor for the Bank of Canada warned in a speech Tuesday that oil prices "could go lower, or remain low, for a significant period."
In remarks prepared for a speech in Madison, Wis., Timothy Lane said low oil and commodity prices have put Canada's post-recession recovery at risk.
Lane said the cost benefits of cheap oil would be more than offset by the losses. If cheap crude persists, lower incomes in the oilpatch and along its supply chain will hurt the rest of the economy, he warned.
"Despite the mitigating factors I enumerated, lower oil prices are likely, on the whole, to be bad for Canada," Lane said.
His remarks follow Bank of Canada governor Stephen Poloz's statement last month that low oil prices could knock 0.3 percentage points off the pace of economic growth.
Lane's gloomy outlook adds fuel to speculation the Bank of Canada will hold off before hiking the country's trend-setting interest rate, which has been locked in at one per cent for more than four years.
"We will continue to work to bring the Canadian economy back to its potential and return inflation sustainably to our two per cent target," Lane said.
"However things play out, we have the tools to respond."
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