Recent financial data have shown the federal government’s deficit-elimination projections are ahead of schedule, leading many analysts to wonder whether the red ink — estimated in the budget at $18.7 billion for the current fiscal year — could be wiped out in the 2014-15 budget year.
Flaherty and Prime Minister Stephen Harper have promised to eliminate the deficit by the next federal election, which must occur by the fall of 2015. But Ian Lee, assistant professor at Carleton University’s Sprott School of Business in Ottawa, said it looks more and more likely the federal government is on the verge of balancing the budget early.
“It’s possible. In fact, from all the latest reports, in terms of being well ahead of their targets, it looks increasingly likely,” Lee said Monday. He believes the government is probably deliberately under-promising and over-delivering on its financial numbers.
The federal government is facing billions of dollars in unexpected disaster-assistance costs to help with the Alberta floods, and with the costs of the train derailment and explosion in Lac-Megantic, Que. Yet, tax revenues are up and federal departments continue to spend less than authorized, Lee noted.
“They’re winning on both sides of the ledger this time … They’re probably cutting more than we realize and the revenues are flowing in faster than were projected,” Lee added.
The federal government’s recently released annual financial report, along with public accounts tabled in the House of Commons, appear to confirm that.
The federal shortfall for the 2012-13 budget year was $18.9 billion, a whopping $7 billion less than the $25.9 billion projected in the March budget, and almost equal to the deficit initially predicted for the current year.
As well, the financial reports show federal departments have been spending billions of dollars less than their approved budgets, which is also bolstering Ottawa’s bottom line.
Derek Burleton, deputy chief economist of TD Bank Financial Group, said the $7-billion improvement on last year’s deficit puts the government in a much better position to balance the books a year earlier, in 2014-15.
“If you do the math and you assume the better starting point carries right through their fiscal plan, they get very close (to balancing the books) in 2014-15,” Burleton said Monday.
Many private-sector analysts have been scaling back economic growth forecasts for 2013 and 2014, he noted, which “could weigh on some of the revenue projections.” But Burleton said there appears to be “a change in culture” in government, in which departments continue to under-spend what they’re allowed, which could help offset potential revenue problems.
The updated fiscal and economic picture Tuesday will have important implications for the pocketbooks of Canadians and the Conservative government’s re-election platform for the 2015 campaign.
The Harper government has promised to introduce income-splitting for couples with children under age 18 (they can share up to $50,000 of household income), and to almost double the annual savings limit in tax-free savings accounts to $10,000 — but only once the government is back in the black.
New pledges for tax cuts were also made in this fall’s throne speech.
“Once the budget is balanced, our government is committed to greater tax relief for Canadian families,” said the October throne speech.
Flaherty will continue his tradition of delivering the fall economic update outside of Ottawa, doing it this year during a speech to the Edmonton Chamber of Commerce.
The finance minister has downplayed the possibility of balancing the books in 2014-15. “I wish, but we’re not that close,” Flaherty said last month.
Finance Canada data show the federal government posted a budgetary deficit of $6.8 billion in the first five months of the 2013-14 fiscal year (April to August), compared to a $7.2-billion shortfall in the same period a year earlier.
The federal government’s current budgetary forecasts include a $3-billion downward revenue adjustment for risk for each of 2013-14, 2014-15 and 2015-16. Ottawa could be in a surplus position sooner than projected if fiscal risks do not materialize.
For example, the $18.7-billion deficit initially predicted for the current fiscal year includes a $3-billion downward risk adjustment on the revenue side, meaning the actual projected cash shortfall would be around $15.7 billion.
Similarly, the $6.6-billion deficit forecast in 2014-15 also factors in a $3-billion reduction in projected revenues, with the actual predicted cash shortfall being around $3.6 billion.
The risk adjustment acts as a bit of a financial shock absorber in case of an unexpected drop in budget revenues due to changing economic circumstances.
Federal finances by the numbers:
- $18.9 billion: Total budget deficit for 2012-13 fiscal year that ended last March 31 ($7 billion less than projected earlier this year).
- $18.7 billion: Federal deficit projected for the current 2013-14 fiscal year (as predicted in the March budget).
- $3 billion: The federal government’s downward revenue adjustment for risk each year, which acts as a financial shock absorber if needed.
- 2015-16: The fiscal year in which the Conservative government has promised to balance the budget.
- $6.8 billion: federal budgetary deficit in the first five months of the 2013-14 fiscal year.
Original Article
Source: canada.com
Author: Jason Feketea
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