OTTAWA — The Conservative government’s refreshed fiscal plan for balancing the books in 2015 — and posting a healthy surplus — will see it use billions of dollars from asset sales, department savings and a spending freeze to find substantial financial breathing room heading into the next election campaign.
Finance Minister Jim Flaherty released an annual fall economic update Tuesday that has important policy implications for Canadian taxpayers, but also acts a backdrop for a looming fight among the Conservatives, NDP and Liberals for middle-class voters heading into the 2015 election.
Opposition parties worry the update is a harbinger of a firesale to come on government assets and deeper cuts to federal programs, simply so the Conservatives can keep their promise to return to surplus by the next election.
The government says its plan is a prudent approach that will allow it to pursue new initiatives and offer additional tax breaks once the deficit is eliminated.
Tuesday’s economic and fiscal update shows the Conservative government is forecasting almost $3 billion in unexpected disaster costs in 2013-14, driving this year’s budget shortfall a bit higher.
However, the Harper government still expects to balance the books in 2015-16 with a $3.7-billion surplus, which includes a $3-billion downward revenue adjustment for risk (that acts as a financial shock absorber), meaning the surplus could be larger that year if the risks don’t materialize.
If federal departments continue to spend billions of dollars less than budgeted, Ottawa could potentially balance the books in 2014-15, a year earlier than expected. The Conservatives are currently predicting a $5.5-billion deficit in 2014-15 (including $3-billion adjustment for risk).
“Our plan was always to get to a balanced budget in 2015-16 to create room so that other initiatives can be undertaken, whatever they are, whatever the prime minister and cabinet decide at that time,” Flaherty told reporters Tuesday after a question-and-answer session at the Edmonton Chamber of Commerce.
As part of its efforts to return to black ink, the Conservative government is instituting a two-year departmental operating budget freeze, which it expects will save $550 million in 2014-15 and $1.1 billion in 2015-16.
“It’s a reasonable thing to do and it contributes substantially to the ability to balance the budget in 2015,” Flaherty said.
Annual wage increases owed to federal employees must be absorbed within current department budgets, says the economic update. The government is also conducting a review of pay and benefits for federal workers.
Further helping the bottom line is that the government expects federal departments and agencies will spend $7 billion less than authorized in the current 2013-14 fiscal year alone. Billions more in savings are projected over the next few years, which could get Ottawa out of deficit sooner than expected.
The Harper government has now reduced federal direct program spending three years in a row, something Flaherty said has never happened before in Canadian history.
“You can do it if you have the resilience to follow through and take some of the flak that comes with that. But things happen, like the flooding in Alberta this year,” Flaherty said.
“So the deficit will be a little bit higher than I wanted it to be this year.”
The government estimates it will be on the hook for $2.8 billion this year in disaster assistance costs for the Alberta floods and at least $60 million for the train derailment and explosion in Lac-Megantic, Que.
For the current 2013-14 fiscal year, the government has actually increased the expected shortfall by $700 million (before adjustment for risk) to $16.4 billion from $15.7 billion in the March budget.
With a $1.5-billion downward revenue adjustment for risk, the government is now projecting a $17.9-billion shortfall for 2013-14, compared to an $18.7-billion deficit predicted in the budget (which included a $3-billion adjustment for risk).
On the revenue side, Ottawa expects to make at least $2.7 billion in asset sales over the next few years (including $700 million this fiscal year from its sale of 30 million General Motors shares in September).
Another $500 million in asset sales is expected in 2014-15 and $1.5 billion in 2015-16, including the expected selloff of Ridley Terminals (a bulk coal terminal in British Columbia) and the government’s remaining GM shares. The government is also considering selling the Dominion Coal Blocks (two parcels of Crown land in B.C.).
The federal government’s remaining GM shares are actually worth about $2.6 billion in net value at current rates, although Ottawa — in what it says is a fiscally prudent move — is booking significantly less revenue from the sale, in case the value of the shares sink.
Flaherty also told reporters Tuesday the government is “open to discussions” about selling Ottawa’s 8.5-per-cent share in the Hibernia offshore oil project.
It’s expected the Harper government will use the projected surplus in 2015 to try to squeeze out the Liberals and NDP on middle-class tax policies heading into the next election campaign.
NDP finance critic Peggy Nash accused the Conservative government of playing with the numbers. She was also critical of the way the government was reaching its targets, including deep budget cuts to departments that are compounded by those departments under-spending their budgets by billions of dollars.
“Of course we want to return to a balanced budget situation when the economy is back growing and when our economic situation warrants that,” Nash said.
“But if the price is that we’re undermining the services and programs that Canadians need … there’s a balance act that takes place.”
Nash acknowledged that a return to surpluses when the next federal election rolls around will give the Conservatives something to boast about. But she said the way the government is going about it will have long-term implications for the country.
“Is this about a photo op?” Nash asked. “Is this about political expediency? Or is this about sound economic policy?”
Liberal party finance critic Scott Brison said the Conservatives don’t have much to boast about on the economy because they will have added more than $160 billion to the federal debt by the time they post a surplus.
He also assailed the government for “padding the books” by looking to sell off federal assets simply to eliminate the deficit on the eve of an election.
“These are one-time sales, and for the average Canadian, that sounds like selling the furniture to pay for the groceries,” Brison said. “Future governments will in all likelihood find that the books really aren’t balanced.”
The refreshed fiscal and economic picture also lays the foundation for the Conservative government’s next two federal budgets and their re-election platform for 2015.
Several Conservative government promises from the last election campaign are contingent on returning to surplus, including:
- Introducing income-splitting for couples with children under age 18 (they can share up to $50,000 of household income) — a measure expected to cost $2.5 billion annually — but it will only be adopted once the budget is balanced;
- Nearly doubling the annual savings limit in tax-free savings accounts to $10,000 (costing $30 million annually);
- Introducing an adult fitness tax credit to cover up to $500 in registration fees for fitness activities (costing $275 million a year);
- Doubling the children’s fitness tax credit to $1,000 and making it refundable ($130 million annually).
(By Jason Fekete)