Falling oil prices, new tax cuts combine to reduce future surplus projections – by Bill Curry (Globe and Mail – November 13, 2014)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

TORONTO — The recent drop in oil prices has forced Ottawa to chop billions off its revenue projections, a development that when combined with new tax cuts means the government is expecting only modest surpluses in the coming years.

The annual fall fiscal update is based on an average forecast from private-sector economists, but those figures were delivered in early September and failed to capture the steep drop in oil prices over the past few weeks.

The private sector economists assumed North American crude would be around $98 (U.S.) per barrel, but prices have since dropped to around $81 (U.S.) per barrel.

That has a significant impact on revenues. The government is lowering its expectations for them by $500-million this year and $2.5-billion per year from 2015 to 2019, a move economists described as reasonable in light of the circumstances.

The impact of the reduction – when coupled with recent tax-cut announcements – is that the forecast for next year’s surplus will be $1.9-billion.

In announcing the fiscal update, Finance Minister Joe Oliver made a heavily partisan speech, telling a Toronto business audience that only the Conservatives will fight bureaucracy and keep taxes low and accusing the opposition of promoting “risky experiments.” He singled out Liberal Leader Justin Trudeau in particular.

The fall update revealed for the first time how the recent wave of tax-cut announcements – including income splitting for families with children under 18 – will affect Ottawa’s bottom line. The update showed that Ottawa would have posted a small surplus this fiscal year, but is now forecasting a $2.9-billion deficit primarily due to the cost of recent announcements.

The full cost of the various tax cuts – which also include credits for small businesses and increased monthly child-care benefit cheques for parents – means the size of future surpluses will be about $5-billion less than they would have been without those announcements.

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