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OTTAWA — Finance Minister Joe Oliver is acknowledging the dramatic drop in oil prices will take a further bite out of government revenues, making Ottawa’s previously declared surplus less certain.
The government already shaved billions off of its revenue forecasts when it released a fiscal update on Nov. 12, when the price of North American crude was around $81 (U.S.). That price closed Monday below $56.
As the price of oil continued to slip after his fiscal update, Mr. Oliver initially maintained that these adjustments were conservative enough to capture lower prices without affecting Ottawa’s bottom line. But he said Monday the further drop will have an impact.
“We’re not about to come out with a number at this point. However, we’re confident we will achieve a budgetary balance next year,” he said Monday, before a meeting of provincial and territorial finance ministers in Ottawa.
The government is forecasting a surplus of only $1.6-billion, which would be at risk of slipping into deficit territory should oil prices stay low. Ottawa has set aside $3-billion for unforeseen events, and several economists said Monday that should be enough to maintain a small surplus.
A report to be released Tuesday by CIBC World Markets projects Ottawa will lose $2.5-billion in revenue if the oil price levels out around $70 next year. Provinces would be hit harder, suffering a combined loss of $5-billion to $8-billion under that scenario. Alberta could face a $7-billion hit on its own.
Bank of Montreal chief economist Doug Porter said fluctuating oil prices amount to a “huge wild card” for finance ministers that will make it very difficult to produce economic forecasts.
“It looks like [Ottawa] might still be able to claw out a surplus if absolutely everything went right from here, but we know better than to expect everything to go right. So I think very much they’re at risk of remaining in deficit in the next fiscal year based on today’s oil prices,” he said.
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