Where will a balanced budget come from?

As oil prices slump and take the Canadian dollar along for the ride the question of how budget projections that predicted a modest surplus can be maintained is the flavour of the month in Ottawa. Despite negative indicators the government is holding firm to its projections, but has also moved the budget deep into the parliamentary session which is a signal that there are adjustments being made.

Adding fuel to this fire is a report issued this week that blows a hole in Conservative claims that income splitting will be beneficial to Canadian Families.  What is missing from that claim is a huge asterisk because the chance of any family receiving a single dollar in benefits from this expensive program is in the range of ten percent.  In fact, the report from the Canadian Centre for Policy Alternatives shows how the real benefits of income splitting for couples with children 18 and younger will flow to people who are already doing better than most in terms of income- which is what the critics were saying all along.

The CCPA are confirming that families with incomes greater than $233,000 a year will reap the most while the chance that a middle class family will receive a benefit of even $1 is “as good as a coin toss.”  The program will remove $2.4 billion from revenues this year and carry on at a rate of $2 billion a year after that.  That is a big chunk of money to be handing to Canadians whose financial situation can be described as anything but challenging.  On top of that it begs the question of how the budget will be balanced without making cuts in other areas.

Part of the answer is that they are increasing other taxes and service charges for items like passports and immigration.  To that end, data presented to parliament this week showed that the government is raking in an additional $3.4 billion in the coming year through a number of tax changes it has made.  That is before any increased service fees are factored in so there’s your income splitting cash right there.  It amounts to taxing others to subsidize families who are doing okay.

But will those new taxes be enough to cover the gap that is being created by an economy that is underperforming?  Not really according to the Parliamentary Budget Officer.  That office delivered a new report on the effect that low oil prices will have on government revenues and tells us that, instead of the anticipated surplus, Canada will have a $400 million deficit this year.  That is if the government uses the entirety of a contingency set aside for a rainy day – and by most economists’ opinion, it’s pouring.

Government ministers insist they will be able to balance the budget this year and won’t cut spending no matter what is thrown at them, with one exception, employment minister, Jason Kenney who spoke publicly about maintaining departmental freezes and making cuts rather than utilize the government’s $3 billion rainy day cash. 

The big takeaway is that the government is unsure of how they will proceed having announced expensive tax breaks for wealthier Canadians and then receiving a curve ball when oil prices dropped.  The price of oil is out of the government’s control, but they shouldn’t be punishing most Canadians to pursue advantageous, vote- inducing tax breaks for a select few.