By Nia Williams
EDMONTON Nov 12 Canada is in better fiscal
health than previously thought, the Conservative government said
on Tuesday, predicting it would run a sizeable budget surplus in
time for the 2015 federal election, the result of spending
restraint and asset sales.
In its fall fiscal update, the finance ministry estimated a
surplus of C$3.7 billion ($3.5 billion) in the 2015-16 fiscal
year, up from its March 2013 forecast of an C$800 million
The figures include a C$3 billion cushion for risk, which
means the underlying surplus could be that much bigger.
The fiscal outlook has brightened because weaker revenues
have been more than offset by lower program spending as well as
the expected effects of asset sales and a two-year freeze on
departmental operating budgets.
The positive turn is good news for Prime Minister Stephen
Harper, who promised in the 2011 election campaign to introduce
personal income tax cuts estimated to cost C$2.5 billion a year
once the budget is balanced. The government is expected to
revive that promise in hopes of getting re-elected in October
"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," Finance Minister Jim Flaherty told reporters
after delivering the report.
Canada's federal budget deficits have paled in comparison
with those of the United States, even adjusting for the fact
that the U.S. economy is nine times as big. Washington posted a
$680 billion gap for the fiscal year that ended in
Canada had run 11 straight surpluses before tipping into
deficit in 2008/09 as the result of Conservative tax cuts and
then the global recession. The deficit peaked at C$55.6 billion
in 2009/10 because of major stimulus spending.
"Bottom Line: Ottawa has managed to keep its finances on the
straight and narrow through a prolonged period of sluggish
growth," said Bank of Montreal chief economist Doug Porter. It
is now "within striking distance of balancing the books a year
early," he said.
But Canada's economy has been choppy this year and on
Tuesday the government cut its forecast for nominal gross
domestic product, the broadest measure of the tax base, for this
year and next, and warned of risks to the U.S. and global
It now sees the economy growing 4.2 percent in 2014 before
accounting for inflation, down from the 4.7 percent it forecast
Ottawa's bottom line will get some help from the sale of its
remaining shares in General Motors Co, which at today's
prices could bring in C$2.6 billion in extra revenues. Ottawa
has already booked a gain of C$700 million this fiscal year from
the sale of a portion of its shares in the automaker, which it
bailed out during the recession.
The fiscal outlook uses conservative estimates and books a
combined C$2 billion gain over two years from the expected sale
of GM shares as well as from the sale of a bulk coal terminal
and some coal blocks in British Columbia.
Flaherty said he might also consider the possible sale of
Ottawa's 8.5 stake in the Hibernia oil project, off the Atlantic
Coast of Newfoundland.
"Certainly we're open to discussions about Hibernia,"
Flaherty told reporters after delivering the report. He declined
to say how much such a sale might raise.
IMPACT OF ALBERTA FLOOD
Ottawa projects a smaller-than-expected deficit of C$17.9
billion in the current fiscal year, or 1.0 percent of GDP, down
from its March budget estimate of a C$18.7 billion shortfall.
The deficit estimate has shrunk even though the government
booked C$2.8 billion in disaster relief for flooding in Alberta
For 2014/15, it forecasts a deficit of C$5.5 billion,
compared with C$6.6 billion previously.
Program expenses are seen declining to 12.4 percent of GDP
by 2018/19 from the current 13.6 percent, while revenues are
projected to rise slightly in the same period to 14.4 percent of
GDP from 14.2 percent.
The ratio of debt to GDP is slated to shrink to 25 percent
in 2021 from 33.1 percent now.
High household debt remains the main domestic risk to the
outlook, the government said. "While the pace of household
credit growth has continued to slow, the recent pickup in
housing market activity, if it reflects stronger underlying
momentum, could translate into further debt accumulation," the
Flaherty has taken steps to cool down Canada's housing
market, and said on Tuesday he would intervene again if