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UPDATE 1-Canada's Flaherty says budget being hit by oil discount
February 6, 2013 / 7:56 PM / 5 years ago

UPDATE 1-Canada's Flaherty says budget being hit by oil discount

* Crude price discount hurts federal revenues

* Flaherty says will balance budget by 2015

* No decision yet on infrastructure spending

By Randall Palmer

OTTAWA, Feb 6 (Reuters) - Current discounted prices for Canadian oil are slowing the growth of nominal gross domestic product and therefore Canadian government revenues, Finance Minister Jim Flaherty said on Wednesday.

Delayed pipeline projects and an excess of supply in crude-rich Alberta mean Canada is forced to sell some heavy crude at a deep discount to world prices, although that price gap has recently narrowed.

Alberta, Canada’s largest oil-producing province and the largest foreign energy supplier to the United States, has already warned of a C$6 billion ($6 billion) revenue shortfall in its provincial budget as a result.

Now the federal Conservative government says it too will take a hit.

“It is obviously a concern, not only in Alberta, but in our government ... it affects our budgeting because it affects commodities prices, obviously, which affect the level of nominal GDP, which affects federal revenues,” Flaherty told reporters after a speech.

The price discount on Western Canada Select heavy blend narrowed to its lowest level in 12 weeks on Wednesday: to $26.75 a barrel under benchmark West Texas Intermediate after months of discounts that at times topped $40 a barrel.

Flaherty, who is expected to deliver the next federal budget in March, also said he sees no need to provide additional stimulus to the economy and stuck to his plan to eliminate the government’s relatively small deficit by 2015.

Canada lurched into a fiscal deficit during the global financial crisis after a decade-long string of surpluses. Last November, Ottawa estimated the shortfall for the 2012-13 fiscal year at C$25 billion, before adjustments for risk, or about 1.4 percent of the size of the economy.

Ottawa is so far relying on spending cutbacks and economic growth to help balance the books in time for the next election. In the May 2011 election campaign, Prime Minister Stephen Harper promised new initiatives in the future such as income-splitting for pensioners, conditional on a budget surplus.

The government has not yet decided whether to boost spending on infrastructure beyond an existing plan that is set to expire in 2014, Flaherty said on Wednesday.

Officials have said next month’s budget could include infrastructure measures, possibly by extending the life of the C$33 billion ($33 billion) Building Canada plan, which the Conservative government introduced in 2007.

“I must say that no decision has been made in terms of a future infrastructure plan, but any decision will be made in the context of our current fiscal situation,” Flaherty said in the prepared text of a speech.

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