OTTAWA – One thing is for certain: Prime Minister Stephen Harper’s sweeping new package of family tax cuts will chew through billions of dollars of the Conservative government’s projected budgetary surplus.
Just how much cash is left over — if any — remains to be seen, experts say.
Harper has already said the government would run a small deficit this year and a small surplus next year — a commitment he repeated Thursday after announcing a big-ticket suite of family-friendly tax cuts with a “significant” price tag.
The package includes an income-splitting measure worth as much as $2,000 a year to eligible families with kids under 18; a bolstered universal child care benefit; and higher limits on the existing child care expense deduction.
It won’t be cheap, either. Thursday’s measures alone are expected to cost government coffers $3.1 billion in 2014-15 and $4.5 billion in 2015-16. Nonetheless, Harper is insisting the books will remain healthy.
“We are … assuring people we will balance the budget next year,” he said,reminding his suburban audience in Vaughan, Ont., that the deficit for last year proved to be quite a bit lower than expected.
“The measures we announced today, while very significant in cost, are completely affordable within the current budget projection.”
The missing piece of the puzzle is how much Ottawa expects its projections to change as a result of the cuts. The clues will be in the upcoming fall economic update; no date for that update has yet been announced.
Thursday’s news came in the midst of pointed warnings from economic experts that the Canadian economy could suffer a cash-draining blow if the sagging price of oil says low for an extended period of time.
And on Wednesday, Bank of Canada governor Stephen Poloz estimated if the low price of oil persists, it would knock a quarter-point off next year’s growth of the country’s gross domestic product.
Poloz said such a scenario would be a concern.
Combined, the Finance Department estimates all the recent, federal family tax cuts will reduce Ottawa’s bank balance by an average of $4.4 billion annually over six years — for a total of just under $26.7 billion through 2019-20.
TD senior economist Randall Bartlett, who’s drawn up projections on the fiscal impact of Ottawa’s tax-reducing promises, said he believes there will be enough surplus room in the federal piggy bank to finance the cuts.
But it will be tight — at least for this year, he warned.
“The recent announcements combined with lower oil prices should come pretty close to wiping out our projected surplus of $5 billion this year,” Bartlett said, referring to a recent TD Economics prediction.
“The government’s chosen to use that surplus to provide tax relief for Canadians in line with its 2011 election platform. So, I don’t think it should come as a surprise to anyone.
“They have the room and they’ve chosen to use it as they’ve said they were going to over the last three years.”
In its February budget, the government projected a $2.9-billion deficit in 2014-15 and a $6.4-billion surplus for the following year.
Other budget watchers have released their own projections, which have projected an even rosier outlook for the Canadian economy. Their numbers suggest the federal government could be holding back on how much the Canadian economy has improved.
Earlier this month, a report by the parliamentary budget officer predicted Canada was headed for a $3.6-billion surplus in 2014-15, which would deliver a balanced budget a year earlier than the government’s stated expectations.
That estimate followed a projection by former senior Finance Department bureaucrats Scott Clark and Peter DeVries. They published a report that predicted Ottawa was headed for a $4-billion surplus, which did not include a $3-billion “risk adjustment” cushion built into the 2014 federal budget.
Harper also dropped a strong hint Thursday his government would follow through on another big-ticket, tax-easing promise from the 2011 election campaign: doubling the limit on tax-free savings accounts to $10,000 a year.
The government has calculated its TFSA expenditures were $65 million in 2009, $165 million in 2010 and $160 million in 2011. The Finance Department also projected Ottawa would lose out on $295 million in tax revenues in 2012 because of TFSAs and $410 million in 2013.
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