The Conservative government is delaying the 2015 federal budget, giving itself more time to assess the impact of low oil prices and a slowing Canadian economy.
The announcement comes two days after the Bank of Canada warned for the first time that oil prices will stay low for a prolonged period. Also this week, several large private-sector firms announced major layoffs and economists slashed their growth projections for 2015.
“Given the current market instability, I will not bring forward our budget earlier than April. We need all the information we can obtain before finalizing our decisions,” Joe Oliver told the Calgary Chamber of Commerce on Thursday. The Finance Minister’s speech predicted oil prices will “eventually” move well above current levels.
Oil’s steep decline has already forced energy companies to cut billions from this year’s spending plans. Suncor Energy Inc., Canada’s largest oil and gas company, this week axed 1,000 jobs and slashed its 2015 budget by $1-billion. On Thursday, the energy giant’s chief financial officer, Alister Cowan, signalled the company was prepared to cut deeper as crude’s slide shows few signs of stopping.
“If the price remains low we’ll take further action,” he told reporters without providing details.
The federal budget had been expected in February or March. The federal government’s fiscal year ends March 31, so it would be unusual to release a budget after April 1. The Conservative government has never before delayed a budget into the next fiscal year because of economic uncertainty.
The deteriorating energy market has blown a nearly $7-billion hole in Alberta’s finances for 2015-16 and prompted Premier Jim Prentice to flirt publicly with the prospect of introducing a sales tax – long a verboten topic in the oil-rich province. That fiscal hole could widen to $10-billion if West Texas intermediate oil remains at or under $50 (U.S.) a barrel for a year, Mr. Prentice has said.
Mr. Prentice and federal Natural Resources Minister Greg Rickford are scheduled to be in Houston on Friday to promote the export of Canadian crude to the U.S. Gulf Coast, and urge President Barack Obama to approve TransCanada Corp.’s stalled Keystone XL project.
Federal revenue forecasts rely on nominal gross domestic product, which is a measurement of both economic growth and inflation growth. The drop in oil prices will significantly reduce inflation, translating into a direct hit to Ottawa’s bottom line.
NDP and Liberal finance critics accused the federal Finance Minister of “hitting the panic button” in the face of a weakening economy.
“This is the worst message to send, which is: ‘our strategy is to just wait,’” said NDP MP Nathan Cullen. “That’s got to be the most passive approach to difficult circumstances I’ve ever seen.”
Mr. Oliver’s comments came a day after he suggested he would take a different approach to estimating oil prices in the budget from the one he used in the Nov. 12 fiscal update.
The fall fiscal update took an average forecast for economic growth from private-sector economists.
Finance Canada then took the additional step of reducing forecast economic growth to assume the price of oil remained at current prices.
At that time, the price of North American crude was about $81 a barrel. Since that time, the price of oil has dropped further, closing at $46.25 a barrel Thursday.
Mr. Oliver suggested he would not assume a constant oil price in the budget, stating that he would take into account that “when prices fall a lot, they tend to go back up.”
The Minister argued this week that the approach used in November was appropriate at that time because the price of oil had declined in the period between when the department received private sector forecasts and the date of the fiscal update.
Whether the budget attempts to estimate future higher prices or locks in the current low oil prices for planning purposes is a decision that will either add or subtract billions from the federal government’s projected bottom line.
The Bank of Canada, which is expected to provide detailed comment on oil prices next week, announced in April that it would stop estimating future oil prices for forecasting purposes because assuming prices remain near current levels has proven to produce “a more accurate forecast.”
Paul Boothe, a former senior federal finance department official who is now a professor of business, economics and public policy with the University of Western Ontario, said Mr. Oliver must be transparent when it comes to forecasting.
“Making changes that have the effect of improving the forecasted fiscal situation just before a general election may have some very negative consequences for the credibility of the budget overall,” said Dr. Boothe.
A federal vote is currently scheduled for Oct. 19.
While economists point out that whether Ottawa has a small surplus or a small deficit is of little real consequence, Dr. Boothe noted that it is the Conservatives who made returning to balance a central target.
Opposition MPs put the situation more bluntly, accusing the Conservatives of “cooking the books” ahead of an election.
Parliamentary Budget Officer Jean-Denis Fréchette is expected to release a report later this month that will examine the fiscal impact of lower oil prices.
Liberal MP Scott Brison said delaying the budget has the effect of increasing economic uncertainty.
“Wishful thinking is not a replacement for budgeting,” he said.
“They are trying to delay the admission of the obvious, and that is we are going back into deficit.”
BILL CURRY AND JEFF LEWIS
Ottawa and Calgary — The Globe and Mail
Published Thursday, Jan. 15 2015, 1:45 PM EST
Last updated Thursday, Jan. 15 2015, 10:06 PM EST