PBO vs. Finance on budget deficit: Who’s got the numbers right?
WATCH: The decline of oil has sent our economy into a tailspin and it may also have put Ottawa back into a deficit position. Dramatically different assessments of Canada’s financial health were released Wednesday. One, an independent assessment, predicted a $1-billion deficit. The other, released by the Harper government, shows a big surplus. Vassy Kapelos reports.
The federal Department of Finance released its fiscal monitoring report for April and May this morning, and the news was good: it had a $3.9-billion surplus those months.
An hour later, the Parliamentary Budget Officer released a fiscal update, and the news was bad: a projected $1.5-billion deficit for the 2015-16 fiscal year.
So who’s got it right? The answer is in the details.
The biggest difference between the two reports is what time periods they’re looking at. Finance is examining events that already happened: in April and May 2015. So, for those two months, they say, the government posted a surplus.
By contrast, the PBO is making a prediction about the whole upcoming fiscal year, from April 2015 until the end of March 2016. It predicts that over those 12 months, the government will post a deficit. So if that’s true, the next few months could be pretty rough for the budget, chipping away at that surplus from April and May.
PBO was essentially taking the Bank of Canada’s newly-revised projection of GDP growth (which it revised downward, to about 1 per cent in 2015) and seeing what effect that might have on the budget outlook. But their numbers, at this point, are an educated guess at what might happen in the future. Forecasts can be wrong.
What makes up a surplus
The April and May budgetary surplus, according to the Department of Finance, came from increased revenues – $5.5 billion. The government got more money in income taxes, excise taxes and duties – and also got a whopping $2.1-billion cheque for selling its remaining GM shares in April.
That $2.1 billion is counted as “other revenue” in this Finance update, according to the department – and would account for most of the $3.9-billion surplus that the department reports, all by itself. The rest is largely from more income tax revenue.
Global News asked the Department of Finance for an itemized breakdown of the government’s reported revenues, specifically those grouped as “other” in the report. The Department did not provide more than the amount from the GM sale, only saying that revenues were up from last year.
That breakdown will come in the annual Public Accounts of Canada report, said the department. It usually gets released at the end of October.
Will it last?
Unfortunately for the government, those GM shares are now gone. The PBO expects that Canada’s lower-than-expected GDP growth will reduce tax revenues and also increase the amount that the government pays out in employment insurance.
The government will make up some money due to GDP inflation and lower interest rates – but not enough to offset the losses, said PBO. The government had also planned to set aside $1 billion in a contingency fund, in order to deal with future emergencies, but even forgoing that bit of financial prudence wouldn’t put the budget into the black.
Mostafa Askari, the assistant Parliamentary Budget Officer, told Global News that it’s hard to compare his office’s report with the Department of Finance’s fiscal monitoring report. And, he said both offices could be correct: there could be a $3.9-billion surplus in April and May, and still be a $1.5-billion deficit over the course of the fiscal year.
“It’s an indication the first two months was positive, but that has nothing to do with the kind of exercise that we did. That can be true, and still you can get a deficit for the year,” he said. “We don’t know what is going to happen for the rest of the year. Those numbers do not reflect the cheques that the government has sent to families with children. There are many, many different factors.”
For the government’s part, Joe Oliver was quoted on Tuesday saying that the government is still expecting a balanced budget this year. “We are very comfortable, very comfortable we’re going to achieve a budgetary surplus this year,” he said. He didn’t answer any media questions at a public event Wednesday morning though.
Rob Nicol, a spokesperson for the Prime Minister, wrote in a statement Wednesday that, “We remain on track for a balanced budget in 2015.”
With files from Vassy Kapelos and the Canadian Press