Thursday, April 23, 2015

Less Than Meets The Eye



So much for fiscal prudence. So long credibility.

Those words, written By Scott Clark and Peter DeVries, succinctly summarize the illusions, misdirection and magical thinking that Joe Oliver's budget is based on.

As the authors point out, six 'rabbits' that Oliver pulled out of his hat on Tuesday conceal some disquieting truths:
First, the government changed the methodology the Finance Department uses to forecast oil prices. Oliver is now forecasting that oil prices will increase in the coming years, averaging $54 a barrel in 2015, $67 in 2016, $75 in 2017 and $78 a barrel in 2018 and 2019.
According to projections by the World Bank, this is quite an optimistic forecast.
The second rabbit was the selling off of capital assets to cover one-time spending. In the budget, asset sales amounted to an incremental $1 billion in 2015-16, resulting from the sales of the government’s GM shares. These shares were sold at a steep loss solely to achieve a political commitment — a balanced budget in 2015-16
The next feat of prestidigitation is found in the contingency fund:
In previous budgets, Finance included a contingency reserve of $3 billion per year. The contingency reserve is also there as a buffer in the event that economic results do not turn out as expected. The contingency reserve was cut to bone Tuesday — to just $1 billion in each of the next three years.
Given the precarious financial outlook for the world, this cut can only be seen as foolish, reckless, and overtly political.
The fourth rabbit was an increase in the “lapse” — the amount of funds appropriated to departments and agencies by Parliament but not spent during the course of the year. The lapse for 2015-16 and the next two fiscal years has been increased...
The consequences of such 'lapses' cannot be underestimated. Here is but one example:




The fifth rabbit was the government’s decision to continue to assume higher-than-required Employment insurance (EI) premium rates. This generated an additional $1.8 billion in 2015-16.
And, as Thomas Walkom points out,
The finance minister managed to win his surplus this year largely by taking $3.4 billion from the employment insurance account...
The final rabbit — certainly not the least controversial — is government’s forecast of $900 million in 2015-16 resulting from legislating “a modernized disability and sick leave management system” on public sector unions in the budget bill yet to be tabled.
Since negotiations are ongoing, bargaining in bad faith is not too strong an accusation to level against the government which, in fact, may relish a battle with the unions going into the election, given public antipathy toward those who do well in unionized environments. Nevertheless, counting on almost $1 billion being extracted from public servants does appear to be a tad wishful.

All in all, once the surface of this budget is scratched, the alleged economic prowess of Stephen Harper is once again exposed for the myth that it is.

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