But we’re not out of the blue. Federal Finance Minister Jim Flaherty is predicting a balanced budget in the 2015-16 fiscal year. And it’s not just a balancing act. He expects more surpluses thereafter. Some analysts suggest that Ottawa may already be in the black. Great news for fiscally-minded Canadians. Flaherty has sold most of the government’s stock in General Motors and other assets such Ridley Terminals and Dominion Coal Blocks in British Columbia. Although the Conservative budget doesn’t abolish income taxes, the budget is expected to ease the load by offering a split-income deal for households.
Of course headwinds in the economy are still persistent. Despite Flaherty’s reassurance that, “as long as the housing market remains relatively strong, we don’t really have a debt issue,” the fundamentals speak otherwise. The Bank of Canada still has rates as low as 1% and this in turn is fuelling the credit bubble. Of course, the situation is nowhere near as bad as the neighbours, but with the US being Canada’s largest trading partner, Canadians could be in for a rough ride.
It’s hard to say what will happen to the federal government’s budget when Canada enters a recession. Even a devastating bust could be curtailed by the sound fiscal management of less spending and fewer taxes. But if the actions of 2008 are repeated, Canadians would be in store for another round of bailouts and stimulus packages.
Flaherty maintains that he will intervene further into the mortgage market if need be. He also spoke of a meeting between himself, Bank of Canada Governor Stephen Poloz and provincial finance ministers. Flaherty is quoted saying, “He [Poloz] indicated there might be some softening in the dollar. But with the dollar in the 90′s somewhere, it’s good for manufacturing and we can still travel reasonably.” If Flaherty really believes this, his lack of economic sense may inadvertently put the government’s finances back into the red.
Flaherty, whom I know somewhat, knows a lot about money, finance, budgets and so on, but he is no economist or a financier; he's first and foremost a politician. His actions must be considered in the light of the political dynamics of federal politics in Canada including staying on the good side of the PM, his party's fortunes, the cut and thrust in the House, "managing" the Governor of the BoC, taffy-pulls with his provincial counterparts, the fortunes of his home province (Ontario), and getting re-elected. Flaherty's assurances and confidence hangs on a lot of factors.
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