Budget 2015 – lies, tricks, and barely veiled threats

I wrote several days ago about the massive disappointment which is the 2015 federal budget and its phony surplus. I’ve been doing a bit of digging since then and it’s worse than I initially realized, so I thought I’d do an update.

A lot of the commentary on the budget has focussed on the Conservatives’ use of $2 billion from the $3 billion contingency fund to make their modest $1.4 billion “surplus” possible. Incidentally, this is an accounting trick that former finance minister Jim Flaherty eschewed last year:

Updated figures in the [2014] budget show the Conservatives with a $2.9-billion deficit, just within the $3-billion contingency Flaherty has built in in case of major blows to Canada’s economy. The Finance Department upgraded its projected surplus for next year to $6.4 billion from $3.7 billion.

Flaherty defended his decision to err on the side of a deficit, saying Canada has carried a contingency fund for a long time and “it’s proven necessary quite frequently, so I think it would be imprudent not to do that.”

“If you do the arithmetic, we could have had a budget balanced by $100,000,” he said. “I prefer to have a nice clean surplus.”

Joe Oliver clearly has no such honest compunctions.

But even leaving the contingency fund aside, the government’s “surplus” isn’t all it’s cracked up to be. There’s a few other accounting tricks at play here. The Globe mentioned a few in its initial coverage:

The government is also keeping Employment Insurance premiums at higher rates than necessary to cover the costs of annual EI benefits. The budget shows the EI account will be in surplus in 2015-16 and that surplus will grow to $5.5-billion the following year. The government says it will balance the account over time by dramatically reducing EI premiums from $1.88 per $100 of insurable earnings to $1.49 in 2017-18.

In other words, they’re borrowing against the future (aka going into debt to the taxpayers) in order to make the numbers look better right now.

Finally, while Mr. Oliver’s November fiscal update assumed the price of North American crude would remain at the then-current price of $81 (U.S.) per barrel, the 2015 budget took a different approach. It assumes prices will rise to $75 in 2017.

The 2015 budget also assumes oil prices will average $54 in 2015 and then rise to $67 in 2016.

The stunning drop in prices cut the value of oil exports by $40-billion on an annual basis, Mr. Oliver said Tuesday, even as volumes remained broadly unchanged. And while oil prices are generally expected to rise gradually, economists also acknowledge that it is a very unpredictable commodity given the geopolitics at play.

They’re also playing make-believe. There is absolutely no good reason to believe with any certainty that oil is going back up to $75/barrel within two years, nor is there any guarantee that export volumes will stay the same. In fact, with prices so low, speculation is rampant that many tar sands producers will fold due to heavy losses. The government’s numbers in many ways present a super-rosy best-case scenario.

Then there’s the one-time massive infusion of cash the government got earlier this month by selling off their shares of General Motors for about $3.4 billion:

By waiting to sell the shares after April 1, which is the start of the fiscal year, the government is likely able to record the gains as revenue in the 2015-16 fiscal year – which is when it has promised to return to a balanced budget.

Mr. Oliver announced in January that he would be delaying the release of the 2015 budget until at least April in order to gauge the economic impact of lower oil prices.

 […]

Labour leaders had urged Ontario and Ottawa to hold on to the shares as a bargaining chip in securing pledges from GM to maintain jobs in Canada.

“It would have been ideal for the government to hold on to the shares and use that to leverage General Motors to make a strong commitment to the facility in Oshawa,” said Hassan Yussuff, President of the Canadian Labour Congress, in an interview Monday. “Obviously, the government is using every means possible to raise as much cash as they can without considering the future of the auto industry in the country.”

Without that share drop, even the contingency fund and some dodgy projections couldn’t have made it look like they had an imaginary surplus.

And speaking of unions, the HarperCons also are assuming that they’re gonna be able to put a boot to their throats in the months to come:

The government wants to get rid of the system whereby public service employees can bank sick days and instead provide short-term disability benefits through an insurance company. Sick leave has been the subject of contentious contract negotiations for the past year.

On Tuesday, the 2015 federal budget said that negotiations held to date “reflect the government’s commitment to good faith collective bargaining.” But it also added that if negotiations fail, it will “take the steps required to implement the changes within a reasonable timeframe.”

The government said the overhaul will clear $900 million in future liability to sick leave, which it is applying to the coming fiscal year to help the reach a $1.4-billion surplus.

Catch that? Two-thirds of their projected “surplus” is based on shoving a toxic policy down the throat of public sector unions who have been fighting a change to their sick days for over a year. Apparently the government’s “commitment to good faith collective bargaining” only applies as long as they get what they want out of negotiations.

This one is actually probably the biggest deal out of all the budgetary shenanigans I’ve documented. While the other rely on accounting trickery and number juggling, this $900 million in “future liability savings” requires some union-stomping for it to be workable.

What we’re talking about here is basically stripping civil servants of their hard-won benefits in order to make a surplus possibly. The unions are obviously well-aware of the giant middle finger buried in the budget, and they’re not taking it kindly. Seven years of chafing under Conservative mismanagement has doubtless left a lot of public sector workers pretty aggravated.

If talks break down, expect strike action – which in an election year will make things pretty super-charged.


 

I just wanted to make a couple of larger points to sum up.

First of all, this scrambling around for any little bits of money the government can find is a little bit ridiculous when looked at in context. This table from the appendix to the budget shows the government’s total revenues, historical and projected, from 2013-2020.

Outlook for Budgetary Revenues

Table 5.2.5
Revenue Outlook
billions of dollars
Projection
2013– 2014 2014– 2015 2015– 2016 2016– 2017 2017– 2018 2018– 2019 2019– 2020
Income taxes
Personal income tax 130.8 134.2 143.4 151.8 159.3 165.9 172.9
Corporate income tax 36.6 37.9 36.8 39.5 40.4 40.9 42.5
Non-resident income tax 6.4 6.4 6.2 6.5 6.9 7.3 7.7
Total income tax 173.8 178.5 186.4 197.8 206.6 214.1 223.0

Source: http://www.budget.gc.ca/2015/docs/plan/ch5-2-eng.html#Summary__Statement_of_Transactions

Here’s what jumps out to me for this year’s numbers – revenue from corporate income tax is down by over $1 billion from last year, but revenue from personal income tax is up over $9 billion. That’s hard to square with the government’s grandiose claims of an extra $6600 the average family has saved because of the Conservatives’ tax policies.

It’s also a clear indication of where the government’s priorities lie. Rather than tax corporations the same as last year, they would rather pull more money from a contingency fund designed to help out in case of natural disasters.

Second, the whole notion that a surplus is necessary is something that needs to be fought against. (This letter to the editor makes this point in a way the Toronto Star editorial board never could.) This is something the other major parties haven’t been willing to touch, but it’s implicit in a lot of the criticism coming from the NDP and Greens. Surpluses are not in and of themselves good things. Sometimes they’re incredibly damaging. I believe that this is one of those surpluses.

Canada is on the edge of a fair-sized economic crisis. Our economy has becoming increasingly dependent on oil revenues, to the point where even the supposedly eco-friendly NDP feels obliged to defend the tar sands. With oil prices in the tank, and with a real estate bubble threatening to pop any time, our economic future doesn’t look so rosy. Add onto that a super-lacklustre recovery, high un- and under-employment, crappy wages, high consumer debt, a falling-apart retail sector, and (most important of all) a looming global environmental crisis and the urgent need to transition away from carbon fuels, and you’ve got a major case in favour of government intervention on a large scale.

What we have instead is a reality-denying budget which puts pretence above practicality and which boldly ignores the fundamental facts of our current economic situation. It’s worse than just an imaginary surplus – it’s an imaginary budget for an imagined reality.

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