Generally speaking, and absent extraordinary circumstances, the federal government issues two major economic and fiscal documents each year. The first is the federal Budget, which is usually delivered in the late winter or early spring, and outlines the government’s plans and projections with respect to federal government revenues and expenditures for the upcoming (April 1 to March 31) fiscal year, along with any new tax measures which the government intends to implement. About halfway through the fiscal year, usually during month of October, the federal government releases its Economic and Fiscal Update. As the name implies, this release updates the information announced in the federal Budget, especially with respect to revenue and expense projections, the overall state of the Canadian economy, and whether a change is required to the surplus or deficit projection provided in the Budget for the current fiscal year.
This past year was something of an extraordinary year, in that the month during which the Economic and Fiscal Update would ordinarily been issued was largely given over to the federal election campaign. The newly elected government promised, however, that it would nonetheless be issuing an Update of Economic and Fiscal Projections for the 2015-16 fiscal year and, on November 20, 2015, it did so.
The new Minister of Finance indicated that the Update would not include or consider any of the fiscal plans or measures which the new government would be proposing or implementing, and it did not. The document stated specifically that the figures provided were “the fiscal projections inherited by this Government”, and the overall message of those projections, at least for the 2015-16 fiscal year could be summarized in six words: lower revenue, higher expenditures, no surplus.
Put more formally, the federal government’s conclusions are that revenue projections, when compared to those provided in the 2015-16 federal Budget, are lower “across the forecast horizon”. Similarly, projected expenses are higher than outlined in this year’s Budget, over the same time horizon. Although public debt charges are lower, those savings only partially offset the increase in direct program expenses, especially higher expenditures under the Employment Insurance program. The cumulative effect of those figures is that the $2.4 billion surplus originally projected for the 2015-16 fiscal year has instead become a $3 billion deficit.
On the economic side, the government noted that the Canadian economy contracted in the first half of 2015, with real GDP declining by 0.8% in the first quarter and by 0.5% in the second quarter. The government’s projections for the second half of the year are for real GDP to grow by 2.2% on average and to continue to grow at a “modest” pace in 2016. In addition, the inflation outlook has been revised downward, largely as a result of lower-than-expected crude oil prices.
The new government anticipates there will be an increased deficit of $3.9 billion for the upcoming 2016-17 fiscal year. The numbers improve somewhat for the 2017-18 and 2018-19 fiscal years, where the deficits are expected to come in at $2.4 and $1.4 billion, respectively. Finally, in 2019-20, the government expects to return to a surplus position and post a surplus of $1.7 billion. All of these figures are based on the current economic and fiscal situation, and do not include any revenue or expenditure measures to be implemented by the new government. Some of those measures will likely be announced in the 2016-17 federal Budget, to be delivered in the New Year.
The Update of Economic and Fiscal Projections 2015 document can be found on the Finance Canada website at www.budget.gc.ca/efp-peb/2015/pub/efp-peb-15-en.pdf.
