Canada’s Oliver Announces Balanced Budget Legislation Plan

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Canadian Finance Minister Joe Oliver said he plans to introduce legislation requiring balanced budgets in normal times, an election-year initiative criticized by political opponents after years of deficit spending.

The legislation, announced by Oliver in a speech today in Toronto, fulfills a promise Prime Minister Stephen Harper made in 2013. Oliver today said the legislation would obligate governments to produce concrete time lines for returning to balance.

The measure aims at shoring up the government’s fiscal credibility as Canada emerges from a seven-year run of deficits totaling almost C$150 billion ($120 billion), with a balanced budget due April 21. Harper, headed to elections this October, has pledged to balance the budget this year even as falling oil prices curb revenue, arguing running deficits in times of growth only foments demands for more spending.

“We will never be able to keep taxes low and provide direct benefits to hardworking Canadians and their families, even in the face of an unexpected downturn without balanced budgets in good economic times,” Oliver said today, according to a prepared text of his speech. “That is why we need a law.”

The proposed legislation would allow exceptions in times of recession or in an “extraordinary circumstance” such as natural disaster or war that boost expenses by at least C$3 billion annually.

A finance minister, in a time of deficit, would be required to testify to a parliamentary committee within 30 days to lay out a plan to return to balance. Deficits incurred in normal times would trigger an automatic freeze in operating spending, Oliver said.

Opponents

Rival political parties mocked the announcement. Liberal lawmaker Scott Brison pointed to his party’s string of surpluses while in power -- nine in a row before Harper won the 2006 election and became prime minister. Recent polls show the Liberals neck-and-neck with Harper’s Conservatives ahead of this year’s election.

“Liberal governments walks the walk when it comes to balanced budgets, the Harper government only talks the talk,” said Brison, who is responsible for finance issues for his party.

The New Democratic Party, which currently has the second-most seats in the House of Commons but is polling in third place, called Oliver’s announcement a “death bed conversion” after seven years of deficits.

“We are highly skeptical about their newfound concern,” said Guy Caron, the NDP’s deputy finance critic, in a written statement.

Flexibility

In a report last year, the Parliamentary Budget Officer said any balanced budget legislation needs to be flexible to accommodate economic cycles and capital investments.

While Canada’s finances are among the soundest in the world, the country is one of only a few without some type of balanced budget rule for central government, according to the parliamentary budget officer report, citing data from the International Monetary Fund.

Seven of the country’s 10 provinces have some form of balanced budget rule, though those laws were largely brushed aside in the last recession.

The federal government’s experience with fiscal rules also suggest a poor record of achievement. In 2006, Harper’s government said it would seek to reduce the country’s net debt to zero by 2021 only to see indebtedness rise. As late as October 2008, Harper had been pledging never to run a deficit even as the country had fallen into a recession.

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