Oliver Cuts Canada Surplus Forecast Amid Oil Price Drop

Finance Minister Joe Oliver cut Canada’s budget surplus projection by almost half to take into account tax cuts and falling oil prices.

The government will post cumulative surpluses of C$18.1 billion ($16 billion) in the four years from 2015 and 2018, down from a February projection of C$32.9 billion, according to a fiscal update released today from Ottawa. Canada will post a C$1.9 billion surplus in the fiscal year starting in 2015, down from the C$6.4 billion budgeted in February. It would be the first surplus since 2007-08.

Crude oil prices have slumped into a bear market this year amid a global glut. West Texas Intermediate, the North American crude benchmark, fell 12 percent last month and prices are down about a quarter since exceeding $107 a barrel in June.

“Growth and prosperity cannot be taken for granted,” Oliver said in a speech in Toronto. “We will fulfill our commitment to Canadians to balance the budget in 2015.”

The figures include an annual C$3 billion risk cushion, set aside in the 2014 budget against global uncertainty, and an additional C$2.5 billion revenue adjustment to account for the drop in oil prices since September, when the government finalized its economic forecasts. The adjustment reflects an assumption that WTI will remain at current levels of about $81 a barrel, according to the document.

The government has also been spending part of the windfall. Last month Prime Minister Stephen Harper announced tax cuts for families with children totaling C$26.8 billion over six years. The measures come in the run up to next year’s planned federal election.

The 2016-17 surplus was revised to C$4.3 billion from C$8.1 billion. Oliver maintained his 2014-15 deficit projection at C$2.9 billion.

Today’s update includes a forecast surplus for the 2019-20 fiscal year of C$13.1 billion, bringing the total cumulative surplus for the five years to C$31.9 billion.

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