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A Balanced Federal Budget Over the Long-Term

Finance Minister Joe Oliver today announced that Economic Action Plan 2015 will be tabled on April 21, 2015 and reiterated the Government of Canada’s commitment to a balanced budget.

The Green Budget Coalition has offered up some timely advice to make the necessary investments in protecting Canada’s environment and … … to secure balanced federal budgets over the long-term.

Yes, environmental stewardship is not only compatible, but essential for sustaining Canada’s economic prosperity and ensuring balanced federal budgets in the future. T

he Green Budget Coalition Recommendations for Budget 2015 puts forward a pragmatic and fiscally sound approach that will generate long term cost-savings and new revenue generation opportunities for the Government of Canada.

Specific examples include:

  • Implement a carbon price: Annual revenues estimated at between $18 billion to $50 billion, depending on the design;
  • Enable Canadian Exploration Expenses (CEE) only for unsuccessful exploration: Tax savings estimates of over $240 million per year;
  • Do not renew the Mineral Exploration Tax Credit (METC) for flow-through shares (mining): Tax savings estimates of $45 million over two fiscal years;
  • Integrate Disaster Mitigation Infrastructure criteria in the New Building Canada Plan; negligible costs with significant long term savings in disaster mitigation costs;
  • Provide a new Tax Credit under the Income Tax Act for home radon remediation: Cost savings from prevented lung cancer deaths of up to $17 million annually;
  • Remove absolute liability limit under the Canada Oil and Gas operations Act, Canada-Newfoundland Atlantic Accord Implementation Act;
  • Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Act and implement liability to third parties for railway freight accidents: Reduced future Canadian taxpayers’ liabilities by billions of dollars.

For more details on these specific measures please visit: www.greenbudget.ca

In its November 2014 Update of Economic and Fiscal Projections, the Government of Canada was expected to return to balanced budgets in 2015, with a small surplus of $1.9 billion projected, growing to $13.1 billion in 2019-20. Similarly, the federal debt-to-GDP ratio (accumulated deficit) was projected to steadily continue on a downward path, putting the Government on its way to meeting its commitment to reduce the federal debt to 25 per cent of GDP by 2021.

Now, whether those predictions still hold is what has had Ottawa economists buzzing over the last few months.

The recent drop in oil and mineral prices along with the ensuing lowering of the Canadian dollar exposes the Canadian economy to undue financial risks. This over reliance on the oil sector for tax revenue forced the Government of Canada to delay Budget 2015 ̶ such is the impact of Canada’s dependence on oil revenues. Forecasts of global demand and resulting oil and natural gas prices vary greatly. Scenarios under more stringent climate policies project a drop in revenues of up to 60% for oil and 20% for natural gas globally.

It is time for the Government of Canada to face this new reality and plan for the long-term, as others are doing already.

Those deep changes to the global energy market have prompted the International Energy Agency (IEA) to dedicate its World Energy Outlook 2015 to examining the implications of a lower oil price future for markets, policies, competitiveness and investment. The IEA will also provide decision-makers with analysis of national climate pledges in the context of the recent downturn in fossil-fuel prices.

Similarly, in the context of market uncertainty, the Canadian Pension Plan Investment Board launched Focusing Capital on the Long Term an initiative for advancing practical actions to focus business and markets on the long term.

There is unprecedented consensus in Canada on the need for fiscal and environmental pricing reform. Canada’s Ecofiscal Commission, composed of some of Canada’s most respected leaders in industry, the environment, and across the political spectrum as well as leading economists, outlines specific ecofiscal policies to offer real incentive for investment in innovative technologies so we may continue benefitting economically over the long-term from our natural wealth while providing better protection to the environment.

The question is, in the face of unprecedented uncertainty in energy markets, will the federal government follow this prudent approach to planning for the long term?

Canadians expect the Government of Canada to make strategic investments now to shield the Canadian economy from volatile oil prices, thus providing stability and diversity in the Government of Canada’s tax revenue base.

Strategic public investments to support Canadian clean energy companies, with existing complimentary fiscal policies, can provide a sustainable and diversified revenue base for the Government of Canada, and contribute to achieving our GHG emission reduction commitments. Canada has historically engaged in successful targeted investment programs to support R&D and innovation in specific high growth sectors, with the Canadian aerospace industry being one of our success stories.

Regardless of the size of the Government of Canada’s budget surplus, prudent fiscal planning requires that the Government of Canada begin to make those long-term investments to secure economic opportunities now, and for future generations, in the booming global clean energy sector.

The Green Budget Coalition’s Climate and Energy recommendations support a federal climate and energy policy that is consistent with balanced budgets in the future. Our recommendations would generate significant tax-savings and provide new sources of revenues over the long-term.

Let’s hope this delay in the budget cycle provided Minister Oliver with time to reflect, and to develop a long term solution in response to the current oil price crisis.

Let’s hope it was worth the wait and anticipation.