OTTAWA—Finance Minister Joe Oliver is dancing around questions about whether the government’s General Motors stake—sold for about $3.26 billion this week—will be the difference between surplus and deficit in the upcoming federal budget.
Oliver emerged from an April 9 meeting with 12 private-sector economists to reiterate that the Conservative government will balance the books in 2015-16 for the first time in seven years, notwithstanding the global oil price shock to the Canadian economy and government revenues.
“Despite weak global growth and dramatically lower oil prices, our government will balance the budget this year, just as we promised Canadians we would,” said the 74-year-old finance minister, who will deliver his first budget April 21.
Oliver, who took over the finance portfolio from the late Jim Flaherty last March, has been handed the task of making the numbers work in an election year and fulfilling a key Conservative political promise.
Balancing the budget appeared a foregone conclusion last November when Prime Minister Stephen Harper bet the treasury—and his re-election hopes—on a five-year, $27-billion program of family income-splitting tax cuts and improved child tax benefit payments.
But when the bottom dropped out of the global oil market, the government was forced to delay its budget date through the March 31 fiscal year-end as it scrambled to meet a self-imposed pre-election deadline for balancing the federal books for the first time since 2007-08.
Oliver said the government now expects the Canadian economy to expand by just two per cent this year, down from the 2.6 per cent his department projected last fall.
The finance minister has said the budget’s built-in $3-billion contingency reserve, designed as insurance against unforeseeable events such as natural disasters, is now in play.
But he was coy when asked whether the sale of the government’s GM shares, purchased as part of the 2009 effort to help bail out the then-struggling automaker, was required to stay in the black this year.
“No, we would have been able to take into account a prospective sales price even had we not sold the stock when we did,” Oliver said after his hour-long meeting with economists.
“That’s an accounting provision that was permissible.”
He repeated variations on this response four times without ever clarifying whether the asset value—realized or prospective—is key to his 2015 surplus.
The only way Canadians know how much the sale of their investment in GM was worth is through the U.S. Securities and Exchange Commission (SEC), which posted a document overnight April 8 showing Ottawa sold nearly 73.4 million GM shares for about US$35.61 each, a net sale of some C$3.26 billion.
A finance official said the shares were initially booked at a value of $15.31 per share.
“The difference between net proceeds received and the initial book value of the shares, and adjusting for (Canadian dollar) exchange, is a gain which will flow to the government’s budgetary balance in 2015-16,” David Barnabe, a media relations officer for the department of finance, said in an email.
“The government will provide an update on the budgetary impact in the upcoming budget.”
TD Bank chief economist Craig Alexander, one of the dozen economists who delivered their 2015-16 economic outlook to Oliver, said after the meeting that the government’s budget delay was probably useful in allowing forecasters to get a better grip on the oil shock’s impact to the economy.
Alexander said his impression was that as a result of the oil shock, “without action by the government, it would not balance the books this year.”
“Asset sales can be one part of that—the government has already announced the sale of the GM shares _ and whether or not that completely fills the gap is completely dependent on what assumptions you use…. But at the end of the day it does show the government’s resolve to take actions to ensure we have a balanced budget in the current fiscal year.”
Liberal finance critic Scott Brison was far less charitable.
“They’re using one-time asset sales to cobble up a surplus on the eve of an election,” Brison said.
“This so-called surplus is looking flimsier and flimsier.”