Canadian Manufacturing

Federal government may find billions in spending room due to surging oil prices

The jump in prices could lower the federal deficit by as much as $5 billion through higher corporate tax revenues from oil and gas companies.

March 21, 2022   The Canadian Press

The federal government may find itself with billions more in spending room on the back of soaring oil prices that experts say could lower the deficit, or give the Liberals space to fund a bevy of campaign pledges.

It’s a position similar to one the Liberals found themselves in last December when a rosier economic picture gave the government $38.5 billion in extra spending room, which was quickly eaten up by $28.4 billion in new and previously promised spending.

Since then, oil prices have gone even higher than the Finance Department had envisioned, with no immediate signs of easing.

The jump in prices could lower the federal deficit by as much as $5 billion through higher corporate tax revenues from oil and gas companies, said Trevor Tombe, an economist at the University of Calgary.

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“That’s more than the entire planned federal spending on new child-care initiatives,” he said, referring to the $4.9 billion over the next 12 months in new spending outlined in last year’s federal budget.

“So it’s a meaningful improvement in the federal bottom line.”

In December, the Finance Department forecasted the government’s bottom line would show a deficit of $58.4 billion for the fiscal year that starts in April, not including any new spending promises, following two years of even deeper deficits.

The parliamentary budget office at the start of March forecasted that the deficit next year would be $47.9 billion because of higher-than-anticipated tax revenues.