Federal government on track for $3.7-billion surplus, Jim Flaherty says

OTTAWA—The federal government is on track for a $3.7-billion surplus in time for the next national election, paving the way for long-promised Conservative tax breaks to become a reality just as Canadians get ready to go to the polls.

Making good on earlier pledges to chalk up a surplus in 2015, Finance Minister Jim Flaherty used Tuesday’s economic and fiscal update to issue his most optimistic forecast yet on a surplus that will end years of deficit budgets.

Selling off government assets, reining in department spending and growing tax revenues will all combine to put Ottawa back in the black, finance department figures reveal.

“It’s not very dramatic to balance the budget but there is good reason to balance the budget for the sake of the future,” Flaherty said during a visit to Edmonton to discuss the update.

For the 2012-13 fiscal year, the deficit was $18.9 billion. In the current year, it is expected to be $17.9 billion, which counts an estimated $2.8 billion in relief funding to cover damage caused by June floods in Alberta and another $60 million for the devastating train wreck in Lac-MÉgantic. By 2014-15, Ottawa hopes to have the deficit trimmed to $5.5 billion, setting the stage for the $3.7-billion surplus in 2015-16. The projections include $3 billion set aside for contingencies.

To get there means restraining spending. In the speech from the throne last month, the Conservatives announced they would renew a freeze on departmental operating budgets for two years starting in 2014-15. That freeze is expected to save $500 million in 2014-15, rising to $1.1 billion in 2015-16.

The federal government also hopes to boost its bottom line with asset sales. Ottawa has sold off its 30 million shares in General Motors, which will mean a gain of at least $700 million this year. Putting other assets on the block, such as Ridley Terminals — a bulk coal terminal in British Columbia — will generate $500 million in 2014-15 and at least $1.5 billion in 2015-16.

And the federal coffers will get a big lift from personal tax revenue — its biggest source of revenue — which it predicts to grow to $146.8 billion a year by 2015-16, up by $21.1 billion from 2012-13.

This is more than just bookkeeping for Prime Minister Stephen Harper: balancing the books has big political overtones. In the 2011 election campaign, Harper dangled several tax breaks, including a measure to allow income-splitting on young families’ tax returns and doubling to $10,000 a year the limits on tax-free savings accounts but made all these goodies contingent on eliminating the deficit.

At Queen’s Park, Ontario Finance Minister Charles Sousa suggested the Conservative promise to slay the deficit by 2015 has more to do with the federal election that year.

“We have to stop partisan discussions and stop election cycle decisions and look at the long-term requirements here,” Sousa told reporters.

He noted that while Ottawa is crowing about balancing the books, the provinces are going cap in hand to Ottawa looking for more money for health care, education, social services and transit.

“I would say the federal government has abandoned certain areas,” Sousa said.

“We need a committed federal partner to support the province of Ontario,” said Sousa, who repeated his commitment to balance Ontario’s books by 2017-18.

With files from Richard J. Brennan