What a difference just a few months can make in the world of federal government finance. Apparently, weak commodity prices and a slowing economy are playing such havoc with government finances that Thursday’s federal budget will show a downward revision of economic growth forecasts as well as a shortfall in revenue that will be addressed by extra savings that will come from limiting the growth of federal discretionary spending – direct spending on programs and services as opposed to transfers.
So what is the anticipated revenue shortfall that is prompting this action? Apparently, the federal government is going to have an estimated 2.1 billion dollars less in revenue to work with. To put that amount into context, for the 2012-13 budget year, the federal November 13th 2012 economic and fiscal update put total federal budgetary revenue at 254.4 billion dollars and total program spending at 250.9 billion dollars (with debt service charges coming in at 29.6 billion dollars). Federal discretionary spending represents less than half of this total amount of program spending. This anticipated revenue shortfall represents about 0.8 percent of 2012-13 revenues – a minor fraction that likely be the subject of substantial future revision when it comes to actual performance.The same update forecast revenues for 2013-14 at 267.2 billion dollars - so maybe they now will only come in at 265.1 billion dollars.
So, what is going on? Perhaps there is concern that interest rates may be expected to rise more than planned, which will then ignite debt charges. Yet, if that is the case it has received little mention in the Finance Minister's public musings. It could be that external conditions are getting a lot worse than we have been led to believe and that federal finances are about to destabilize but that also seems unlikely given the size of the potential revenue shortfall.
According to the November fiscal update’s summary statement of transactions, between 2012/13 and 2016/17 program spending was already forecast to rise by only 8.6 percent while revenues were expected to rise 21.4 percent. In other words, spending control is already well in hand with projected increases well below the anticipated rate of revenue increases meaning that federal finances are still on the path to being sustainable. The most recent downward revision on revenues is not going to affect this long-term path very much at all though it might mean the budget will not be balanced in time for the next election. That would certainly be politically inconvenient when it comes to the government’s campaign platform but at this point would not cause irreparable fiscal harm. I suppose this is all part of the Ottawa game, but there is such a thing as crying wolf too often.