Newspaper article The Canadian Press

Tax Cuts? Ottawa Must First Consider Falling Oil Prices, Economists Say

Newspaper article The Canadian Press

Tax Cuts? Ottawa Must First Consider Falling Oil Prices, Economists Say

Article excerpt

Could low oil prices alter promised tax cuts?

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OTTAWA - The federal government will have to weigh the potential risks of sliding oil prices before it starts doling out large tax cuts in advance of next year's election, economists warn.

Finance Minister Joe Oliver has promised the government would live up to its tax-cutting pledges despite a sharp fall in oil prices -- thanks to a projected surplus in next year's budget.

But some economists say Oliver will be forced to pay close attention to the drop, which could well affect the bottom line in a country as dependent on oil production as Canada.

"The federal government revenues are extremely sensitive to what oil prices are doing," said Scott Clark, a former senior Finance Department bureaucrat and professor at Carleton University in Ottawa.

"If you listen to Mr. Oliver, he's very optimistic -- in fact, almost unbelievably optimistic -- about the surplus going forward. He seems to be downplaying the impact of the oil prices, or that lower oil prices will continue."

Oliver expressed his confidence once again this week after emerging from a meeting with private-sector economists, an annual consultation to discuss the country's economic outlook before the release of the fall economic update. The fiscal update is expected in the coming weeks.

While he acknowledged thelow price of oil could stunt Canada's economic growth, Oliver reiterated his vow to bring tax relief to Canadians and table a balanced budget in the 2015 election year.

Oil has hit a two-and-a-half year low, the result of a drop that has already prompted the country's policy-makers to examine the potential pitfalls of lower prices.

Oliver has credited Canada's resource sector for financing Canada's social programs, but what happens when commodity prices continue to tumble -- and don't immediately recover?

Meanwhile, economies around the world, like Europe and China, continue to struggle amid other risks like the expanding Middle Eastern conflict and the Ebola crisis.

Amid all the global uncertainty, Clark instead recommends an approach that would directly benefit the economy, rather than decreasing taxes. …

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