Alternative Federal Budget predicts big surpluses

Forecasting record far better than Government's
October 29, 2002

OTTAWA: The Alternative Federal Budget (AFB) project, coordinated by the Canadian Centre for Policy Alternatives, released its Economic and Fiscal Update today. The report, contrary to Minister Manley's warnings of a shrinking surplus, forecasts a combined surplus of $27.9 billion this year and next. It also notes the AFB's remarkably accurate record of forecasting federal surpluses over the last three years--$40 billion, compared with the actual cumulative surplus of $39.7 billion. This compares with the grossly inaccurate government estimate of $7.5 billion over the last three years.

The main findings are summarized below:

  • The federal government's fiscal situation is much more positive than has been suggested by federal officials and private sector forecasters. The government recorded an $8.9 billion surplus in fiscal 2001-02, and the federal balance will get even stronger over the coming years on the strength of renewed economic growth in Canada.
  • On the basis of plausible assumptions regarding macroeconomic conditions, we project that the federal government will generate a surplus in the current fiscal year in excess of $10 billion. In the absence of discretionary tax and spending measures, that surplus will swell to over $17 billion by fiscal 2003-04.
  • Finance officials, backed by most private-sector forecasters, are predictably downplaying the possibility of such large surpluses. The credibility of their projections is doubtful, however, given past efforts to deliberately understate the true budget balance.
  • Over the past three fiscal years the federal government has generated a cumulative surplus of almost $40 billion-a surplus which was predicted accurately in the annual projections of the Alternative Federal Budget, but hidden in official budget documents through misleading economic assumptions and other questionable budgeting techniques.
  • Despite this optimistic medium-term budget forecast, the longer-run budgetary leeway of the federal government may be constrained by the decline in federal fiscal capacity which is now apparent. Federal revenues fell steeply as a share of GDP last year, thanks largely to personal and corporate income tax cuts, to the lowest level during the Chretien era. Given the growing demands on the federal government for timely-and expensive- investments in programs like medicare, infrastructure reconstruction, and environmental protection, this decline in federal taxation will need to be arrested and reversed.