U-shaped federal surplus projections don’t hold water—report

February 22, 2005

OTTAWA—After years of inaccurate budget forecasting, Finance Minister Ralph Goodale has finally acknowledged that there will be a large federal surplus in the current fiscal year. However, he warns that economic tough times are looming in coming years, creating the infamous U-shaped budget surplus projection.

But an analysis released today by the Canadian Centre for Policy Alternatives demonstrates the implausibility of the U-shaped surplus scenario.

The report, authored by CCPA Senior Research Economist Ellen Russell, finds that the government’s revenue projections expressed as a proportion of GDP are expected to fall from 15.3% last year to 14.6% in the coming fiscal year. However, there is no justification for such low government revenues. This vast under-estimation of revenue forms the basis for much of the U-shaped surplus claim.

“Just when Canadians caught on to the government’s old game of lowballing the budget surplus, the Finance Department has moved the goal posts,” Russell explains. “The U-shaped surplus is being deployed as a new tactic to stifle public debate over what to do with the surplus.”

Based on the assumptions employed by the Alternative Federal Budget (AFB), there is no U-shaped budget surplus. The AFB, which has a much better record of forecasting federal surpluses than the government itself, projects a cumulative surplus of more than $45 billion over the next three years.

 “Contrary to the government’s claims, the money to repair and enhance Canada’s social and physical infrastructure is there now—and will continue to be there. The government’s claims of a U-shaped surplus simply have no foundation,” concludes Russell.


Debunking the U-shaped Budget Surplus is available on the CCPA web site at http://www.policyalternatives.ca

For more information contact Kerri-Anne Finn, CCPA Communications officer at 613-563-1341 x306.

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