Falling oil prices should stimulate the world's faltering economy. But they won't do the Harper government a lot of good. That's because the Harperites have nailed their political flag to eliminating the deficit. And that has become more difficult than they anticipated. Scott Clark and Peter DeVries write:
In other words, cheaper oil will have a net positive effect on real economic growth in the oil-consuming provinces and on their budget balances — but it will have the reverse effect in the oil-producing provinces and in Mr. Oliver’s department.
That growth forecast of 3.7 per cent for nominal GDP already included a downward adjustment for lower oil prices and an additional ‘risk adjustment’ factor — which, according to Finance, together lowered budgetary revenues by $5.5 billion in 2015-16. The drop in oil prices has burned up all of this fiscal ‘slack’ in the deficit forecast. In other words, the collapse of a single commodity has completely undermined the government’s commitment to a balanced budget in 2015-16.
Count on it: Nominal GDP growth of only 2.5 per cent for 2015 means, in the absence of any offsetting cuts or other policy actions, a deficit in 2015-16.
We won't know what the real numbers are until after the election. So you can also count on Mr. Harper selling the same old snake oil. But, remember, he didn't see the Great Recession coming, either.
The Prime Minister has always been a one trick pony. He has always counted on oil to bring Canada prosperity. And, after nine years, it's painfully obvious that he can't count very well.