The Canadian government will soon have to weigh the risks of declining oil prices before making large tax cuts.
Joe Oliver, Canada’s Finance Minister, has said that the government will not be breaking its tax-cutting promises despite the recent slump in oil prices. The government is expected to have a surplus in next year’s budget.
However, economists are saying that the finance minister will have to face the reality of the falling oil prices as it could have a big affect on the economy.
Oil has dropped to a two year low, which has already caused Canadian policy-makers to examine the potential affects.
Scott Clark, a former senior Finance Department bureaucrat and professor at Carleton University in Ottawa, said:
“The federal government revenues are extremely sensitive to what oil prices are doing,”
”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.”
Mr. Oliver did acknowledge that low oil prices may stunt the country’s economic growth, he reiterated his pledge to offer tax relief to Canadians and have a balanced budget in the 2015 election year.
The Bank of Canada announced plans to measure the affects of cheaper oil in its next monetary policy report, which will be released next Wednesday.