The Governor of the Bank of Canada Steven Poloz has dropped our interest rates to help avoid the threat of deflation. In doing so he gave his judgment that the dropping price of a barrel of oil was unequivocally bad news for the Canadian economy. Finance minister Joe Oliver has so lost his way in the face of a relatively minor fiscal impact of reduced oil prices that he has postponed the budget to April, or maybe even May.
It may surprise readers that I would describe the fiscal impact of the plummeting price of oil as relatively minor. The fiscal impact is small because oil was contributing very little to our total government revenues. Oil based taxes were less than 1% of government revenue and the oil sands only 2% of GDP. The public sector is 40% of GDP.
Contradicting our Governor of the Bank of Canada, the Royal Bank of Canada’s senior economists have analysed the drop in our dollar as positive to our economy.
So why has Oliver postponed the budget? He is not facing a fiscal problem. He is not facing an economic problem. He is facing a political problem. Harper made a whack of election promises in 2011 based on a balanced budget. And he wants to roll out those goodies before the next elections.
The prime minister’s 2011 election promises were made with the commitment that they would be implemented as soon as the budget is balanced. Assuming that would be the case for 2015, Harper has committed to some very expensive new programmes, geared to an election. He hopes to declare a narrow surplus and keep all the expensive promises for income splitting and increased child benefits. There is a $3 billion contingency fund for just such purposes. As leader of the Green Party of Canada, I will not be quick to criticize a deficit, as long as the deficit is acknowledged and the planned new programmes are cancelled or deferred.
Many sectors of the Canadian economy will benefit from the lower dollar. And while the long term environmental impacts of low gas prices are not beneficial to fighting climate change, short term impacts are helpful. So here is my top ten list of the benefit of a dropping barrel of oil:
- The Keystone pipeline will be rejected. The advice to Secretary of State John Kerry from the State Department’s environmental review was that the pipeline would not contribute to new oil sands expansion and an increase in GHG – but only if the price of oil stayed above $80/barrel. At $45/barrel, Keystone is a non-starter so long as Obama holds to his commitment that Keystone would not be approved if it boosted GHG.
- Investment in oil sands expansion and US Bakken fields will dry up. These unconventional sources of oil are extremely expensive to produce. That’s why they consume so much more water and energy than conventional oil.
- New pricing of carbon will be easy to adopt as the impact will be less objectionable with low pump prices.
- The lower Canadian dollar will boost competitiveness of Canadian exports.
- The low Canadian dollar will boost tourism in Canada. For some inexplicable reason, Harper appears to hate tourism. Policy after policy has hurt the sector – from eliminating the GST-HST rebate for foreign visitors (a cheap goodwill gesture) to more visa requirements, to slashing the budget for tourism ads, to undermining seasonal employment through the EI system. For the last few years, not one penny was spent to promote Canada as a dream vacation in the US market. Where ten years ago Canada was in the top seven of world tourism destinations, we are now 18th. It’s time to assist Canadian tourism with a really strong marketing plan to get US tourists to visit Canada this summer.
- The lower dollar will boost our film and television industry. This is a sector with great spin-offs to our local economy. An 80 cent dollar will draw more production to BC and Canada.
- Canadian wines and other exports in high quality local production will benefit.
- Manufacturing of all kinds will benefit.
- The lower price of a barrel of oil will boost the US economy and be good for Canada as a result.
- Last and definitely weird, the price of oil is being manipulated by Saudi Arabia. The Saudis have been prepared to ramp up the production of conventional oils in order to gut the unconventional sources of oil. So a big winner is Saudi Arabia. Harper has sold $10 billion worth of tanks to Saudi Arabia. This is outrageous given their human rights record. But having driven down our dollar, Saudi Arabia should be saving several billion in buying our tanks.
This is a teachable moment. There is much more to the Canadian economy than bitumen.