Federal Budget Surplus: Surprise or Strategy 

Backgrounder

• Ottawa has announced a surplus every year since 1997 and a surprise surplus 10 out of 11 years. Those 10 surplus surprises have totaled $85 billion.
• A planned surplus is just that – intended. A surprise surplus is caused by an inaccuracy in budget projections. These inaccuracies usually are the result of unanticipated economic growth, errors in forecasting, and/or deliberately cautious forecasting.
• In 2006, the federal government conceded that surplus surprises erode the credibility of the budget process and limit the scope of parliamentarians to debate the use of such surpluses.
• If year-end spending hikes over the last decade had instead been used to pay down the national debt, they would have contributed $30 billion to that end.
• The Unanticipated Surpluses Act was introduced in Parliament in 2005 to bring some clarity to the issue of surprise surpluses, but never became law.
• Canada has achieved a remarkable turnaround in its federal fiscal balance over the past 11 years. It is not unique, however, among industrialized countries.
• At least perceptually, reoccurring budget surpluses may resemble a form of over-taxation.
• Despite several tax-reducing initiatives, the proportion of distortive income taxes (personal and corporate) has slightly increased since 1997, while the proportion of consumption and payroll taxes – those associated with higher economic efficiency – has decreased.
• Projections in the last federal budget suggest that reliance on personal income taxes will further increase, while the share of federal revenue from consumption taxes will continue to decline.
• Since the first surplus was reported in 1997, the language used to describe surpluses has changed numerous times. In the late 1990s, a planned surplus was called “underlying balance”; in the early 2000s it was renamed “underlying budgetary surplus”; and, starting in 2006, it became a combination of “planned debt reduction” and “remaining surplus”.

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