Canada retools budget to address oil shocks

Government said the severity of the collapse in oil prices is 'substantial.'
By Daniel J. Graeber Follow @dan_graeber Contact the Author   |   March 23, 2016 at 6:34 AM
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OTTAWA, March 23 (UPI) -- A budget for a Canadian economy under pressure from lower crude oil prices aims to return a sense of optimism for future generations, the finance minister said.

The Canadian government, in its unveiling of a new economic approach for 2016, said the decline in crude oil prices has already taken a toll on the economy and will continue to exert pressure moving through the year.

"The magnitude of the shock facing the Canadian economy is substantial," the outlook said.

The government said it expects to run a deficit of around $22.5 billion through fiscal year 2017, a figure that will gradually decline to a deficit of $11 billion by the end of fiscal year 2021.

Canada's economy relies heavily on oil and natural gas. The provincial government of Alberta, where most of the oil and gas sector is centered, said the pressure from lower crude oil prices meant it was facing a budget crisis not seen in roughly 25 years.

Alberta said it expects to linger in recession. The economy, measured in real gross domestic product, should shrink by 1.1 percent in 2016, after a 1.5 percent decline for full-year 2015. The total revenue forecast for the fiscal year of $31.2 billion is $478 million lower than estimated in the budget last year. For the nation as a whole, GDP growth has been below 2 percent for the past four years.

A new budget aims to create roughly 100,000 new jobs and boost GDP by about a half percentage point per year by focusing on middle-class development and a low-carbon economy. Justin Trudeau embraced a low-carbon agenda when he ascended to the office of prime minister last year. The former Liberal Party leader said from the World Economic Forum in Davos, Switzerland, earlier this year the country could push a low-carbon agenda without compromising economic growth opportunities.

"Recognizing that protecting the environment and growing the economy go hand in hand, the government will invest in clean technologies that address climate change, air quality, clean water, and clean soil," Finance Minister Bill Morneau said in a statement.

The budget envisions $38 million in spending on a low-carbon economy that aims to cut the emissions generated from the nation's oil and gas sector. A plan to keep money geared toward the energy industry, however, was met by frustration from advocacy group Oil Change International, which said the Canadian government was missing out on an opportunity to support clean energy development.

For Morneau, the budget plan is about future development for a Canadian economy in the midst of fundamental change.

"Our plan will recapture the hope and optimism for the future that existed in previous generations, and put it to work for the next," he said.

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