Finance Minister Mike de Jong should perhaps watch more of those competitive poker TV shows, because it looks like he's playing his budget hand all wrong right now.
His insistence that he will deliver a surplus budget next spring is akin to drawing to an inside straight, and every good poker player knows how difficult that is to pull off. It rarely turns out to be a successful ploy, and I suspect de Jong will discover just how hard that is come February, when he delivers his first budget.
He claims that not only will he bring in a balanced budget, but that it will have a surplus. But the numbers from his latest financial update - the second quarterly report - suggest that would appear to be a near-impossible feat to accomplish.
This year's budget deficit is now pegged at $1.37 billion (up from the $768-million deficit when the budget was tabled back in February). So de Jong expects to make that massive deficit not only disappear, but to turn into a surplus over the next year.
The government publishes a three-year fiscal plan with every budget, so it's actually possible to see what his planned budget will look like. And it exposes several large holes in de Jong's forecast.
For example, the fiscal plan projects revenues from natural gas royalties to exceed $600 million next year, at a time when revenues in that area have been declining as a glut of natural gas on the North American market has meant lower sales and depressed prices.
This year, natural gas revenues are now expected to be just $157 million, down from a forecast of almost $400 million. De Jong has provided no evidence that not only will that slide halt, but that the market will come back to life in such a major way.
That's one hole. Another is the anticipated $130million increase in property transfer taxes, at a time when housing sales have slowed (taxes in this area are down about $95 million this year). The housing market would have to have a big rebound to deliver that kind of revenue to the government.
A balanced budget also anticipates some big growth in other revenue areas as well: personal income tax revenue ($140 million) and health and social transfers from the federal government ($390 million).
In all, the fiscal plan envisions an additional $2.1 billion in revenue suddenly materializing next year. This year, revenues grew by less than $600 million (about half of what was forecast) so it is difficult to see where this optimism comes from. In fact, if revenues are down even a small amount from this generous forecast, the budget will be in deficit.
Compounding the situation is that there is not a lot of room on the spending side of the equation to make up for any loss in revenues.
The election will occur three months after the budget is introduced, so it would be political suicide to engage in huge spending cuts. Of the government's $44-billion budget, almost $37 billion of that goes to health care, education, social services, debt servicing and personal protection.
Would de Jong seriously cut health care or education, or reduce welfare benefits, or cut back on law enforcement just before an election? I highly doubt it.
The government has already cut the low-hanging fruit that it traditionally looks at when times get tight (reducing travel costs, implementing a hiring freeze, etc.) so there's not much there to have an impact if those rosy revenues turn out to be not so rosy.
This all raises the question of why de Jong is even trying to deliver a surplus budget in such lean times. Why not simply wait a year or two until the economy turns around enough to get those revenue streams moving again with realistic expectations?
Then there's the elephant in the room. That would be the serious credibility problem attached to pre-election budgets.
The 2009 budget, delivered just before the election campaign, turned out to be a giant work of fiction as it went from a projected surplus to a huge deficit - a fact revealed only after the votes were counted.
So perhaps it is best for our finance minister to fold his hand and wait for a better one. Drawing to that inside straight may not be worth the gamble.