OTTAWA/HALIFAX (Reuters) - Canada has no strong concerns over the inflationary effects of the surge in oil prices spurred by the Libya crisis, nor does it see any significant boost to federal government revenues.
The rising oil prices “puts next to nothing in the federal treasury,” Finance Minister Jim Flaherty said on Friday, downplaying any gain from taxes on corporate profits and suggesting that the oil-rich province of Alberta stands to gain more from royalties.
“It’s not a significant revenue concern for Canada as I prepare the budget,” the minister told reporters following a speech in Halifax, Nova Scotia.
Flaherty will present the 2011 budget next month, billing it as a prudent spending plan that will eliminate a relatively modest deficit by 2015.
Like other policy makers, Flaherty said he is closely watching for any signs of significant oil supply disruptions that are not offset by increased supply from other producers.
Libya’s crude exports have almost halted because of reduced production, a lack of staff at ports and security concerns, industry sources say. Top exporter Saudi Arabia has raised its output above 9 million barrels per day to make up for the disruption.
“We’re watching what’s going on in the oil markets. I don’t think there’s reason now to have any strong concerns about any long-term effects,” Flaherty said.
Canada has so far been largely immune to rising inflationary pressures that have plagued other countries and contributed to uprisings in Egypt and other Middle East and North African countries.
The minority Conservative government appears to be on good footing to meet or possibly improve on its estimate of a C$45.4 billion ($46.3 billion) budget deficit at the end of the fiscal year on March 31, down from a record C$55.6 billion in 2009-10.
The deficit narrowed to C$27.37 billion in the first nine months of the 2010-11 fiscal year from C$39.36 billion a year earlier.
The Canadian dollar hit a near three-year high against the U.S. dollar on Friday just after the narrower budget shortfall was reported.
Flaherty urged provincial governments to move quickly to eliminate their own deficits to give the country a head start over the United States and some European nations that are grappling with gargantuan deficits.
“So like the commitment to keep taxes low ... this would result in a solid, competitive advantage at a time when other countries are struggling to get their fiscal houses in order.”
The federal business tax is scheduled to drop to 15 percent in 2012. Given provincial tax cuts the government aims for the combined provincial and federal rate to average 25 percent.
Flaherty touts the low-tax environment every time he goes abroad in a bid to entice foreign investment. That campaign comes amid signs Canadian businesses themselves are picking up the pace of investment. The central bank and government have been prodding them to invest more for months.
Canadian companies expect to increase capital spending by 3.8 percent in total this year, a Statistics Canada survey showed on Friday, but analysts said the increase is not enough to pick all the slack left by the decline in government spending and could lead to more sluggish economic growth.
The expected rise in private investment for 2011 is less than half the 8 percent increase noted in 2010, and would bring total investment levels to just short of the 2008 peak.
Writing by Louise Egan; editing by Jeffrey Hodgson