April 20, 2015 / 6:59 PM / 4 years ago

Oil plunge to dim vote-getting sparkle of Canada pre-election budget

OTTAWA (Reuters) - The dive in oil prices last year means the budget that Canadian Finance Minister Joe Oliver delivers on Tuesday will contain fewer big treats for voters in October’s election than the Conservative government had hoped.

The right-of-center Conservatives, seeking a rare fourth consecutive election win, had initially forecast a C$6.4 billion ($5.2 billion) budget surplus for the 2015-16 fiscal year and made no secret that they would put forward some hefty tax cuts.

But oil is a major Canadian export and with oil prices roughly halving between June 2014 and January 2015, government revenues were cut so heavily that Oliver is now promising merely to balance the budget after years of deficits.

Oliver said earlier this month “we will continue to put more money back into the pockets of Canadians to make life more affordable” but he has little room for big initiatives.

“They have a thin margin of error in the current fiscal year,” said Avery Shenfeld, chief economist at CIBC World Markets.

Oliver’s ability to push vote-getting measures is hemmed in by Ottawa’s unveiling last October of around C$27 billion in family tax cuts and benefits over six years.

The package was introduced early to ensure voters would receive checks before the election. Conservative Prime Minister Stephen Harper says opposition parties would scrap the measures if they win an election that polls say is too close to call.

Still, the government has hinted the budget could contain measures to build infrastructure and boost manufacturing. Last week, Ottawa eliminated remaining tariffs on machinery, equipment and inputs, a move first announced in the Conservatives’ 2010 budget.

Oliver must also find money for security after law enforcement officials said new measures to combat terror attacks could be crippled by limited resources. And Canada’s extension of its mission against Islamic State forces by a year to April 2016 will cost around C$400 million.

Oliver has signaled the budget will fulfill a 2011 campaign promise to double the amount people can contribute to tax-free savings accounts.

Shenfeld said the Conservatives, first elected in 2006, might promise further breaks once a sluggish economy recovers.

“A budget can look out more than one year ... so there could be some measures that are designed to appeal to voters and that will kick in the 2016-17 fiscal year.”

And in a move that could boost budget revenue, the government sold its last stake in General Motors earlier this month, 73.4 million shares worth about $2.7 billion.

($1=$1.22 Canadian)

Reporting by David Ljunggren; Editing by Peter Galloway

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