Tax Cuts? Ottawa Must First Consider Falling Oil Prices, Economists Say

October 15, 2014 Updated: October 15, 2014

OTTAWA—Economists are warning that Ottawa will have to weigh the potential risks of plummeting oil prices before it starts doling out large tax cuts. 

The federal finance minister has promised the government would live up to its tax-cutting pledges despite a sharp fall in oil prices—thanks to a projected surplus in next year’s budget.

But some economists say Joe Oliver will be forced to pay close attention to the slide since it could well affect Canada’s bottom line. 

A former senior Finance Department bureaucrat says the country’s bank account is very sensitive to the fate of oil prices. 

Scott Clark says amid this uncertainty Oliver has been “almost unbelievably optimistic” about the federal surplus and seems to be downplaying the impact of the oil prices. 

Randall Bartlett of TD Economics says sagging energy prices will ultimately shrink federal tax revenue—but he believes the government has left itself enough room to follow through with its to tax-reduction vows. 

Still, Bartlett expects the low oil prices to give Ottawa pause before it moves forward with its promised cuts. 

Oil is at a two-and-a-half year low.