The Parliamentary Budget Officer says federal finances have deteriorated by nearly $5-billion a year since the government's November fiscal update due to falling oil prices, but Jean-Denis Fréchette also pleased Conservatives by declaring that a balanced budget remains within reach.

Mr. Fréchette released a detailed report Tuesday that analyzes the positive and negative impacts of lower oil prices and lower inflation on federal revenues. It states that low oil prices will reduce federal revenues by as much as $8.2-billion in 2015-16, but there will also be a $3-billion benefit to Ottawa in terms of lower program costs.

Based on the assumption that oil prices stay at $48 (U.S.) a barrel, Mr. Fréchette says the government would be on track for a small deficit after using up the $3-billion (Canadian) Ottawa sets aside each year for contingencies. However, he said a deficit could be avoided relatively easily by making a few spending adjustments.

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"It may not be that difficult," Mr. Fréchette told reporters Tuesday when asked whether the Conservative government can still meet its key political promise of balancing the books in the coming fiscal year. "They have other possibilities. They have other sources of revenues. So it is a possibility for them to have a surplus in 2015-16."

The PBO listed asset sales, delaying capital spending or making accounting adjustments to public-sector compensation as the kind of options the government could take in order to turn a small projected deficit into a projected surplus. The PBO also notes that the 2015 budget will simply be a forecast and that it won't be until the fall of 2016 that official records will show whether the deficit was erased.

Federal budget predictions: Two scenarios

SOURCE: Office of the Parliamentary Budget Officer

The PBO's overall conclusions were welcome news for Prime Minister Stephen Harper, who has been on the defensive over his government's fiscal plans since Finance Minister Joe Oliver announced earlier this month that a 2015 budget won't be released until at least April.

"I note that the Parliamentary Budget Officer himself has said today that even looking at his own numbers the government will be capable of balancing the budget this year," Mr. Harper told the House of Commons. "We are not in recession. We have every intention of balancing the budget."

The PBO report is in line with recent analyses from private-sector economists who say that low oil prices put federal finances on track for a small deficit, but that policy changes can be made to avoid that outcome. Mr. Oliver has insisted that he won't raise taxes or announce new spending cuts in order to achieve a balanced budget, leaving it unclear how exactly the government can close the gap and post a surplus.

One key factor is whether the government maintains the practice of setting aside $3-billion a year in its forecasts for unforeseen events, commonly referred to as a contingency fund. The government has delivered mixed messages on that question. The PBO report assumes the government will stop the practice.

Mr. Oliver said this week that he was "not precluding the use of the contingency fund" to balance the books, but that the answer would be revealed in the budget. On Tuesday, he said the PBO report shows the government is "well within the margin of being able to balance the budget."

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Opposition finance critics said Tuesday that if the government is so confident in its numbers, it should not delay the release of the budget.

"For the Prime Minister to actually see that report as an affirmation that we're on track to have surpluses is ridiculous," said Liberal MP Scott Brison.

NDP MP Nathan Cullen accused Mr. Oliver of "hiding under the covers" as low oil prices worsen the government's bottom line.

Mr. Oliver's November fiscal update assumed a constant oil price for West Texas Intermediate – the North American benchmark for crude – of $81 (U.S.) a barrel. Based on that assumption, Finance Canada projected a deficit of $2.9-billion (Canadian) in the current 2014-15 fiscal year, followed by a $1.9-billion surplus in 2015-16 and a $4.3-billion surplus in 2016-17 that would grow to $13.1-billion by 2019-20.