OTTAWA—A national election destined to play out against a highly uncertain economic picture kicks into gear on April 21 with the unveiling of Finance Minister Joe Oliver’s long-awaited budget.

Oliver, who only recently announced the budget date, looms as a key figure in the run-up to the vote in October that will provide Prime Minister Stephen Harper’s Conservatives with an opportunity to win a fourth consecutive mandate.

While security and terrorism have featured heavily in Ottawa in the past few months, many expect the election will be ultimately decided on the practical, day-to-day economic issues that impact Canadians’ pocketbooks.

The budget will stake out the Conservatives’ pre-election economic strategy, which is built around balancing Ottawa’s books for the first time in eight years and showering families with children with goodies in the way of tax breaks and more handouts.

Unveiling the budget date, Oliver confirmed the government’s long-trumpeted plan to eliminate the budget deficit, which saw Ottawa’s spending outpacing revenues by $16 billion as recently as two years ago, in 2015.

“It will be a balanced budget, just as we promised,” Oliver said. “We’re not looking at a budget that will be cutting. We’re looking at a budget that will be providing benefits to Canadians and encouraging more job growth.”

The minister provided few details, but if the Conservatives hope to avoid a deficit, they will likely find it hard to add any big-ticket spending items beyond what has already been announced.

That’s because Harper has already emptied the cupboard with spending and tax-cut measures announced in the fall.

The last federal budget in February 2014 forecast a budget surplus of $6.4 billion for 2015. But late last year, Harper said the Conservatives would fulfil a 2011 election campaign promise by bringing in income-splitting on tax returns for families with children, which costs Ottawa about $2 billion a year in foregone revenue.

To address complaints that income-splitting would help only about 15 per cent of families, mainly those with one stay-at-home spouse and one high-income earner, the government also decided to enhance the Universal Child Care Benefit (UCCB). This family allowance increase will cost Ottawa about $4.3 billion a year.

Harper’s spending spree last fall came just as oil prices were unexpectedly tanking. Factoring in the new tax and spending measures and the negative hit from lower oil prices on Ottawa’s financial picture, the finance department’s forecast for the 2015 surplus had been reduced by November to $1.6 billion.

The fallout for Ottawa’s books was so unpredictable that Oliver postponed the budget past the usual February-or-March time slot to gain time to assess the damage.

With oil now in the $50 (U.S.) a barrel range, many economists believe Oliver will have to tap the $3-billion rainy day fund in the budget to avoid slipping back into a deficit in 2015.

“I’m sure they are going to balance the budget but there won’t be a lot of money left to work with” after the impact of lower tax revenues from the petroleum sector are applied to the government’s fiscal picture, said BMO senior economist Robert Kavcic.

If the budget contains any new spending, “it will have to be something that stretches out over a number of years,” Kavcic added.

But the Conservatives have two other promises left over from the 2011 election and both are likely to be in the budget. Harper promised to double the $5,000 annual contribution limit for tax-free savings accounts and to bring in an adult fitness tax credit. Both pledges were contingent on achieving a balanced budget.

The rollout of the Conservatives’ fiscal and economic plan later this month will begin to provide clear divisions between the three main federal parties as the election outlook firms up.

Both the NDP and Liberals will campaign on a promise scrap income-splitting for families. Both parties say it is a waste of money because it will help so few families, mainly those in which one breadwinner is in a high income-tax bracket and the other stays home.

Loading... Loading... Loading... Loading... Loading... Loading...

But NDP Leader Thomas Mulcair has said his party would not reverse Harper’s hefty increases in the family allowance. In addition, a prominent feature of NDP campaign policies will be a national daycare plan that would cost Ottawa $1.9 billion annually as of 2018. To finance this program, the NDP would partly rescind recent Conservative cuts to corporate income taxes.

Liberal Leader Justin Trudeau has said his party, if in government, would use the savings from eliminating income-splitting to finance economic growth projects, education and other programs meant to help middle-class Canadians. The Liberals have not taken a position on whether to keep or scrap the increases in the child-care benefit.

The sparring over these choices is likely to be bitter. Harper says, for instance, the NDP and Liberals would scrap income-splitting for pensioners, a program introduced by Harper in 2006. Neither opposition party has said it would do so.

How all this plays out as the election approaches will be shaped by evolving economic trends that have become a major unknown in the wake of the oil price collapse.

Canada’s economy contracted by 0.1 per cent in January and the outlook for the first half of 2015 is grim, as the oil sector’s problems reverberate through the rest of the economy. Bank of Canada Governor Stephen Poloz said the first three months of this year will be “atrocious” for Canada’s business conditions.

Economists have been lowering their forecasts for the economy this year, and the already listless unemployment picture is likely to worsen to the 7 per cent range as the October election nears.

Against this backdrop, the question of whether to pump a significant amount of new stimulus spending into the economy to improve the outlook looms as a potentially decisive issue.

NDP finance critic Nathan Cullen said the Conservative focus on deficit cutting at a time of declining oil prices has left Canadians with a weakened economy. “They’ve got a real problem and they don’t know what to do about this,” he said of the Conservatives. “If plan A didn’t work, where’s plan B,” he asked of Harper’s economic strategy.

The NDP has called for Ottawa to spend more on infrastructure to stimulate the economy and refurbish Canada’s cities, promising to turn over another one cent per litre of the existing gas tax to municipalities. The NDP would also bring in an Innovation Tax Credit — at a cost of $40 million annually — to give businesses an incentive to put money into the infrastructure used for “innovation-boosting research and development.”

But despite the slowing economy, the government continues to brush off calls for an intense program of economy-boosting spending, choosing instead to concentrate on ending its budget deficit.

Harper is reiterating the need for fiscal care, saying having budget surpluses is valuable protection in case the economy tumbles.

“Let’s just be clear why this is important. . . . When governments don’t balance their budget, we know what happens. Those deficits tend to become bigger and bigger over time,” he said Thursday.

Read more about: