The Federal Budget Surplus: Surprise or Strategy?
Canadian federal government registered 11 consecutive budgetary surpluses between 1997 and 2007. In the Canadian context, the federal surplus often has two components: the planned component and the surprise component; the latter appearing when the actual budgetary balance exceeds the planned surplus. This paper discusses whether the constantly reappearing federal budget surprise surpluses are a desirable attribute of the budgetary policy. To this end, the paper presents a brief overview of the federal surplus, the main causes leading to their reappearance, and examines negative implications associated with federal surpluses. The analysis shows that surprise surpluses may lead to eroding the credibility of the budget process, increasing pressure to spend the excessive fiscal room, pro-cyclical nature of fiscal policy and eroded vigilance of maintaining a steady level of spending. Inaccurate budget projections, but also the invisible political pressure to avoid deficits are among the main causes of the surprise surpluses.
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