Skip to main content

The Globe and Mail

Executives want a budget that prepares for low oil

An oil pump jack pumps oil in a field near Calgary, Alberta, July 21, 2014.

Todd Korol/Reuters

Another year and another federal budget mean another scramble to figure out how to kickstart growth, or perhaps more grimly, steel ourselves for hard times. 2014 is ending with policy makers, consumers and the business community all looking down the barrel of cheaper oil for the foreseeable future. It didn't used to be this way.

Cheap oil used to be a boon. When the Canadian economy was dominated by manufacturing, cheap oil and a cheap Canadian dollar were the sweet spot. Today, executives across all sectors believe that dropping oil prices are bad for the Canadian economy, and a cheap dollar is met with mixed reactions.

Let's assume (as most executives do) that oil prices remain at or below $80 (U.S.) a barrel for the next year or so, knowing that many now predict prices even lower for the foreseeable future. What can we do to position the Canadian economy to weather – if not take advantage of – low oil prices?

Story continues below advertisement

For starters, we cannot afford to deny that a recession is possible, if not looming. Twenty-three per cent of executives, up from 10 per cent in October, now predict the Canadian economy will decline in 2015. Even among resources executives, 62 per cent agree that Canada's economy is too dependent on high prices for oil. Add to that the U.S.-China climate change deal and the risk that low oil prices will undermine Keystone XL approval, and we have stark warning signs that staying the course will not suffice. So, what do Canada's top executives think needs to be done?

The priorities for our national economy are clear: increase our (traditionally weak) productivity, boost gross domestic product growth, add more full-time employment and negotiate free-trade agreements. Increasing consumer demand is decidedly not a priority.

Across the board personal income tax reductions were more popular than targeted cuts, but spending on infrastructure and paying down the debt were far and away the top budget priorities identified by the C-Suite for how to deploy any federal surplus.

In addition to reducing trade barriers, incentives for R&D are sought after as well; a weaker dollar means investment in innovation (most often with imported equipment) will become more expensive. We can't ask corporations to innovate without acknowledging the impact of a low dollar.

Executives want a federal budget that prepares the country for $80, $70 and even $60 barrels of crude oil. The C-Suite suggests targeted infrastructure spending, lowering the cost of innovation, and paying down debt. Indeed, we cannot ignore the possibility that we will need room to take on more debt, should the global economy shrink.

A budget that looks for concrete and efficient means of helping companies innovate, export and grow is more attractive than one that seeks to increase consumer spending. Business leaders are looking for government action that will help make structural changes to reposition Canada's economy in a globalized world.

David Herle is principal and Daniel Oettl is a consultant at Gandalf Group.

Story continues below advertisement

Report an error Licensing Options
Comments

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at privacy@globeandmail.com.