The larger than expected federal deficit due to declining natural resource prices shows the problem with the federal government reliance on the resource sector to provide economic growth.
According to the federal Finance Minister's November 13, 2012 Update of Economic and Fiscal Projections, falling resources prices are the main reason government revenues will be lower than expected. The drop in revenues is expected to add $5.8 billion to the deficit for the current fiscal year.
In the past when the price of natural resources has dropped, other sectors have helped cushion the economic impact. That may no longer be the case.
Canada has become more and more dependent on exports of raw materials. In 1999 unprocessed and semi-processed resources were about 40% of Canada's exports. By 2011 over two-thirds of Canada's exports were unprocessed and semi-processed resources. At the same time Canada lost over 600,000
Governments have the ability to take action on the loss of manufacturing jobs and over-reliance on exports of raw materials. Last June a study funded by Industry Canada found between 33% and 39% of manufacturing job losses were due to the Canadian dollar being pushed up as a result of the resource boom. In May a report from the Pembina Institute outlined ways the government could address the problems for the manufacturing sector and the problems the boom-bust nature of the oil industry causes.
With the long-term approach to the economy that is part of a modern industrial strategy, the federal government would have the ability to keep the impact of a drop in natural resource prices to a minimum. But with the laissez-faire approach of the current government, that opportunity is being squandered.