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The Globe and Mail

Battle to slay the budget deficit continues to stall

Sean Kilpatrick/Sean Kilpatrick/The Canadian Press

The Department of Finance estimates that the budget balance for the fiscal year 2010-11 will come in below what had been forecasted, and well below the deficit of 2009-10. It was expected and hoped that the budget balance would improve as the economy did, but there's less room for optimism than might be suggested by these reports.

The problem is that the rebound from the trough seems to have stalled sometime around July 2010. The Department of Finance publishes monthly estimates for revenues and expenditures; last Friday's announcement accompanied the release of the March 2011 numbers.

These estimates are noisy and have a significant seasonal component, but looking at the data from the past 12 months gives a fairly reliable indicator of where the budget balance is headed; see the accompanying graph.

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The steep decline in the 12-month moving sum that was produced by the recession finally turned around in early 2010, but the rebound lasted only a few months. The deficit has been stalled in the $35-billion a year range for the past 8-10 months.

The graph also makes it clear that the trend to deficit began in early 2008, several months before the recession began. The federal government's decision to cut the GST would have produced a deficit even if the economy had remained stable.

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About the Author

Stephen Gordon is a professor of economics at Laval University in Quebec City and a fellow of the Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE). He also maintains the economics blog Worthwhile Canadian Initiative. More

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