Peace Tower on Parliament Hill, OttawaSean Kilpatrick
The federal government posted a wider monthly budget gap in August than a year earlier as spending rose faster than revenue, but Ottawa is nonetheless piling on debt at a slower pace for the fiscal year as a whole thanks to a greater tax intake and lower unemployment.
Over all, Ottawa ran a deficit of $5.8-billion in August, 2010, compared to a deficit of $5.3-billion in August, 2009, according to the Finance Department's Fiscal Monitor released Friday.
So far this fiscal year, which began April 1, the deficit is $13.5-billion, down from $23.7-billion during the same five-month period last year. More than half of the year-to-date shortfall is lined to the government's economic stimulus measures such as infrastructure spending, tax cuts and jobless benefits, Finance said.
Government revenues were up 12.5 per cent in August, largely due to more money coming in from personal, corporate and sales taxes. On the spending side, program expenses were up 14.2 per cent from the month before, largely reflecting higher transfer payments including to aboriginal groups.
For the fiscal year to date, spending on government programs has been 4.3 per cent lower than April-August of 2009, while revenue is up 6.7 per cent. The lower spending is due to a drop in Employment Insurance benefits and also reflects a one-time aid package last year for the automotive industry that no longer applies. Revenue is up because the economic recovery has increased tax revenues and helped people get back to work.
Finance Minister Jim Flaherty updated his March budget projections earlier this month, saying the federal deficit will shrink to $45.4-billion in the current fiscal year and Ottawa's books will be back in surplus by the end of 2015-16. The minister's economic update, released Oct. 12, said the deficit for the fiscal year that ended March 31 was bigger than initially projected, at $55.6-billion instead of $53.8-billion.
The government's deficit-cutting plan had a roughly $5-billion hole added to it late last month after Mr. Flaherty said Ottawa won't raise EI premiums as high as originally budgeted. With the Canadian economy slowing down, the government said it had listened to widespread warnings that a steep increase in payroll taxes -- which were frozen during the recession -- would cost jobs.
Mr. Flaherty has said his latest budget projections incorporate economic growth forecasts that account for ``downside'' risks, but returning to surplus may be trickier than anticipated because the turnaround is being held back by a tepid U.S. rebound and weaker consumer spending as Canadian households trim their debt loads. As a result, the government may see a drop in personal and business tax revenues because corporate profits and the labour market could both slow.
The economy will expand 3 per cent this year and 2.5 per cent in 2011, Mr. Flaherty said in his budget update.
Bank of Canada Governor Mark Carney this week released his latest outlook, which forecast the same growth for this year, followed by 2.3 per cent in 2011 and 2.6 per cent in 2012. The central banker also cut his forecasts for the United States in each of those three years, and for the global economy as a whole in 2011 and 2012.