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Minister of Finance Jim Flaherty responds to a question in the House of Commons in May. Earlier this year, Mr. Flaherty browbeat banks that dared offer five-year mortgages at less than 3 per cent. Now rates are headed for 4 per cent on the same mortgage. (Adrian Wyld/The Canadian Press)
Minister of Finance Jim Flaherty responds to a question in the House of Commons in May. Earlier this year, Mr. Flaherty browbeat banks that dared offer five-year mortgages at less than 3 per cent. Now rates are headed for 4 per cent on the same mortgage. (Adrian Wyld/The Canadian Press)

Ottawa on track to reduce deficit by about $7-billion this year Add to ...

Three months into the current fiscal year, the federal government says revenues and expenses are coming in as expected and the government is on track to reduce the deficit by about $7-billion this year.

Ottawa posted a surplus of $158-million in the month of June, an improvement over the $993-million deficit recorded in June 2012. For the first three months of the fiscal year that began April 1, the federal deficit stands at $2.6-billion, an improvement over the $2.8-billion deficit recorded during the same three months a year earlier.

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Monthly financial data can be volatile given that the timing of various payments can vary from year to year. However at the end of each quarter, Finance Canada provides an assessment of how federal finances are shaping up for the year.

“The financial results for the first three months of the fiscal year provide limited information with respect to the outlook for the year as a whole,” the report cautions. “That being said, the financial results for the April to June 2013 period and recent economic developments suggest that the fiscal projection presented in [the 2013 budget] is on track.”

The March 2013 budget estimated that the deficit for the current fiscal year (2013-14) will be $18.7-billion. The final numbers for the previous fiscal year have not yet been released, but the budget estimated the 2012-13 deficit at $25.9-billion.

Finance Minister Jim Flaherty displayed a high-level of confidence in his deficit projections earlier this month.

“We’re going to balance the budget without doubt in 2015,” Mr. Flaherty said last week at a policy retreat in Wakefield, Quebec.

The government is currently forecasting a return to surplus in the 2015-16 fiscal year.

Mr. Flaherty likely won’t be thrilled however with the latest figures on economic growth.

Statistics Canada reported Friday that the Canadian economy contracted in June for the first time in six months.

Analysts noted that this slowdown in June was largely expected because of the Alberta floods and the Quebec construction worker strike.

“Canadian GDP was generally in line with expectations but we repeat the assertion that it is shock-laden and therefore the slowdown is artificial,” said a research note from Scotiabank Economics. “Don’t spend much time on this print as it is difficult to distinguish between the shock effects and underlying momentum in the Canadian economy.”

While many economists say the precise year of returning to balance is of little significance provided the deficit is shrinking and headed toward surpluses, the timing is politically important for the Conservative government.

Prime Minister Stephen Harper successfully campaigned in the 2011 election on a platform in which several promises were contingent on first erasing the deficit, which at the time the Tories promised could be done by 2014-15. The platform also indicated how much each of these promises would cost in terms of foregone tax revenue.

They include a $2.5-billion a year pledge to introduce income splitting for families with dependent children under 18; a $130-million a year plan to double the children’s fitness tax credit; a of $275-million a year pledge to establish an adult fitness tax credit and doubling the amount Canadians can save each year in tax-free savings accounts, which the platform said would cost $30-million a year.

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