Tony Clement told his fellow ministers there would be no year-end spending spree, yet the federal government posted a $9-billion deficit in the final month of the fiscal year.
The large monthly deficit to close out the 2011-12 fiscal year comes after Ottawa posted surpluses in January and February. A report released Friday stated that the higher March expenses were partly due to “workforce adjustment costs” tied to recently-announced budget cuts. Government officials later clarified that the exact amount being set aside for these one-time costs is $900-million.
The March numbers bring the 12-month deficit to $23.5-billion. There will still be some adjustments to the final deficit numbers before they are made official in the fall. Finance Canada’s fiscal monitor, released Friday, states that the numbers to date are in line with the deficit of $24.9-billion for 2011-12 projected in the March 29 budget. That would be a decrease from the $33.4-billion deficit posted in 2010-11.
Mr. Clement, the President of the Treasury Board, sent a letter to ministers and deputy ministers on Feb. 2, specifically urging them not to pile expenses into the books at fiscal year end.
Sonya Gulati, a senior economist with TD Bank, says the March numbers don’t fit the traditional definition of “March Madness” because the spending was largely in transfers to people and other governments. Spending by departments was down 16.5 per cent when compared to March 2011.
“While there’s a lot of surprise at the $9-billion deficit figure for March, I think it may be a timing issue because they really weren’t expecting such surpluses in January and February,” she said. “This may be a bit of payback for those surpluses.”
At $30.8-billion, program spending in March 2012 was 16.3 per cent higher – or $4.3-billion more – than in March 2011, even though last year was the final year of stimulus spending. One of the big reasons for the increase was the $2.2-billion payment to Quebec tied to last fall’s agreement to fully harmonize sales taxes.
Fortunately for Ottawa, federal revenues also increased in March by $1.6-billion, or 6.8 per cent, to $24.4-billion.
At the time of his February letter, Mr. Clement was wrapping up his work as the head of a special cabinet committee on expenditure review, which made recommendations for spending cuts that were ultimately announced in the March 29 budget.
“In the past, we have heard stories about what is known in Ottawa circles as ‘March Madness’ when organizations spend unused operational funds on things such as new furniture, promotional items, stockpiling of IT hardware, and other purchases that fall outside of existing contractual obligations in order to expend their budgets prior to the end of the fiscal year,” wrote Mr. Clement. “This type of expenditure – dictated by the fiscal calendar rather than real departmental needs – is something that our government strongly opposes.”
Editor’s note: An earlier online version of this story incorrectly stated the amount set aside for workforce adjustment. This version has been corrected.