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The federal government is heading for a record tax haul and another massive surplus after revealing Friday it has accumulated a $9.3-billion surplus in the first six months of the current financial year.

The Finance Department said Friday it took in $2.6-billion more in revenues in September than in the same month last year.

That meant Ottawa was able to squirrel away an additional $700 million surplus for the month, despite increased program spending, compared with a $1.3-billion deficit it recorded in September 2006.

The department noted that the half-year results announced Friday don't reflect tax cuts announced Oct. 30.

At the time, Finance Minister Jim Flaherty called the country's “economic and fiscal fundamentals as solid as the Canadian Shield,” while introducing $60-billion in tax cuts over five years, including $4.8-billion in tax relief that was either retroactive or slated to begin in January 2008.

John Williamson, federal director of the Canadian Taxpayers Federation, said making some of the tax cuts retroactive was a clear signal the government is facing an embarrassment of riches.

“You don't normally see retroactive tax cuts unless you have a publicly embarrassing problem or unless you are going to an election,” Mr. Williamson said.

“Without the changes it was going to be a record year for the surplus, and even after making the retroactive tax changes, there's still a possibility we'll have a record year.”

The government's highest annual surplus was $19.9-billion in 2000-2001, under the Chretien Liberal government.

According to the fiscal update of Oct. 30, the Finance Department projects the surplus will settle at $11.6-billion for the 2007-2008 fiscal period.

The picture looks even better for the government if other sources of revenue are included. The six-month “financial source-requirements measure” — which calculates all cash coming in, versus going out, and includes non-budgetary capital assets, government investments and foreign exchange activities — had a surplus of $13.4-billion, up from $3.1 billion a year ago.

Perhaps the most stunning aspect of the government's finances is the rate at which revenues keep rising, month after month.

In September, the government posted $19.7-billion in revenue, a 15 per cent increase over the same month last year, largely as a result of a 12 per cent jump in income tax revenue and a 9.5 per cent higher take in corporate taxes. Revenue from corporate taxes was up 21 per cent over the first six months.

“The corporate tax (revenue) is consistent with a preliminary report we got (Thursday) on quarter three profits, which are remaining strong, including amazingly enough in the manufacturing sector,” said Toronto-Dominion Bank's chief economist Don Drummond.

He suggested that a lot of the loss carry-forward pools — which allow companies to reduce income taxes by offsetting current profits with past losses — have now dried up after several years of growth.

“So more and more, corporations are paying the full amount of tax because they have no loss carry forward to deduct it against,” Mr. Drummond said.

Program spending also increased during the month by $800-million, or 5.2 per cent — mostly for higher transfer payments — but this was not nearly as high as revenues jumped. And the government spent $200-million less on servicing the slimming national debt in September.

For the first half of the year, government revenues have jumped by $8.5-billion to $118.8-billion, a 7.7 per cent hike.

Revenues from personal income taxes account for $2.5-billion of that increase, while corporate taxes were up by $3-billion and the rest came from other sources.

Program spending for the period was up six per cent to $92.5-billion.

Mr. Williamson said the growing surplus means Mr. Flaherty will have room for both additional tax cuts and increased program spending in the next budget, expected in February.