New numbers from the Finance Department indicate the stronger economy is helping the federal government run smaller budget deficits than at the same time last year, as tax revenues increase.
Through the first two months of the current fiscal year, April and May, Canada's deficit sits at $4.4-billion, compared with $7.5-billion in the same period of 2009 when the economy was still in recession. Finance Minister Jim Flaherty’s budget in March shows the government projects that the $54-billion budget shortfall it had at the end of the last fiscal year will shrink to just over $49-billion this year.
The new figures released Friday are part of Finance's monthly Fiscal Monitor report, which breaks down the money flowing in and out of the government's general revenues.
The government took in $2.4-billion more in taxes during April and May compared with the same months in 2009, the report said, including a 4.2 per cent increase in personal income-tax revenues as Canada’s economy created almost 134,000 net new jobs in the two-month period. However, corporate income-tax revenue dropped by 13.5 per cent, according to the report.
About $1.8-billion of the deficit so far this fiscal year is attributable to the Conservative government's stimulus measures – called the Economic Action Plan – which includes tax cuts and infrastructure spending.
Total program expenses were $36.4-billion in the two months, a decrease of about $500-million or 1.4 per cent from the previous year. Employment Insurance transfers dropped 3.3 per cent, while benefits for the elderly increased 2.5 per cent, the report said.
The government’s debt charges fell by $200-million, due to lower average interest rates on its stock of interest-bearing debt. Record overseas demand for Canada’s relatively safe government bonds is helping Ottawa fund a few more years of deficit spending without much fear of being crippled by interest payments.
Economists said the April-May data indicate the government is on track to cut its budget deficit by two-thirds over the next three years as outlined in the March fiscal plan, and consequently will have no trouble meeting the targets that Canada pushed at the Group of 20 meeting in Toronto, for nations to slash their shortfalls by half before 2013 and stabilize their debt-to-gross domestic product ratios by 2016.
``These medium-term targets appear to be well within reach, especially in light of the better-than-expected economic and job performance so far this year,’’ said Pascal Gauthier, a senior economist with TD Economics. ``While early in fiscal 2010-11, the government appears on track to beat its Budget projection for a deficit of $49.2-billion. If the last fiscal year and our own economic forecasts are any guide, the deficit should lie somewhere in the $42-45-billion range.’’
