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The federal government recorded a $10.2-billion surplus for the first quarter of the fiscal year, joining some provincial governments in reporting improvements to their bottom lines.

In the same three months a year earlier, the government reported a deficit of $36.5-billion.

The Finance Department’s monthly Fiscal Monitor, which breaks down federal revenue and expenses data to produce year-over-year comparisons, on Friday also reported a $4.9-billion surplus for the month of June, compared with a $12.7-billion deficit in the same month last year.

The federal report attributes the first-quarter change to a 20.9-per-cent increase in revenues owing to “broad-based improvement across revenue streams,” coupled with a 25-per-cent decrease in program expenses as a result of lower transfers to individuals and businesses.

Unlike a budget or a fiscal update, the Fiscal Monitor reports do not attempt to update the government’s forecast for the entire fiscal year.

Finance Minister Chrystia Freeland’s April budget projected a $52.8-billion deficit for the current fiscal year, followed by a $39.9-billion deficit in 2023-24.

Economists who track government finances say high inflation and a strong economy are driving the improved fiscal numbers. They also caution however that there is a possibility that rising interest rates will slow the economy or even push it into recession before the fiscal year is done, which would have a negative impact on Ottawa’s bottom line.

UBC Economist Kevin Milligan said if that downturn is avoided, the first quarter numbers suggest the $52.8-billion projected deficit could be erased entirely.

“I would not rule that out,” he said. “We are going to see a substantial improvement in the budget balance relative to what was predicted in the spring budget.”

Mostafa Askari, chief economist with the Institute of Fiscal Studies and Democracy at the University of Ottawa, agrees Ottawa is trending toward a much smaller-than-projected deficit, but said he doubts the government will finish the year with a balanced budget.

Mr. Askari said the current economic situation is “extremely hard to read” in terms of how the year will play out. Further, he noted that the Liberal government’s track record in past situations where revenues are up is to spend that money, rather than follow through with a smaller deficit.

“The experience so far for them has shown that they try to actually use any room that they get for new spending,” he said.

The Finance Department has not yet released the official deficit figure for the previous fiscal year, which ended March 31. Fiscal Monitor reports showed a $95.6-billion deficit at fiscal year-end, but that number is subject to revisions before it is finalized in the public accounts.

During the height of the pandemic, the federal deficit reached a peak of $327.7-billion in 2020-21.

Some provincial governments have recently updated their financial forecasts, reporting improved bottom lines compared with earlier estimates.

Strong employment numbers, high commodity prices, solid corporate profits and higher-than-expected inflation are all factors contributing to those forecast revisions.

The government of Saskatchewan released a fiscal update this week showing it is now forecasting a $1-billion surplus for the full 2022-23 fiscal year, a $1.5-billion improvement over its budget forecast. The government credited strong resource prices for the change. It also announced that all residents 18 and older would be receiving a one-time $500 “Affordability Tax Credit” cheque this fall.

The Quebec government released a pre-election report this month that said the $6.1-billion deficit for 2022-23 projected in its March budget had been revised downward to $729-million.

In July, the Ontario government’s fiscal watchdog, the Financial Accountability Office, said it projects the deficit for the 2021-22 fiscal year will be $8.1-billion. That would be a $5.4-billion improvement over the province’s 2022 budget projection of a $13.5-billion deficit.

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