FISCAL MONITOR APRIL TO MAY 2013: A DISAPPOINTING START
For the first two months of fiscal year 2013-14, the federal government posted a deficit of $2.7 billion, up $0.9 billion from the same period in 2012-13. In the March 2013 Budget, the deficit is expected to decline by $7.2 billion for the year as a whole. Although the current results are at odds with the expected decline for the year, at least five to six months of financial data are required before one can assess the expected decline for the fiscal year as a whole.
In addition, final results for 2012-13, which will be released in the early fall, are required to fully understand the current year’s fiscal results. For example, if, as expected, the final audited deficit outcome for 2012-13 is lower than that estimated in the March 2013 Budget, some, if not all, of this improvement could carry forward into 2013-14, thereby resulting in a lower outcome that currently estimated.
Of the $0.9 billion in the increase in the deficit to date, budgetary revenues were up $0.6 billion. This increase, however, was more than offset by higher program expenses (up $1.4 billion) and higher public debt charges (up $0.1 billion).
Within budgetary revenues, the year-over-year changes to date for all major components were lower than what is expected for the year as a whole. Personal income taxes were up only 1.5%, compared to the March 2013 estimate of 4.2%. Corporate income taxes were up only 2.1% compared to the Budget 2013 estimate of 4.8% for the year as a whole. Total excise and duties declined by 5.4% for the year to date, compared to the March 2013 Budget estimate of an increase of 1.6% for the year as a whole.
The increase in program expenses to date of $1.4 billion is nearly equal to the expected increase of $1.6 billion in the March 2013 Budget for the year as a whole. Most of the difference is attributable to “direct program expenses”, up $0.6 billion in April-May 20013 on a year-over-year basis, compared to a March 2013 Budget expected decline of $2.9 billion for the year as a whole.
The 2013 Budget forecast that the deficit would decline from an estimated $25.8 billion in 2012-13 to $18.7 billion in 2013-14, a decline of $7.2 billion. According to the 2013 Budget, about $4.3 billion of this decline is attributable to the impact of restraint measures introduced in previous budgets, leaving about $3 billion due to other factors.
Some of the differences, between the results to date compared to the March 2013 Budget, are attributable to the timing of payments and receipts. For example, the Department of Finance states in the April-May 2013 Fiscal Monitor that the year-to-date increase in “other direct program expenses” was largely due an “an increase in the accrual cost of employee and veteran future benefits”.
Although more monthly data are required to assess the results to date, the April to May 2013 results are disappointing. One would have expected a year-over-year decline in the deficit, given the impact of the restraint measures announced in previous budgets. However, the increases in expenses and the weakness in the growth in budgetary revenues to date imply that over the balance of the year significant improvements in the budgetary balance are required to achieve the forecasted decline of $7.2 billion.