FISCAL MONITOR FOR APRIL TO AUGUST 2013
For the first five months of fiscal year 2013-14, the federal government posted a deficit of $6.8 billion, a decline of $0.4 billion from that reported in the same period in 2012-13. Given the results to date, coupled with the fact that the final outcome for 2012-13 was nearly $7 billion lower than forecast, the budgetary balance projections for 2013-14 and beyond are clearly out-of-date and the commitment to balance the budget in 2015-16 appears to be secured.
Of the $0.4 billion decrease in the deficit to date, budgetary revenues were up $2.3 billion, public debt charges were $0.1 billion lower, while program expenses were $1.8 billion higher.
Within budgetary revenues, the year-over-year changes to date for all major components were higher, with the exception of corporate income taxes (down $0.3 billion) and excise taxes duties ($0.1 billion).
Personal income taxes were up only 2.3 per cent, about half the rate of growth expected for the year as a whole. Corporate income taxes were down 2.4 per cent, compared to the Budget 2013 estimate of an increase of 4.8% for the year as a whole. Total excise and duties were down 0.7%, compared to the March 2013 Budget estimate of an increase of 1.6% for the year as a whole. The increases to date in employment insurance contributions and other revenues were roughly in line with the March 2013 Budgets expectations. On balance, budgetary revenues increased by 2.2% on a year-over-year basis, compared to a 4.3% increase in the March 2013 Budget forecast for the year as a whole.
The increase in program expenses to date of $1.8 billion is well above the March 2013 Budget expected increase of $1.6 billion for the year as a whole. Most of the difference is attributable to “direct program expenses”, up $0.6 billion on a year-over-year basis, compared to a March 2013 Budget expected decline of $2.9 billion for the year as a whole. Some of this difference is due to the timing in the recording of liabilities. For example, the March 2013 Budget estimate for 2012-13 includes the recording of a $2.1 billion for AECL’s environmental liabilities, which was recorded in the “end-of-year” accounting period.
In the March 2013 Budget, the deficit for 2013-14 was estimated at $18.7 billion, $7.2 billion lower than the March 2013 Budget estimate of $25.9 billion for 2012-13. However, the final outcome for 2012-13 came in at $18.9 billion; nearly $7 billion lower than forecast. Given the deficit outcome for 2012-13, the current deficit forecast for 2013-14 is clearly out-of-date. Some, if not all, of the better-than-expected outcome for 2012-13 will carry-forward into 2013-14 and beyond. The 2013-14 deficit forecast of $18.7 billion includes a $3 billion “risk adjustment factor” which, if not needed, would reduce the deficit by a comparable amount. Incremental restraint measures announced in previous budgets are estimated at $4.3 billion for 2013-14. In addition, economic growth for 2013 is expected to increase at about the same pace as in 2012. All these factors are expected to result in a much lower deficit for 2013-14 than forecast in the March 2013 Budget and probably lower than the $18.9 billion outcome for 2012-13.
However, there are a number of one-time factors which distort that year-over-year change. The 2012-13 deficit outcome includes a one-time $2.1 billion environmental liability for AECL, which inflated the deficit outcome for 2012-13. Adjusting for this implies an underlining deficit of $16.8 billion for 2012-13. In addition, the Government will need to take into account federal liabilities related to the Alberta floods and the rail disaster in Lac-Megantic. Reports indicate that the federal liabilities for these disasters could exceed what has been paid out to date (since 1970, $2.3 billion has been paid) under the Disaster Financial Assistance Arrangements program. In order to ensure that the federal government’s liabilities with respect to these disasters do not affect the government’s balanced budget target for 2015-16, it will try to book as much of these liabilities in 2013-14 as possible.
The Minister of Finance will provide a new estimate for 2013-14 in the upcoming fall update as well as new projections of the budgetary balance for the period 2014-15 to 2018-19. The update is expected in the latter half of November.