Fiscal Monitor for April to October 2013
For the first seven months (April to October) of the fiscal year 2013-14, the federal government posted a deficit of $13.2 billion, an increase of $1.3 billion from that reported in the same period in 2012-13. The year-over-year increase in the deficit was more than attributable to a $2.8 billion liability for disaster assistance for the 2013 floods in Alberta. In the absence of this liability, the federal deficit would have been $1.5 billion lower.
Budgetary reveues were up $4.1 billion, public debt charges were marginally lower, while program expenses increased by $5.4 billion.
Within budgetary revenues, all major components were higher with the exception of corporate income taxes and other excise taxes and duties.
Personal income taxes were up by $2.2 billion, which is about 40% of the increase expected for the year as a whole in the November 2013 Update of Economic and Fiscal Projections. Corporate income taxes declined by $1.0 billion, compared to no change expected for the year as a whole. GST revenues increased by $0.4 billion, less than half the increase expected for the year as a whole. Other excise taxes and duties were $0.2 billion lower, whereas a slight increase is expected for the year as a whole. Employment Insurance (EI) premiums were up $1.0 billion over the first seven months, reflecting increases in the contribution rates (the employee premium rate increased from $1.83 per $100 of insurable earnings in 2012 to $1.88 in 2013 and 2014) and a 3.3% increase in the base to which the premium rates apply. The increase to date is about what is expected for the year as a whole. Other revenues were up $1.4 billion, of which half is attributable to a net gain of $0.7 billion from the sale of General Motors common stock. In the November 2013 Update, an increase of $0.5 billion is expected for the year as a whole.
For the first seven months of 2013-14, total budgetary revenues are up by $4.1 billion on a year-over-year basis, compared to a $8.6 billion increase expected in the November 2013 Update for the year as a whole. The sluggishness in revenue growth to date implies that all of the $1.5 billion "risk adjustment factor" included in the November 2013 Update will be required and that growth in revenues will need to pick up over the balance of the year if the November 2013 Update forecast is to be realized..
Within program expenses, all major components were higher in he April to October 2013 period. Major transfers to persons increased by $1.0 billion on a year-over -year basis, with virtually all of the increase attributable to higher elderly benefits, reflecting an increase in the eligible population base and in average monthly benefits, which are indexed to inflation. EI benefits were marginally lower, as a decline in the number of people eligible to receive benefits more than offset an increase in average benefits. Children's benefits were marginally higher. On balance, the increase in major transfers to persons to date is roughly in line to what is expected for the year as a whole. Major transfers to other levels of government were up $1.2 billion on a year-over-year basis. Virtually of the increase was attributable to higher legislative increases for the Canada Health Transfer. Again, the increase to date is broadly in line to that expected for the year as a whole.
Direct program expenses, consisting of other transfers/subsidies, Crown corporation expenses and departmental/agency expenses, increased by $3.3 billion on a year-over-year basis, with most of the increase attribtuable to the booking of the $2.8 billion liability for the Alberta floods. In the November 2013 Update, an increase of $3.0 billion is expected for the year as a whole. However, the year-over-year comparisons are currently distorted by the timing of bookings for various liabilities. In 2012-13, such bookings amounted to over $3 billion, but were largely recorded at the end of the fiscal year. Excluding the impact of these liabilities, the year-over-year increase in direct program expenses suggest that the final outcome for the year as a whole could again be lower than that currently forecast.
On balance, the year-over-year increase in total program expenses to date is somewhat lower than that expected for the year as a whole. If this materializes, it could offset most, if not all, of the sluggishness in revenues witnessed to date.
In the November 2013 Update, the Minister of Finance revised his deficit forecast for 2013-14 to $17.9 billion, down only $1.0 billion from the final audited outcome for 2012-13. This is less significantly less than the improvement of $7.4 billion recorded between 2011-12 and 2012-13. With the ending of the stimulus spending, coupled with the incremental impacts of the various restraint measures announced in previous budgets, one woulkd have expected a much larger improvement in the deficit for 2013-14, from that reported in 2012-13.
Economic and fiscal forecasting is more of an "art than a science". The risks and uncertainties are well documented in the Economic and Fiscal Update November 2005 Annex 1. Little new information will be forthcoming until large corporations file their final tax settlements for their 2013 taxation year in December, February and March (in these three months up to 45% of corporate income tax revenues are received) and final accrual adjustments are made in the "end-of-year" accounting period.
Canadians will have to wait until October next year to find out what reallky happened in 2013-14.