FISCAL MONITOR FOR APRIL TO JANUARY, 2014
For the first ten months of fiscal year 2013-14, the federal government posted a deficit of $10.5 billion, an improvement of $3.3 billion from the deficit of $13.9 billion reported in the same period in 2012-13. The surplus in January 2014 was about $1 billion higher than that recorded in December 2013. The financial results for December 2013 and January 2014 mark a significant improvement from the fiscal performance in the previous eight months.
Total budgetary revenues were up by $8.7 billion for the first ten months of 2013-14 on a year-over-year basis, exceeding the change of $7.4 billion forecast in Budget 2014, for the year as a whole, by $1.3 billion. Increases in GST revenues, employment insurance (EI) premiums and other revenues were larger than those expected in Budget 2014 for the year as a whole, while corporate income tax revenues are somewhat lower. If these gains hold, total revenues will exceed the overall revenue forecast in Budget 2014. However, even if this were to happen, all of the $1.5 billion “risk adjustment factor” included in Budget 2014 would be required to offset the shortfall in corporate income tax revenues.
For the first ten months of 2013-14, program expenses were up $5.6 billion, compared to the same period in 2012-13. In Budget 2014, an increase of $4.8 billion was expected for the year as a whole. However, year-over-year comparisons are currently distorted by the timing of bookings for various liabilities and budget measures.
In 2012-13, bookings for liabilities amounted to over $3 billion, but were largely recorded at the end of the fiscal year. This year, bookings of a similar amount have already been recorded. Budget 2014 proposed additional restraint measures totally $1.7 billion, of which $1.1 billion is for the proposed cost sharing of the Public Sector Health Care Plan. After adjusting for the timing of the bookings for “one-time extraordinary” liabilities, the year-over-year increase in total program expenses to date is lower than that expected for the year as a whole.
In Budget 2014, the Minister of Finance forecast a deficit of $17.9 billion for 2013-14. This is down $3.3 billion from the final audited outcome for 2012-13, and equal to the improvement in the deficit to the end of January 2014.
The final outcome, however, is still very much in doubt. The months of February and March are significantly affected by final corporate income tax settlement payments for large corporate whose taxation year ends on December 31st. These two months alone account for about one-quarter of corporate income tax revenues for the year as a whole. In addition, adjustments to current liabilities and final accrual adjustments for revenues are recorded the end-of-year accounting period. These adjustments are quite volatile.
The monthly results in the Fiscal Monitor used to be a good indicator of the final results for the year as a whole. However, the monthly results for the period April 2012 to January 2013 were not reflective of the outcome for the year as a whole, indicating a much smaller improvement in the deficit from what was finally recorded. No explanation for this divergence has been provided.
We will have to wait until the fall of 2014 for the final outcome for 2013-14 and what impact, if any, this could have on achieving a balanced budget or surplus in 2014-15.