Fiscal Monitor for April 2015– January 2016
The federal government posted a surplus of $1.1 in January 2016, compared to a surplus of $2.2 billion in January 2016. As a result, there was a surplus of $4.3 billion for the first ten months of 2015-16, compared to a surplus of $1.3 billion in the same period in 2014-15.
The Minister of Finance released a revised forecast for 2015-16 in his March Budget. He now expects a deficit of $5.4 billion for the year as a whole, a deterioration of $3.1 billion from that estimated in the February 2016 Update of Economic and Fiscal Projections. This increase in the deficit resulted from an increase in accrual liabilities resulting from a number of initiatives proposed in the March 2016 Budget.
Over the first ten months of 2015-16, budgetary revenues were up 7.0% ($15.6 billion) over the same period in 2014-15. The March 2016 Budget, however, only forecasts an increase in budgetary revenues of 3.1% ($8.9 billion) for the year as a whole. Year-to-date increases in all of the major revenue components equal or exceed what is forecast in the March 2016 Budget. For example, corporate income tax revenues are up 16.3% ($4.4 billion) in the April 2015 to January 2016 period, compared to the same period last year. A decline of 1.6% ($0.6 billion) is now forecast in the budget for the year as a whole.
The Department of Finance is being very cautious with respect to the final outcome for corporate income tax revenues. Corporations are required to remit based on either their previous year’s tax liability or on an estimate of their current year’s tax liabilities. Final settlement payments are made sixty days after the end of their taxation year. For chartered banks, the settlement period is December. For all other large corporations, it is in the February/March period. Revenues for December were only marginally lower than those in 2014. Traditionally, about 30 per cent of corporate income tax revenues are received in the February/March period. Given the current weakness in corporate profits, revenues in the settlement periods could be significantly lower than that experienced last year. However, even so, it seems highly unlikely that they would decline as much as is currently forecast. Budgetary revenues could still be about $2 to $3 billion higher than currently forecast in the budget.
Program expenses are up 6.9%, ($13.7 billion) over the first ten months of 2015-16, compared to the same period in 2014-15. For the year as a whole, the March 2016 Budget forecast an increase of 6.7%, or $16.0 billion. The current year-over-year changes for all major components of program expenses appear to be on track to the revised forecasts for these components in the March 2016 Budget for the year as a whole. However, a key unknown are the final accrual adjustments for direct program expenses. These could have a significant impact on the final audited results, in either direction.
Public debt charges are down by 4.8%, or $1.1 billion, in the first ten months of 2015-16 when compared to the same period in 2014-15, reflecting the impact of lower interest rates. For the year as a whole, the March 2016 Budget forecast a decline of $0.9 billion. The final outcome could be up to $0.5 billion lower than currently forecast.
Excluding the impact of the March 2016 Budget initiatives, there would likely have been a surplus in 2015-16. However, this surplus disappears with the inclusion of the March 2016 Budget initiatives. Final audited results for 2015-16 will be published in the fall.