THE FINAL BUDGET OUTCOME FOR 2015-16 IS STLL UNCERTAIN
The federal government posted a surplus of $3.2 in February 2016, compared to a surplus of $4.6 billion in February 2015. As a result, there was a surplus of $7.5 billion for the first eleven months of 2015-16, compared to a surplus of $5.9 billion in the same period in 2014-15.
The March 2016 Budget estimated a deficit of $5.4 billion for the year as a whole, compared to a reported surplus of $1.9 billion for 2014-15. The budget deficit forecast results from an increase in accrual liabilities due to a number of initiatives proposed in the March 2016 Budget. These are expected to increase direct program expenses by $4.7 billion in the end-of-year accounting period.
Over the April 2015 to February 2016 period, budgetary revenues were up 6.2% ($15.7 billion) over the same period in 2014-15. The March 2016 Budget, however, only forecasts an increase in revenues of 3.1% ($8.9 billion) for the year as a whole. Year-to-date increases in all of the major revenue components, with the exception of personal income taxes, equal or exceed what was forecast in the March 2016 Budget. The largest difference is in corporate income tax revenues, which are up 13.8% ($4.6 billion) in the April 2015 to February 2016 period, compared to the same period last year. A decline of 1.6% ($0.6 billion) was forecast in the budget for the year as a whole.
It appears that 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. With the exception of chartered banks, the settlement period for most large corporations is in the February/March period. There was an extraordinary large settlement period adjustment in March 2015, which is not expected to be repeated in March 2016. 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 7.0%, ($15.3 billion) over the first eleven 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 $17.0 billion. The current year-over-year changes for major transfers to persons and other levels of government appear to be on track with the budget forecasts for the year as a whole. Direct program expenses, however, could be $1 to $2 billion higher-than-estimated. 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 5.0%, or $1.2 billion, in the first eleven 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, which are expected to increase direct program expenses by $4.7 billion in the end-of-year accounting period, there would likely be a surplus in 2015-16. However, this surplus disappears with the inclusion of the March 2016 Budget initiatives. Final audited results for 2015-16, which will be published in the fall, are expected to be somewhat lower than estimated in the March 2016 Budget