2015-16 WILL SHOW A DEFICIT: THE ONLY QUESTION IS HOW BIG?
The federal government posted a deficit of $9.4 in March 2016, compared to a deficit of $3.0 billion in March 2015. The increase in the year-over-year deficit was primarily due to lower budgetary revenues (down $5.0 billion), reflecting the timing of receipts. As a result, there was a deficit of $2.0 billion for the April 2015 to March 2016 period, compared to a surplus of $2.9 billion in the same period in 2014-15.
This is not the final deficit outcome for the year as a whole. Still to come are the end-of-year accounting adjustments, primarily reflecting the final accrual adjustments for budgetary revenues and liabilities for program expenses.
For example, the March 2016 Budget estimated a deficit of $5.4 billion for the year as a whole, based primarily on an increase in accrual liabilities due to a number of initiatives proposed in the March 2016 Budget (enhanced veterans’ benefits and the reversal to federal employees’ sick leave benefits). These were forecast to increase direct program expenses by $4.6 billion in the end-of-year accounting period.
Overall budgetary revenues for the fiscal year performed better than forecast in the budget. Budgetary revenues were up 3.8% ($10.6 billion) compared to a budget forecast of 3.1% ($8.9 billion). Corporate income tax revenues significantly outperformed the budget forecast recording an increase of 6.3% ($2.5 billion) compared to decline of 1.6% ($0.6 billion forecast in the March 2016 Budget.. On a year-to-date basis, excise taxes and duties were up 8.2% ($3.8 billion). The 2016 Budget estimated an increase of 5.5% ($2.6 billion) for the year as a whole.
However, personal income tax revenues were up only 3.3% ($4.5 billion) in the April 2015 to March 2016 period, compared to the same period last year. The March 2016 Budget estimated an increase of 5.1% ($7.0 billion for the year as a whole.
On balance, it appears that the weakness in personal income taxes will be more than offset by the strength in corporate income taxes and in sales and excise taxes. Budgetary revenues could be about $1to $2 billion higher than estimated in the 2016 Budget.
Program expenses were up 6.6%, ($16.6 billion) over the April 2015 to March 2016 period, compared to the previous fiscal year. The budget had forecast an increase of 6.7%, ($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 is 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 were down by 4.1%, ($1.1 billion) in the April 2015 to March 2016 period, compared to the same period in 2014-15, reflecting lower interest rates. The budget had forecast a decline of $0.9 billion. The final outcome could be up to $0.5 billion lower than currently forecast.
Taking into account end-of-year adjustments final audited results for 2015-16, which will be published in the fall, will show a deficit in 2015-16. The only question is ho