Fiscal Monitor for April – June 2016: The Beginning of Deficits
In his first budget, the Finance Minister forecast deficits in the coming months and indeed years and deficits he will get. With the release of the June 2016 Fiscal Monitor, a new era of budgetary deficits is again upon us.
From now on, we will be tracking the monthly and cumulative fiscal numbers to see how big those deficits could be and what they mean for the government’s goal of a stable debt to GDP ratio
For the first three months of the current 2016-17 fiscal year, the federal government posted a deficit of $995 million, compared to a surplus of $5.0 billion in the same period in 2015-16. However, most of the surplus in the first three months of 2015-16 was attributable to one-time factors, including the sale of the remaining GM shares and timing factors affecting several of the major revenue components.
In the March 2016 Budget, a deficit of $29.4 billion was forecast for fiscal year 2016-17, which included a Contingency Reserve of $6 billion implying an underlying deficit of $23.4 billion. At least five to six months of financial data are required before one can properly assess the outcome for the year as a whole.
Of the $6.0 billion deterioration in the federal balance to date, budgetary revenues were $1.5 billion lower (a decline of 2.1%) and program expenses were up by $5.1 billion (8.3%). In contrast, public debt charges were $0.6 billion lower (down 8.9%).
Within budgetary revenues, “other” revenues, consisting of net profits from enterprise Crown corporations, revenues from sales of goods and services, return on investments, net foreign exchange revenues and miscellaneous revenues were down $1.7 billion, or 19.4%, primarily due to the gain realized on the sale of the Government’s remaining shares in GM in April 2015. Sales and excise taxes/duties were down $431 million, or 9.7%, primarily reflecting lower revenues from energy taxes and lower GST revenues. Personal income tax revenues were up by $391 million, or 1.2%, while corporate income tax revenues were up $181 million, or 1.8%, well above the growth in corporate profits.
The increase of $5.1 billion in program expenses was spread among all the major expense categories. Direct program expenses were up $3.5 billion (14.3%), primarily due to the timing of payments as well as an increase in federal government employee pension and other future benefit liabilities in the first three months of 2016-17, reflecting the impact of lower interest rates.
Major transfers to persons rose $0.8 billion (4.0%), primarily reflecting higher elderly benefits, due to an increase in the eligible population and higher average benefits, which are indexed to the Consumer Price Index on a quarterly basis. Children’s benefits increased by $177 million (4.0%), due to the enhancement and expansion of the Universal Child Care Benefit. This does not include the impact of the introduction of the Child Care Benefit, which came into effect in July 2016. Major transfers to other level of government were up $0.8 billion (4.7%), primarily due to legislated increases in the various components.