DEFICIT FOR 2016-17 COULD BE $3 BILLION LOWER THAN FORECAST IN NOVEMBER UPDATE
The November 2016 Update forecasts a deficit of $25.1 billion for 2016-17. Based on the financial results to date, public debt charges could be as much as $1 billion lower than forecast in the Update, while direct program expenses could be at least $2 billion lower. Budgetary revenues appear to be on track, with differences in components offsetting each other. On balance, the final outcome for 2016-17 could be at least $3 billion lower than forecast in the November Update.
For the first six months of the 2016-17 fiscal year the federal government posted a deficit of $7.8 billion, compared to a surplus of $1.6 billion in the same period in 2015-16. Budgetary revenues were $1.9 billion lower (a decline of 1.3%) while program expenses were up by $8.9 billion (up 7.0%). In contrast, public debt charges were $1.4 billion lower (down 9.8%).
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 $1.4 billion, (9.1%,) solely due to the $2.2 billion gain realized on the sale of the Government’s remaining shares in GM in April 2015. Sales and excise taxes/duties were down $733 million, (2.8%), primarily reflecting lower revenues from the GST and excise taxes and duties. Corporate income tax revenues declined $112 million, ( 0.6%), reflecting the weakness in corporate profits. Personal income tax revenues were up by $453 million, (0.7%), as the impact of the personal income tax reductions was more than offset by gains in employment income.
The increase of $8.9 billion in program expenses was spread among all the major expense categories. Direct program expenses were up $4.1 billion (7.8%), primarily due to higher other transfer payments, reflecting the recording of liabilities associated with disaster assistance and the implementation of the March 2016 Budget measures. In addition, expenses for Crown corporations and defence were up strongly, 12.7% and 7.3%, respectively, due in part to an increase in federal government employee pension and other future benefit liabilities. Expenses for all other departments and agencies advanced $1.2 billion (5.3%), also reflecting increased liabilities for employee pension and other future benefits.
Major transfers to persons rose $3.2 billion (7.9%) in the first six months of 2016-17. Elderly benefits were up $1.2 billion (5.3%), due to an increase in the eligible population and to higher average benefits, which are indexed to the Consumer Price Index on a quarterly basis. In addition, benefits under the Guaranteed Income Supplement were up strongly, reflecting the 10% increase in average benefits as proposed in the March 2016 Budget. Children’s benefits increased by $1.4 billion (15.4%), due to the enhancement and expansion of the Universal Child Care Benefit (UCCB) and the replacement in July 2016 of the UCCB and the Canada Child Tax Benefit by the new Canada Child Benefit. Employment insurance benefits increased $656 million, ( 7.0%), primarily reflecting legislative changes, which came into effect in July 2016, and also to an increase in the number of people eligible for EI benefits.
Major transfers to other level of government were up $1.5 billion (4.7%), reflecting legislated increases affecting the major components. The decline to date in public debt charges of $1.4 billion (9.8%) largely reflects lower average effective interest rates and lower inflation adjustments on Real Return Bonds.