The January 2011 Fiscal Monitor, released with the March 2011 Budget, shows the deficit for the first ten months of 2010-11 was $27.7 billion, nearly $12 billion lower than reported for the same period last year.  In the March 2011 Budget, the Minister of Finance forecast an improvement of $15.1 billion for the year as a whole.  This is $4.9 billion lower than what he forecast in the October 2010 Update.  We continue to believe that the deficit for 2010-11 will be about $38.5 billion; $2 billion lower than his current deficit forecast. 

Higher revenues account for over 60% of the $4.9 billion improvement in the deficit, with lower program expenses accounting for about 30% and lower public debt charges the rest.  Our reading of the financial results to date, however, suggest that program expenses will be much lower than estimated by the Minister of Finance and that the projected increase in budgetary revenues will be hard to achieve. 

At the end of 2009-10, the Government booked the full liability ($5.9 billion) related to the one-time HST harmonization costs for Ontario and British Columbia and an increase in accrual liabilities for federal employee pensions of about $3 billion.  These are not yet reflected in the monthly results to date.  To achieve his new revenue projections for 2010-11 would require an extra-ordinary large positive adjustment in the end-of-year accounting period, which to us is not realistic.  However, we believe that the decline in program expenses will more than offset the shortfall in revenues with the result that the deficit for 2010-11 will still be $2 billion than forecast in the March 2011 Budget.