The March 2011 Fiscal Monitor reports a deficit of $34.4 billion for the April 2010 to March 2011 period, $12.6 billion lower than reported for the same period last year.  These are not the final numbers for 2010-11.  Still to come are the end-of-year accrual accounting adjustments.  Final audited results are usually published in the early fall.

In the March 2011 Budget, the Minister of Finance forecast a deficit for 2010-11of $40.5 billion.  To achieve this outcome would require an end-of-year deficit adjustment of $6 billion, about $2.5 billion less than the record end-of-year adjustment recorded in 2009-10 .  However, the Government booked a number of extraordinary one-time adjustments at year-end in 2009-10, including the full liability ($5.9 billion) for the one-time HST harmonization costs for Ontario and British Columbia.  No extraordinary accrual adjustments of this amount are expected for 2010-11. Based on the current results, the deficit for 2010-11 could be $5 billion lower than forecast in the budget.  The March 2011 Fiscal Monitor noted that the deficit outcome for 2010-11 will be better than projected in the March 2011 Budget and that a revised forecast would be presented in the June 6, 2011 Budget. 

Budgetary revenues to the end of March are running about two percentages point below that forecast in the Match 2011 Budget, due primarily to lower-than-expected personal income tax revenues and other revenues.  In contrast, the year-over-year growth rate in corporate income tax revenues is much higher-than-forecast in the March 2011 Budget.  In the Annual Financial Report for 2009-10, the Department of Finance[1] stated that corporate income tax revenues in 2009-10 were affected by a number of one-time factors at year-end, which inflated the final outcome for the year. There was a  year-over-year decline in March 2011 and a further decline is expected in the end-of-year accounting period.  If this materializes, the revenue outcome for 2010-11 could be about $1 billion lower than projected in the March 2011 Budget, due to lower-than-expected other revenues.  

Total program expenses at the end of March 2011 were 0.2 per cent higher than in the same period last year.  The March 2011 Budget forecast an increase of 0.6 per cent for the year as whole.  However, at the end of 2009-10, the Government booked the full liability ($5.9 billion) for 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. Excluding these one-time expenses implies an underlying increase for 2010-11 of 4 per cent.  This is highly unlikely.  We continue to believe that the March 2011 Budget estimate for total expenses is overstated, especially for “Other transfer payments” and “Other program expenses for departments and agencies”. Based on the results to date, the March 2011 Budget estimate for program expenses could be overstated by at least $6 billion.

The better-than-expected deficit outcome for 2010-11 does not necessarily mean that the forecasts for the outer years will be better as well.  We, as well as others, continue to believe that the forecast for program expenses beyond 2010-11 are understated and that “Other revenues” are overstated, in aggregate by $4 billion in 2011-12, rising to $8.5 billion by 2015-16[2]. 

[1] Annual Financial Report of the Government of Canada Fiscal Year 2009-10 – page 13: Department of Finance 

[2] See “March 2011 Budget: The Deficit That Won’t Go Away” March 2011 www.3dpolicy.ca.