Fiscal Monitor for April and May 2011

For the first two months of fiscal year 2011-12, the federal government posted a deficit of $3.3 billion, down $1.1 billion from the $4.4 billion deficit reported in the same period in 2010-11.  Although this is encouraging news, at least five to six months of financial data are required before one can assess the current results to the June 2011 Budget forecast of  $32.3 billion for the fiscal year as a whole.  In addition, final results for 2010-11, which will be released in the early fall, are required to fully understand the current year’s fiscal results.  For example, if the final audited deficit outcome for 2010-11 is lower than that estimated in the June 2011 Budget, some, if not all, of this improvement could carry forward into 2011-12, which would then explain part of the improvement ion 2011-12.  For more information on the Fiscal Monitor, see “Why You Should Read the Fiscal Monitor” August 2010

The improvement in the current fiscal results was largely due to higher revenues as total expenses were largely unchanged.  Personal and corporate income tax revenues were up strongly, dampened somewhat by lower Goods and Services Tax revenues.  Although revenues are supposed to be reported on an accrual basis, the timing of receipts vis-à-vis last year appears to have had a significant impact on the year-over-year results, thereby distorting the current results.  Within total expenses, lower program expenses were largely offset by higher public debt charges.  Part of the decline in program expenses was attributable to the timing of payments to municipalities under the Gas Tax Fund transfer payment program and to foreign governments/agencies by the Department of Foreign Affairs and International Trade.  In addition, the termination of most of the programs under the Economic Action Plan resulted in lower transfer payments in a number of departments and agencies.  The Department of Finance attributes the increase in public debt charges due to inflation adjustments on real return bonds and a higher stock of interest-bearing debt.

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