Fiscal Monitor for June 2011


For the first three months of fiscal year 2011-12, the federal government posted a deficit of $5.5 billion, down $1.7 billion from the $7.2 billion 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 properly 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.  For more information on the Fiscal Monitor, see “Why You Should Read the Fiscal Monitor” August 2010  However, as noted below, we feel the deficit for 2011-12 could come in lower than expected, despite the slowdown in the economy as program expenses were overstated in the June 2011 Budget.

The improvement in the current fiscal results is entirely due to higher revenues, dampened by somewhat higher expenses, especially public debt charges. Personal and corporate income tax revenues were up strongly, while Goods and Services Tax revenues were unexpectedly lower.  Although revenues are 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.  Program expenses were up only 0.4 per cent, as the ending of most of the stimulus spending in the Economic Action Plan and lower employment insurance benefits nearly offset increases in transfers to other levels of governments (spending in this area is largely set in legislation) and in elderly benefits.  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.

As noted above, the final results for the previous fiscal year coupled with about six months of data for the current fiscal year are required before one can properly assess the current results against the latest official forecast.  The Fiscal Monitor notes that the results for the “first three months of the 2011-12 fiscal year are broadly consistent with those projected for 2011-12 in Budget 2011”.  However, as we pointed out in “Does Anyone Know What the Government is Expected to Spend This Year? August 2011, there is a large disconnect between the Main Estimates tabled for 2011-12 and the June 2011 Budget estimate of total expenses for 2011-12.  Based on our analysis, it appears that components of the June 2011 Budget program expenses forecast could be grossly overstated.  Results to date indicate that employment insurance benefits and “Other transfer payments” could come in significantly lower than estimated in the June 2011 Budget.  In addition, the 2011-12 estimates include $2.2 billion for a potential sales tax agreement with the province of Quebec, negotiations for which are to be concluded by the end of September.  If these negotiations are not successful, the $2.2 billion will reduce the deficit accordingly. The Minister of Finance is to provide an update in the upcoming Economic and Fiscal Statement, traditionally presented in the early fall. 

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