The Department of Finance released the audited financial results for 2010-11 today (October 12, 2011) in its Annual Financial Report (AFR). The deficit for 2010-11 was $33.4 billion,  $2.8 billion lower than the June 2011 Budget estimate of $36.1 billion and a whopping $15.8 billion lower than the original forecast of $49.2 billion, released in the March 2010 Budget.

 Although the AFR contains some notes explaining the final outcome for, 2010-11, details will have to wait until the Public Accounts of Canada for 2011 are tabled in Parliament, sometime later this month or in November.

The final outcome for 2010-11 was $22.2 billion lower than the deficit for 2009-10.  Most of this improvement was due the lower expenses in the second year of the Economic Action Plan and extraordinary one-time liabilities (HST harmonization and increased employee future benefit liabilities), which inflated the deficit outcome for 2009-10.

The lower-than-expected deficit outcome for 2010-11, compared to the June 2011 Budget estimate, resulted from both higher revenues (up $1.5 billion) and lower program expenses (down $1.2 billion).  Corporate income tax revenues were up $1.0 billion, while other revenues, which include net profits of enterprise Crown corporations, the exchange fund gains/losses, sales of goods and services, etc. were up $0.8 billion.  The net impact of these gains was dampened by lower GST revenues, down $0.5 billion.  On the expense side, elderly and employment insurance benefits were slightly lower, while direct program expenses were down $0.7 billion.

Until more details are provided by the Department of Finance or contained in the Public Accounts, it is difficult to assess what impact these better-than-expected results will have on the deficit outcome for 2011-12 and future years.  For the June 2011 Budget, the Department of Finance would have used their estimates for 2010-11 as the base for forecasting revenues and expenses and the resulting budgetary balance to 2015-16.  With the results for 2010-11  better than expected, one would expect that all or some of this improvement would carry-forward into future years, thereby impacting positively on the outer year forecasts.

 However, more details as to why the outcome was better are required to make a proper assessment.  For example, in the AFR, the Department of Finance implies that most of the better-than-expected outcome for “other revenues” was due to one-time factors, which would not be expected to carry forward.  The Department also notes that amendments to veteran future benefits and higher environment liabilities were largely responsible for the $2.3 billion increase in direct program expenses between 2009-10 and 2010-11.  Until we know the value of these one-time adjustments, we don’t know how much of the improvement in the 2010-11 outcome will carry forward.

We will need to wait until the upcoming Economic and Fiscal Update to see how the Department of Finance interprets the impact of the better-than-expected outcome for 2010-11.

However the Department of Finance interprets the lower deficit outcome for 2010-11, it would not be possible to offset the impact of slower economic growth now expected for this year and 2012, by the Bank of Canada, the IMF, the OECD and all private forecasters.

The government is still not on track to eliminate the deficit in 2014-15 or 2015-16. (http://www.3dpolicy.ca/content/don-t-bet-surplus-2014-15-or-2015-16)

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