Fiscal Monitor April-May 2012

For the first two months of fiscal year 2012-13, the federal government posted a deficit of $0.8 billion, down $1.1 billion from the same period in 2011-12.  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 March 2012 Budget forecast of  $21.1 billion for the fiscal year as a whole. In addition, final results for 2011-12, which will be released in the early fall, are required to fully understand the current year’s fiscal results.  For example, if, as expected, the final audited deficit outcome for 2011-12 is lower than that estimated in the March 2012 Budget, some, if not all, of this improvement could carry forward into 2012-13, thereby resulting in a lower outcome that currently estimated. 

As reported in the Fiscal Monitor, the Government reclassified a number of refundable tax credits, which previously were netted against components of budgetary revenues, to program expenses. These included the Working Income Tax Benefit, the Refundable Medical Expense Supplement, the Canadian Film or Video Production Tax Credit, the Canadian Film or Video Production Services Tax Credit, the Scientific Research and Experimental Development Tax Credit for Canadian-Controlled Private Corporations and the refundable portion of the Atlantic Investment Tax Credit. The value of these tax credits are estimated at over $5 billion for 2011-12. As a result, both budgetary revenues and program expenses will be raised by comparable amounts, leaving the budgetary balance unchanged. This is the proper accounting treatment for these expenses. However, it is doubtful that they will be reported as such in the Main Estimates, thereby increasing the discrepancy between the Budget estimates and those included in the Main Estimates[i].

In addition, the Department of Finance changed its methodology with respect to the reporting of monthly Goods and Services Tax (GST) revenues.  This resulted in an increase in GST revenues of $1.3 billion in the April-May 2011 period from that previously reported.  The impact on the April-May 2012 period is likely comparable.  This should have no impact on the results for the year as a whole, but rather just shift revenues throughout the fiscal year.

The improvement in the current fiscal results was due to higher revenues and lower public debt charges, which more than offset higher program expenses. All major components of budgetary revenues reported increases over last year. Within program expenses, all major components were higher with the exception of employment insurance benefits, which declined 5.1 per cent on a year-over-year basis.

[i] See “The Main Estimates and the Budget – No Transparency and No Accountability” March 2012


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