For the first five months of fiscal year 2012-13 (April to August), the federal government’s deficit amounted to $6.2 billion, down $2.8 billion from the same period in 2011-12. Of this year-over-year improvement , budgetary revenues were up $3.4 billion, public debt charges were down $0.9 billion while program expenses were up $1.4 billion.

About half of the year-over-year increase in budgetary revenues was attributable to higher personal income taxes, Goods and Services (GST) revenues and employment insurance (EI) premiums. The remaining major components were relatively weak. 

The increase in program expenses was primarily the result of the inclusion in the August 2012 financial results of “an updated accrual estimate for employee and veterans’ future employee benefits based on accrual valuations prepared for the Government’s 2011-12 financial statements”.  Given that this also affected the 2011-12, one would have expected that the figures for the period April to August 2011 would have been adjusted accordingly, thereby having no impact on the year-over-year change.  The decline in public debt charges was attributable to a lower average effective interest rate on interest-bearing debt.

Final deficit results for 2011-12 were higher than estimated in the March 2012 and this deterioration is beginning to be reflected in the monthly results for 2012-13. To date, budgetary revenues are running slightly below the rate of growth expected in March 2012 Budget for 2012-13 (comparing the March 2012 Budget forecast for 2012-13 to the final outcome for 2011-12).  In the Budget, the Minister included a $3 billion “risk adjustment factor”.  This is now gone.  With the expected weakness in both international and domestic economies, budgetary revenues will likely fall below the 2012 Budget forecast.

Program expenses, however, could be lower than expected in the 2012 Budget.  The monthly results for most of the major components are consistent with their 2012 Budget forecasts.  However, monthly EI benefits are well below their 2012 Budget and direct program expenses could also be lower.  Monthly public debt charges are also running well below their 2012 Budget forecast.  Better-than-expected results for these components should provide some offset to lower-than-expected budgetary revenues, but in all probability not enough.

The Minister is to meet with private sector economists on October 29th   Updated economic and fiscal projections will be presented in the Fall Update, which should be released by mid- to late-November.