The federal government posted a deficit of $0.9 in October 2015, reducing the surplus for the first seven months of 2015-16 to $0.6 billion, up $4.6 billion from the same period in 2014-15. There has been a significant reduction in the year to date surplus, from a high of $5.2 billion reported for the April to July 2015 period to only $0.9 billion for the April to October 2015 period.  

Over the seven months of 2015-16, budgetary revenues were up 8.7%, or $13.1 billion, over the same period in 2014-15.  The November 2015 Update of the Economic and Fiscal Projections (Update) forecast an increase of only 2.1%, or $6.1 billion for the year as a whole.  Year-to-date increases in a number of major revenue components significantly exceed what is currently forecast in the Update for the year as a whole. For example, corporate income tax revenues are up 18.9%, or $3.4 billion, in the April to October 2015 period, compared to the same period last year. For the year as a whole, a decline of $2.6 billion is expected. GST revenues are up 11.4%, or $2.1 billion, in the first seven months of 2015-16. For the year as a whole, an increase of $1.9 billion is expected.  Finally, other revenues are up 15.6%, or $2.4 billion, in the first seven months of 2015-16. A decline of $0.9 billion is now expected for the year as a whole.  This would suggest that budgetary revenues for the year as a whole could be significantly higher than forecast in the latest Update. 

However, as we have cautioned before, the remittance requirements for corporate income tax revenues could have a significant impact on the results to date.  Corporations are required to remit either based on their previous year’s tax liability or on an estimate of their current year’s tax liabilities. Final settlement payments are made sixty days after the end of their taxation year. For chartered banks, the settlement period is December. For all other large corporations, it is in the February/March period. Traditionally, about 40 per cent of corporate income tax revenues are received in the December/February/March period. Given the current weakness in corporate profits, revenues in the settlement periods could be significantly lower than that experienced last year. The increase in GST revenues to date reflects, in part, the timing of receipts, which should be reversed in November.  However, even so, budgetary revenues could be at least $3 billion higher than currently forecast.

Program expenses are up 6.6%, or $8.5 billion, over the first seven months of 2015-16, compared to the same period in 2014-15.  For the year as a whole, the current Update forecast an increase of 4.6%, or $11.7 billion for the year as a whole.  The current year-over-year changes for major transfers to persons and to other levels of government appear to be on track to the forecasts for these components in the Update.  However, for the first seven months of 2015-16, direct program expenses are up 5.3% or $3.1 billion.  For the year as a whole, the Update forecasts an increase of only 2.1% or $2.4 billion.  The results to date suggest that the final outcome for direct program expenses could be at least $2 billion higher than forecast in the Update.

Public debt charges are down by 3.6%, or $595 million, in the first seven months of 2015-16 when compared to the same period in 2014-15. For the year as a whole, a decline of $694 million is now expected. 

All other things remaining equal, the current results suggest that the deficit for 2015-16 could be somewhat lower than that forecast in the Update. 

However, economic circumstances have continued to deteriorate.  Oil prices are much lower than forecast in the Update. Some private sector economists have revised down their forecast for nominal GDP – a broad measure of the federal government’s applicable tax base.  For example, TD Economics is now forecasting nominal GDP growth of only 2.7% for 2016, compared to an increase in the Update of 3.6%. This would adversely affect budgetary revenues by about $1 billion in 2015-16. On balance, the outcome for 2015-16 should be better than the Update deficit forecast of $3 billion, but in all probability be in a small deficit.