The federal government reported a deficit of $2.7 billion in July 2016, up $0.4 billion from that reported in July 2015, as increases in program expenses more than offset increases in revenues and a decline in public debt charges. As a result, for the first five months of the 2016-17 fiscal year, the federal government posted a deficit of $5.4 billion, compared to a surplus of $2.8 billion in the same period in 2015-16.

Of the $8.3 billion deterioration in the federal balance to date, budgetary revenues were $1.6 billion lower (a decline of 1.3%) while program expenses were up by $7.8 billion (7.5%). In contrast, public debt charges were $1.1 billion lower (down 9.6%).

Within budgetary revenues, “other” revenues, consisting of net profits from enterprise Crown corporations, revenues from sales of goods and services, return on investments, net foreign exchange revenues and miscellaneous revenues were down $1.5 billion, or 11.0%, solely due to the gain realized on the sale of the Government’s remaining shares in GM in April 2015.  Sales and excise taxes/duties were down $636 million, or 2.9%, primarily reflecting lower GST revenues.  Corporate income tax revenues increased $260 million, or 1.7%, despite the weakness in corporate profits. Personal income tax revenues were up by $179 million, or 0.3%, as the impact of the income tax reduction measures take effect.  

The increase of $7.8 billion in program expenses was spread among all the major expense categories.  Direct program expenses were up $4.1 billion (9.7%), primarily due to higher other transfer payments, reflecting the recording of liabilities associated with disaster assistance and the implementation of the March 2016 Budget measures.  In addition, expenses for Crown corporations and defence were also up strongly, 11.1% and 8.2%, respectively, due in part to an increase in federal government employee pension and other future benefit liabilities. Expenses for all other departments and agencies advanced $909 million (4.8%), reflecting in part increased liabilities for employee pension and other future benefits.

Major transfers to persons rose $2.3 billion (6.7%) in the first five months of 2016-17. Elderly benefits were up $936 million (5.0%), due to an increase in the eligible population and higher average benefits, which are indexed to the Consumer Price Index on a quarterly basis. In addition, benefits under the Guaranteed Income Supplement were increased by 10% in July 2016. Children’s benefits increased by $903 million (12.1%), due to the enhancement and expansion of the Universal Child Care Benefit (UCCB) and the replacement in July 2016 of the UCCB and the Canada Child Tax Benefit by the new Canada Child Benefit. Employment insurance benefits increased $464 million, or 5.8%), primarily reflecting legislative changes which came into effect in July 2016 and an increase in the number of people eligible for EI benefits.

 Major transfers to other level of government were up $1.4 billion (5.0%), reflecting legislated increases affecting the major components.

The decline to date in public debt charges of $1.1 billion largely reflects lower average effective interest rates and lower inflation adjustments on Real Return Bonds.

On Tuesday November 1^st, the Minister of Finance will be presenting an update of the economic and fiscal projections. Based on the financial results to date, the deficit outlook for 2016-17 should be somewhat lower than that forecast in the March 2016 Budget, implying that some or all of the $6 billion Contingency Reserve will not be required.