In the March 2017 Budget, the Minister of Finance lowered his deficit forecast for 2016-17 from $25.1 billion to $23.0 billion. This improvement of $2.1 billion was primarily due to better-than-expected economic conditions and an increase in the lapse ($3.2 billion). These improvements were partially offset by provisions for anticipated Cabinet decisions ($0.9 billion) and the impact of new policy initiatives proposed in the March 2017 Budget ($0.3 billion).

In this latest fiscal update a deficit of $10.4 billion was reported for March 2017, compared to a deficit of $9.4 billion for March 2016.  As a result, the federal government posted a deficit of $21.8 billion for the April 2016 to March 2017 period, compared to a deficit of $2.0 billion in the same period in 2015-16. Budgetary revenues were up by $0.6 billion (0.2%), while program expenses were up by $21.7 billion (8.2%). Public debt charges were $1.2 billion lower (4.7%).

These are not the final fiscal results for 2016-17.  Still to come are the end-of-year accounting period adjustments, incorporating the impact of final accrual adjustments. A small surplus was recorded in the 2015-16 end-of-year accounting period, entirely due to tax planning attributable to the introduction of a new high-income tax bracket and rate. Traditionally, a deficit is recorded in this period. Final fiscal results for 2016-17 will not be released until September or October.. This means that the 2018 budget will be based on an estimate of the fiscal outcome for 2016-17.

Within budgetary revenues, personal income taxes were up $253 million (0.2%), as gains in employment income subject to tax marginally offset the impact of the Budget 2016 tax reductions. In the latest budget, a decline of $1.7 billion is projected, primarily reflecting extraordinary tax payments made in the end-of-year accounting period in 2015-16, reflecting tax planning in advance of the introduction of the high-income tax bracket and rate for taxation year 2016. The final outcome will largely depend upon what impact this tax planning will have on the 2016-17 results. Based on results to date, personal income tax revenues could be at least $3 billion lower than that expected in the March 2017 Budget.

Corporate income taxes were up $2.3 billion (5.4%), due to a rebound in corporate profits. Based on results to date, corporate income tax revenues could be at least $0.5 billion higher than currently estimated. Sales and excise taxes/duties were up $535 million (1.1%) in the current period compared to the same period in 2015-16. Based on results to date, the final outcome could also be $0.5 billion higher than currently estimated. Employment insurance contributions were down $411 million (1.8%). partially reflecting the decline in premium rates, effective January 1st, from $1.88 (employee rate) in 2016 to $1.63 for 2017. In addition, accrual adjustments with respect to previous years lowered EI premium revenues, but increased personal income tax revenues by a comparable amount. 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 $2.5 billion, (8.4%,) primarily due to the $2.2 billion gain realized on the sale of the Government’s remaining shares in GM in April 2015.  For the year as a whole, this component could be $1.5 billion higher than currently anticipated. Depending on the impact of the 2015-16 tax planning budgetary revenues could be slightly lower than forecast in the March 2017 Budget.

The increase of $21.7 billion in program expenses for 2016-17 compared to the same period in 2015-16 was spread among all the major categories.  Major transfers to persons increased $8.3 billion (10.9%) in the April to March period of 2016-17, compared to the same period in 2015-16. Elderly benefits were up $2.7 billion (5.9%), due to an increase in the eligible population and to higher average benefits, which are indexed to the Consumer Price Index on a quarterly basis. In addition, benefits under the Guaranteed Income Supplement were up strongly, reflecting a 10% increase in average benefits as proposed in the March 2016 Budget. Children’s benefits increased by $4.2 billion (23.2%), 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 $1.4 billion, (7.4%), primarily reflecting legislative changes, which came into effect in July 2016, and also to an increase in the number of people eligible for EI benefits. The developments to date for this component appear broadly consistent with the March 2017 Budget forecast.

Major transfers to other level of government were up $2.8 billion (4.3%), reflecting legislated increases affecting the major components. Again, this increase appears to be in line with the forecast for the year as a whole.
Direct program expenses (other transfers, expenses related to Crown corporations, defence and operating and capital expenses for other departments and agencies) were up $10.6 billion (9.4%). Other transfer payments were up $6.0 billion (16.9%) reflecting the recording of liabilities associated with disaster assistance, the implementation of the March 2016 Budget measures and the accelerated repayment of contributions by Pratt and Whitney Canada, which inflated the December 2015 results.  In addition, expenses for Crown corporations and defence were up strongly, 10.2% and 4.3%, 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 $2.7 billion (5.6%), also reflecting, in part, the impact of new initiatives proposed in Budget 2016 and increased liabilities for employee pension and other future benefits.

In the March 2017 Budget, total program expenses were projected to increase by $20.0 billion (7.2%).  However, the final results for 2015-16 included $3.7 billion in allowances related to the reversal of previous policy decisions relating to veterans’ benefits.  As a result, it appears that the results to date are broadly consistent with the projected increase for the year as a whole.
The decline to date in public debt charges of $1.6 billion (6.2%) largely reflects lower average effective interest rates and lower inflation adjustments on Real Return Bonds. The 2017 Budget forecast a decline of only $1.3 billion.  The final outcome could be about $0.5 billion lower than forecast.

On balance, the results to date appear to be consistent with the March 2017 Budget forecast of a deficit of $23.0 billion. However, as noted earlier, personal income tax revenues were inflated in the end-of-year accounting period due to tax planning, thereby providing a one-time windfall. The final outcome will largely depend what impact this will have on the 2016-17 taxation results.