Fiscal Monitor for April – July 2017 Budget Outlook improving compare to Last Budget

The federal government posted a budgetary deficit of $193 million in July 2017, compared to deficit of $1.8 billion in July 2016. This improvement was largely attributable to strong growth in tax revenue, up 9.5% over the same period last year.
For the first four months of fiscal year 2017-18, the federal government recorded a deficit of $109 million, compared to a deficit of $2.8 billion for the same period in 2016-17. 

At least five to six months of financial data are required before one can properly assess the outcome for the year as a whole. However, the final financial outcome for 2016-17 at $17.8 billion was $5.3 billion lower than that estimated in the March 2017 Budget, part of which should carry forward in 2017-18 and future years.  In addition, private sector forecasters have been revising upwards their economic growth prospects for 2017, which should have a positive impact on budgetary revenues. Nominal GDP, a proxy for the underlying tax base for budgetary revenues, was estimated at 4.1% in the 2017 Budget.  Current forecasts are now calling for growth of just under 6%.

The better-than-expected outcome for 2016-17, along with the much stronger than expected economic growth for 2017, suggests that the deficit outcome for 2017-18 could be much lower than currently forecast at $28.5 billion. This forecast includes a $3 billion Contingency Reserve, which likely will not be required. The deficit for 2017-18  could be as low as $20 billion. The Minister of Finance will be presenting revised forecasts in the upcoming Economic Statement, scheduled for late October/early November.

In the first four months of 2017-18, budgetary revenues were up $6.4 billion (46.8%) compared to the same period last year.  Personal income tax revenues were up $2.6 billion (5.7%), somewhat the 2017 Budget forecast of 6.1% for the year as a whole.  In contrast, corporate income tax revenues (up $1.9 billion or 14.8%) and sales and excise taxes (up $2.2 billion or 12.8%) were well above their Budget forecasts of 2.6% and 2.2%, respectively, for the year as a whole. No explanations were provided in the Fiscal Monitor for these differences. Employment insurance premium contributions declined $1.0 billion or 11.3%, reflecting the decline in premium rates for 2017, compared to a decline of 4.9% forecast in the 2017 Budget for the year as a whole. Other revenues, consisting of net profits from enterprise Crown corporations, revenues from consolidated Crown corporations, revenues from the sale of goods and services, returns on investments, net foreign exchange and miscellaneous revenues, were $188 million (2.0%), compared to the 2017 Budget forecast of 9.0% for the year as a whole.

Program expenses were up $4.3 billion, or 4.8% in the first four months of 2017-18, compared to the same period last year. Major transfers to persons rose $2.4 billion (8.5%), primarily reflecting higher children’s benefits (up$1.3 billion or 20.2%) due to the replacement of the Universal Child Care Benefit by the Canada Child Benefit. Elderly benefits were up $0.9 billion (6.0%), attributable to an increase in average benefits which are indexed quarterly to the CPI and an increase in the eligible population. Employment insurance benefits increased $174 million (2.7%). The 2017 Budget forecast an increase in major transfers to persons of 5.4% for the year as a whole.

Major transfers to other level of government were up $0.6 billion (2.5%), primarily reflecting legislated increases in the various components. The increase to date is consistent with the 2017 Budget forecast of 2.2% for the year as a whole.
Direct program expenses were up $1.3 billion (3.4%), significantly below the 2017 Budget forecast of 6.3%. for the year as a whole  Other transfers to business, students, aboriginals, farmers, etc. declined by $392 million (-3.4%), primarily due to the recognition of disaster assistance liabilities in 2016-17. The 2017 Budget forecast an increase of 6.3% for the year as a whole. Other direct program spending, consisting of operating expenses for Crown corporation, defence and all other departments and agencies, increased $1.6 billion (6.5%), primarily reflecting increases in federal government employee pension and other future benefit liabilities, reflecting the impact of lower interest rates. Budget 2017 forecast an increase of 6.2% for the year as a whole.
Public debt charges were $473 million lower (5.5%), largely reflecting lower CPI adjustments on Real Return Bonds. The 2017 Budget forecast a decline of 5.1% for the year as a whole.

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