The federal government posted a budgetary deficit of $3.2 billion in September 2017, compared to deficit of $2.4 billion in September 2016.

The deterioration in the deficit primarily resulted from lower corporate income tax revenues, down 16.3% (in part reflecting higher refunds), lower GST revenues, down 7.6%, lower employment insurance premiums, down 12.5% (reflecting a decline in EI rates effective January 2017), and higher other transfers and subsidies, up 38.0% (reflecting the timing of payments related to recent budget proposals). Dampening the impact of these factors were higher personal income tax revenues, up 13.6% (reflecting in part the timing of receipts), and lower employment insurance benefits, down 10.7% (reflecting a decrease in the number of unemployed). 

For the first six months of fiscal year 2017-18, the federal government recorded a deficit of $5.9 billion, compared to a deficit of $7.8 billion for the same period in 2016-17.  Budgetary revenues were up $6.9 billion (4.9%) compared to the same period last year.  Program expenses were up $5.7 billion, or 4.2% in the first six months of 2017-18, compared to the same period last year.  Public debt charges were down $635 million or 5.1%.

Within budgetary revenues, personal income tax revenues were up $4.2 billion (6.2%), in line with the Update’s forecast for the year as a whole. Corporate income tax revenues were up $1.3 billion or 6.8%, about half the increase forecast in the Update.  Sales and excise taxes were up $2.3 billion or 8.9%, well above the Update forecast of 4.4% for the year as a whole. Employment insurance premium contributions declined $1.4 billion or -11.6%, reflecting the decline in premium rates for 2017.  This compares to a forecast decline of 5.1% 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 down $118 million (-0.8%), compared to the October 2017 Update of an increase of 5.3% for the year as a whole.

Within program expenses, major transfers to persons rose $2.3 billion (5.3%), in line with the Update forecast of 4.9%. Elderly benefits were up $1.4 billion or 5.9%, attributable to an increase in average benefits which are indexed quarterly to the CPI and an increase in the eligible population. Children’s benefits were up $1.3 billion or 12.2% due to the replacement of the Universal Child Care Benefit by the Canada Child Benefit. Employment insurance benefits declined $0.4 billion (3.4%).

Major transfers to other levels of government were up $.1.2 billion (3.4%) compared to the same period last year, primarily reflecting legislated increases in the various components.  The increase to date is consistent with the Update increase for the year as a whole.

Direct program expenses were up $2.2 billion (3.8%), significantly below the Update forecast of 9.0%. for the year as a whole  Other transfers to business, students, aboriginals, farmers, etc. increased by $620 million (3.8%), primarily due to the timing of recent budget initiatives affecting most components. The Update forecast an increase of 15.0% 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 $1.5 billion (3.9%), primarily reflecting increases in federal government employee pension and other future benefit liabilities, reflecting the impact of lower interest rates. The Update forecast an increase of 6.2% for the year as a whole. This component has been consistently over estimated in recent years.

Public debt charges were $635 million lower (5.1%), largely reflecting lower CPI adjustments on Real Return Bonds. The October 2017 Update forecast an increase of 0.4% for the year as a whole.

Based on the results to date, budgetary revenues could be lower than forecast in the Update.  However, program expenses and public debt charges could also be lower.  The Contingency Reserve of $1.5 billion may not be needed.  As a result, the Update’s underlying deficit forecast of $18.4 billion for 2017-18 appears achievable.