The federal government posted a budgetary surplus of $2.8 billion in February 2018, compared to surplus of $1.3 billion in February 2017.

This $1.5 billion improvement in the budgetary balance primarily resulted from higher personal and corporate income tax revenues and a slight decline in other direct program expenses.  Personal and corporate income tax revenues were each up $1 billion from the previous year.  With respect to personal income tax revenues, this primarily reflected timing factors, as January 2018 collections were lower than in January 2017. The increase in corporate income tax revenues largely reflecting strong gains in the tax settlement period for those large corporations with a taxation year ending December 31st. Dampening the impact of these developments were significantly higher transfer payments (excluding major transfers to persons and other levels of government), most notably for Indigenous and Northern Affairs Canada.
For the first eleven months of fiscal year 2017-18, the federal government recorded a deficit of $5.6 billion, compared to a deficit of $11.5 billion for the same period in 2016-17 – an improvement of $5.9 billion.  Budgetary revenues were up $14.1 billion (5.3%) compared to the same period last year.  Program expenses were up $8.3 billion, or 3.3% in the first eleven months of 2017-18.  Public debt charges were down $141 million or 0.6%.
Within budgetary revenues, personal income tax revenues were up $7.7 billion (6.1%), slightly above the growth rate forecast in the 2018 Budget for the year as a whole. Corporate income tax revenues were up $3.8 billion or 9.7%, compared to an increase of 14.2% forecast in the 2018 Budget. Sales and excise taxes were up $2.7 billion or 5.6%, compared to the forecast increase of 4.6% in the 2018 Budget. Employment insurance premium contributions declined $1.5 billion or -7.7%, reflecting the decline in premium rates for 2017.  The 2018 Budget forecast a decline of 6.9%. 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 up $577 million (2.3%) , compared to a decline of 0.9% forecast in the 2018 Budget. The increase in budgetary revenues of 5.3% to date is in line with the increase of 5.5% forecast in the 2018 Budget for the year as a whole. Of concern is the expectation for another extraordinary large end-of-year personal income tax adjustment.  If this does not materialize, budgetary revenues could be as much as $4 billion lower than currently forecast.
Within program expenses, major transfers to persons increased $2.9 billion (3.5%). Elderly benefits were up $2.4 billion or 5.4%, attributable to an increase in average benefits which are indexed quarterly to the CPI and an increase in the eligible population. This is broadly line with the 2018 Budget increase for the year as a whole. Children’s benefits were up $1.4 billion or 6.9% due to the replacement of the Universal Child Care Benefit by the Canada Child Benefit. This is somewhat higher than that forecast in the 2018 Budget but expected to be in line by year end. Employment insurance benefits declined $0.9 billion (-4.5%), reflecting a decline in regular benefits. The 2018 Budget forecast a decline of 3.0%. On balance, the growth in major transfers to persons at year end could be slightly lower than that forecast in the 2018 Budget.
Major transfers to other levels of government were up $1.9 billion (3.1%) compared to the same period last year, primarily reflecting legislated increases in the various components.  This is lightly above the growth rate forecast in the 2018 Budget, due to lower recoveries to date under the Quebec Abatement program, with the result that this component should come in slightly above the 2018 Budget forecast
Direct program expenses increased by $3.5 billion (3.2%) in the first eleven months of 2017-18. The Budget forecast an increase of 9.5% for the year as a whole. Other transfers and subsidies increased $408 million, or 1.2%, compared to an increase of 6.1% forecast in the 2018 Budget.  The latter includes an accrual adjustment of $1.4 billion which will only be recognized at the end of the fiscal year. Crown corporation expenses were down $85 million, or 3.6%, while defence expenses rose $2.0 billion, or 9.3%. All other departmental and agency expenses increased by $1.1 billion, or 2.5%. The 2018 Budget did not provide individual forecasts for these three components.  However, the three components together are expected to increase by 11.2% for the year as a whole.  To date, the increase has been only 4.1%. However, included in the Budget forecast are a number of end-of-year accruals amounting to $4.7 billion. On balance, direct program expenses could still be about $1 to $2 billion lower than currently forecast.
Public debt charges were $141 million lower (-0.6%), largely reflecting lower CPI adjustments on Real Return Bonds.  In the 2018 Budget, a slight increase is expected.
The key risk to the 2018 Budget deficit forecast of $19.4 billion for the year as a whole is personal income tax revenues.  If the forecast end-of-year accrual of over $5 billion materializes, the deficit should be somewhat lower than forecast in the 2018 Budget.  If not, it could be up to $3 billion higher.