The federal government posted a budgetary deficit of $10.4 billion in March 2018, compared to deficit of $10.6 billion in March 2017.

Program expenses are traditionally the highest in the month of March, thereby accounting for the large deficit in that month. Budgetary revenues were up 6.5%, attributable to increases in all major components, with the exception of other revenues.  Program expenses were up 5.3%, primarily due to an extraordinary large increase in transfers (excluding major transfers to persons and other levels of government), reflecting the timing of payments to First Nations and to infrastructure transfers. Dampening this increase were lower other direct program expenses. Public debt charges increased 4.8%, primarily due to an increase in the average effective interest rate.

For the April 2017 to March 2018 period, the federal government recorded a deficit of $16.2  billion, compared to a deficit of $21.8 billion for the same period in 2016-17 – an improvement of $5.7 billion.  Budgetary revenues were up $15.7 billion (5.4%) compared to the same period last year.  Program expenses were up $10.1 billion, or 3.5%, while public debt charges were down $43 million or 0.2%.

These, however, are not the final financial results for fiscal year 2017-18. Still to come are the end-of-year accrual accounting adjustments, affecting both budgetary revenues and program expenses. In the previous two fiscal years, small surpluses were reported. Final audited results will be published in the fall in the Annual Financial Report and the Public Accounts of Canada.
Within budgetary revenues, personal income tax revenues were up $8.1 billion (5.9%), in line with the growth rate forecast in the 2018 Budget for the year as a whole. Corporate income tax revenues were up $4.2 billion or 9.7%, compared to an increase of 14.2% forecast in the 2018 Budget. Sales and excise taxes were up $2.9 billion or 5.7%, compared to the forecast increase of 4.6% in the 2018 Budget. Employment insurance premium contributions declined $1.3 billion or -5.9%, 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 $543 million (2.0%) , compared to a decline of 0.9% forecast in the 2018 Budget. The increase in budgetary revenues of 5.4% to date is in line with the increase of 5.5% forecast in the 2018 Budget for the year as a whole. However, in order to meet the 2018 Budget forecast, another extraordinary large end-of-year personal income tax adjustment will be required.  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 $3.0 billion (3.2%). Elderly benefits were up $2.7 billion or 5.5%, 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 6.2% due to the replacement of the Universal Child Care Benefit by the Canada Child Benefit. This is also in line with that forecast in the 2018 Budget. Employment insurance benefits declined $1.1 billion (-5.1%), 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 about $500 million lower than that forecast in the 2018 Budget.

Major transfers to other levels of government were up $1.9 billion (2.7%) compared to the same period last year, primarily reflecting legislated increases in the various components.  This is in line with the growth rate forecast in the 2018 Budget.
Direct program expenses increased by $5.3 billion (4.1%) in the April 2017 to March 2018 period over the same period in 2016-17. The Budget forecast an increase of $12.1 billion or 9.5% for the year as a whole. Other transfers and subsidies increased $3.4 million, or 8.2%, compared to an increase of 6.1% forecast in the 2018 Budget.  Crown corporation expenses were down $593 million, or 6.3%, while defence expenses rose $1.9 billion, or 7.4%. All other departmental and agency expenses increased by $579 million, or 1.1%. The 2018 Budget did not provide individual forecasts for these three components.  However, the three components together increased by $1.9 billion (2.2%).  In the 2018 Budget, they were forecast to increase by $9.6 billion (11.2%). 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 $2 billion lower than currently forecast.

Public debt charges were $43 million lower (-0.2%), largely reflecting lower CPI adjustments on Real Return Bonds, partially offset by higher average effective interest rate on interest-bearing debt.  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, and another surplus is recorded in the end-of-year accounting period, the deficit could be up to $5 billion lower than forecast in the 2018 Budget.  Even if the year-end accrual for personal income taxes does not materialized, the final deficit outcome should still lower than forecast in the 2018 Budget.