Fiscal Monitor for April – November 2018

The federal government posted a deficit of $2.2 billion in November 2018, compared to a deficit of $2.9 billion in October 2017.  Budgetary revenues increased 10.5%, reflecting strong increases in personal and corporate income tax revenues, GST revenues, customs import duties, and other revenues. The year-over-year changes in personal and corporate income taxes primarily reflected timing factors.  Program expenses advanced 7.9%, primarily due to a 13.5% increase in direct program expenses, largely the result of a 33.5% increase in other transfer payments due to increases in transfers for disaster assistance. Public debt charges declined 8.3%, primarily due to lower inflation adjustments.

.For the first eight months of fiscal year 2018-19, the federal government posted a deficit of $2.2 million compared to a deficit of $9.5 billion in the same eight months of 2017-18. Budgetary revenues were up $16.7 billion, or 8.6%, program expenses increased by $8.0 billion, or 4.2%, while public debt charges were up $1.4 billion, or 9.8%, from year earlier levels.
Within budgetary revenues, personal income tax revenues were up $5.7 billion or 6.0%, corporate income tax revenues increased by $4.6 billion or 17.2%, non-resident taxes were up $1.1 billion or 21.9%, goods and services tax revenues advanced $2.0 billion or 7.6%, customs import duties increased $1.0 billion or 27.5% while other revenue increased by $1.7 billion or 8.9%. The year-to-date results for all these major components are considerably stronger than those forecast in the Fall 2018 Update.  The increase in total budgetary revenue to date is $16.7 billion whereas the Fall Update estimated an increase of only $15.3 billion for the year as a whole. The fiscal cost of initiatives proposed in the 2018 Budget and Fall 2018 Update are not expected to a have a significant impact on the 2018-19 results. As a result, it is expected that budgetary revenues will be revised upwards in the 2019 Budget (if there is one). 

Within grogram expenses, major transfers to persons were up 1.9% or $1.2 billion.  Elderly benefits increased 5.2% or $1.7 billion, reflecting in an increase in the eligible population and higher average benefits which are indexed to inflation.  Children’s benefits increased by 2.3% or $364 million, primarily due to an increase in the eligible population.  Partially offsetting these increases was a decline in employment insurance benefits (down 7.4% or $929 million) reflecting a decline in the number of unemployed. In the Fall 2018 Update, employment insurance benefits were projected to increase by 2.0% or $386 million.
Major transfers to provinces and territories were up 3.7% or $1.8 billion. The increases in the components largely reflect the increases as set out in their applicable legislation, with difference attributable to timing factors.

Direct program expenses, which includes other subsidies and transfers and the operating costs of government, increased by 6.2% or $5.0 billion.  Other transfers were up 13.8% or $3.1 billion.  This is significantly greater than that forecast in the Fall 2018 Update of 1.8% or $862 million. Part of this large difference is due to extraordinary large accrual adjustments made in the end-of year adjustment period in 2017-18, whereas no such adjustments are currently expected in 2018-19. This component could also be affected by the timing of infrastructure payments. Other direct program expenses (the operating costs of government) increased by 3.3% or $1.9 billion, primarily reflecting higher personnel expenses, dampened by a decline in other subsidies and expenses.  The Fall 2018 Update forecast an increase of only 1.1%, or $1.1 billion for this component. However, the final results for 2017-18 included several large year end accrual adjustments. A significantly smaller adjustment is expected this year.
The increase in public debt charges reflected higher Consumer Price Index adjustments on Real Return Bonds and higher annual average effective interest rates on the stock of Treasury Bills. The year-over-year increase to date is somewhat higher than expected for the year as a whole. 

On balance, given the current results to date, we would expect a somewhat better outcome for the budgetary balance than projected in the Fall 2018 Update.  The Fall 2018 Update  includes a Contingency Reserve of $3.0 billion, which we believe will not be needed.  We feel that the Contingency Reserve should only be used to offset the impact of adverse economic development in the fiscal forecast and/or errors in translating the economic forecast into the fiscal forecast.  It should not be used fund new policy initiatives. In addition, current results for budgetary revenues suggest that upward revisions are warranted.  Program expenses appear to be largely on track, but this will largely depend on the impact of year-end accruals. Public debt charges could be somewhat understated.

Add new comment