Fiscal Monitor for April 2018– January 2019

The federal government posted a deficit of $1.7 billion in January 2019, compared to a surplus of $125 million in January 2018. 

Budgetary revenues increased 2.1%, reflecting strong increases in corporate income taxes (up 4.4%), non-resident taxes (up 15.3%), customs import duties (up 21.2%), energy taxes (up 16.0%) and other revenues (up 31.6%). In contrast, personal income tax revenues declined by 0.4%, while GST revenues fell by 13.6%.  Some of the double digit year-over-year changes were due to timing factors.  Program expenses advanced 9.7%, primarily due to a 17.4% increase in direct program expenses, primarily reflecting increases in provisions for liabilities. Public debt charges declined 15.3%, attributable to lower inflation adjustments.

For the first ten months of fiscal year 2018-19, the federal government posted a deficit of $1.2 billion compared to a deficit of $8.8 billion in the same ten months of 2017-18. Budgetary revenues were up $20.0 billion, or 8.1%, program expenses increased by $11.1 billion, or 4.6%, while public debt charges were up $1.4 billion, or 7.5%, from year earlier levels.

Within budgetary revenues, personal income tax revenues were up $7.5 billion or 6.1%, corporate income tax revenues increased by $4.2 billion or 11.9%, non-resident taxes were up $1.4 billion or 20.3%, goods and services tax revenues advanced $2.5 billion or 7.7%, customs import duties increased $1.3 billion or 27.4% while other revenue increased by $2.3 billion or 10.1%. The year-to-date results for all these major components are broadly in line with the revised forecasts presented in the March 17, 2019 Budget, with the exception of other revenues. For the latter component, Budget 2019 forecast an increase of only $0.9 billion.

Within grogram expenses, major transfers to persons were up 2.4% or $1.8 billion.  Elderly benefits increased 5.2% or $2.2 billion, reflecting in an increase in the eligible population and higher average benefits which are indexed to inflation.  Children’s benefits increased by 2.2% or $429 million, primarily due to an increase in the eligible population.  Partially offsetting these increases was a decline in employment insurance benefits (down 4.8% or $794 million) reflecting a decline in the number of unemployed.

Major transfers to provinces and territories were up 3.5% or $2.1 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 7.0% or $7.2 billion.  Other transfers were up 11.9% or $3.7 billion.  Other direct program expenses (the operating costs of government) increased by 4.9% or$3.5 billion, primarily reflecting higher personnel expenses and in other subsidies and expenses.  The March 2019 Budget forecast virtually no change in other direct program expenses on a year-over-year basis.. However, the final results for 2017-18 included several large year end accrual adjustments. A significantly smaller adjustment is expected this year. The final outcome will largely be dependent on year-end accrual adjustments.

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.  

As expected, the March 2019 Budget forecast a deficit of $14.9 billion, $3.2 billion lower than forecast in the Fall 2018 Update.  This amount is slightly more than the amount set aside in the Contingency Reserve. We have regularly advocated that the Contingency Reserve, if not needed to offset the impact of adverse economic developments on the budgetary balance and/or errors in translating economic forecasts into fiscal forecasts, should be used to reduce the deficit. It should not be used to fund new policy initiatives. However, the Government proposed $5.6 billion of new initiatives for 2018-19, implying that the deficit for 2018-19 could have been $9.0 billion lower or $9.1 billion for 2018-19.

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