For the first two months of fiscal year 2019-20, the federal government posted a deficit of $1.4 billion compared to a surplus of $3.2 billion for the same two months of 2018-19.

The April – May 2019-20 results include an expense of $1.9 billion related to the new Hibernia Dividend Backed Annuity Agreement reached in April 2019 between the federal government and Newfoundland and Labrador.  This expense was not mentioned in the March 2019 Budget, although it could have been included in the non-announced initiatives. As a result, it is unclear as to what impact it might have on the deficit outcome for 2019-20. Excluding the impact of this expense, there would have been a surplus of about $0.5 billion. Contributing to this deterioration in 2019-20 were the impact of the fuel charge proceeds returned and higher other transfers payments and operating expenses. Budgetary revenues were up $2.3 billion, an increase of 4.2 per cent, program expending increased by $6.3 billion, up 13.5 percent, while public debt charges were up $0.6, up 13.3 per cent, from year earlier levels.

Within budgetary revenues, personal income taxes rose 3.8% ($963 million), corporate income taxes increased 5.0% ($419 million), customs import duties increased 19.3% ($166 million), excise taxes and duties were up 9.9% ($185 million) and other revenues were up 13.7% ($611 million).  In contrast, Goods and Services Taxes declined 2.2%t ($159 million).   In addition, the Department of Finance provided no results for the fuel charge, unless it is included in energy taxes rather than reported separately.

Within grogram expenses, major transfers to persons were up 2.9% or $459 million.  Elderly benefits increased 5.0% or $437 million, reflecting in an increase in the eligible population and higher average benefits which are indexed to inflation.  Children’s benefits declined by 1.0% or $42 million. Employment insurance benefits were up 2.1% or $64 million.
Major transfers to provinces and territories were up 24.2% or $3.0 billion. The increases in the components reflected the increases as set out in their appropriate legislation, as well as the inclusion of the $1.9 billion expense to the Hibernia Dividend Backed Annuity Agreement.

Direct program expenses, which includes other subsidies and transfers and the operating costs of government, increased by 15.4% or $2.9 billion.  Other transfers increased by 14.4% or $780 million.  The fuel charge refund amounted to $1.1 billion. The impact on the deficit of this refund should largely be offset by the fuel charge proceeds. The operating costs of the government increased by 7.5% or $989 million. Abnormally large increases were reported for expenses related to personnel, professional services and other subsidies and expenses. No reasons for these increases were provided.

It is too early to assess what impact the results for the first two months will have on the deficit outcome for 2019-20. In the March 2019 Budget, the Government forecast a deficit of $19.8 billion for 2019-20, up from an estimate of $14.9 billion for 2018-19, so an increase in the deficit is expected.