The federal government posted a deficit of $1.5 billion in July 2019, compared to a surplus of $142 million July 2018.

Budgetary revenues increased by 3.6%, primarily reflecting strong increases in corporate income tax revenues (up 34.1%), reflecting timing factors thereby making up for the decline in the previous month and other revenues (up 17.9%). In contrast, personal income taxes declined by 3.6% on a year-over-year basis, again partially reflecting timing of receipts as receipts in June 2019 were extraordinary strong.  In addition, with the exception of other excise taxes and duties and employment insurance revenues, all other major revenue components were also lower. Program expenses were up 8.9% primarily reflecting double digit increases in other transfer payments (up 20.6%) and other direct program expenses (up 15.9%). Major transfers to other levels of government increased by 3.7%, in line with their legislated prescribed increases. In contrast, employment insurance benefits declined by 2.5%. Public debt charges were up 13.3%, reflecting higher average effective interest rate and an increase in Consumer Price adjustments.

For the first four months of fiscal year 2019-20, the federal government posted a deficit of $1.6 billion compared to a surplus of $4.4 billion for the same four months of 2018-19. The April –July 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 $0.3 billion. The deterioration in the fiscal balance to date primarily reflect the payment to Newfoundland and Labrador, lower year-over-year increases in corporate income tax  and goods and services tax revenues and higher direct program expenses.

On a year-over-year basis, budgetary revenues in the period April to July 2019 were up $4.2 billion from the same period in 2018, an increase of 3.9 per cent, program expenses increased by $9.1 billion, up 9.8 percent, while public debt charges were up $11 billion, up 13.5 per cent, from year earlier levels.

The increase in budgetary revenues was primarily due to higher personal income taxes, up $2.5 billion or 4.9%, reflecting the increase in wages and salaries, and an increase of 8.6% or $779 million in other revenues.  These two components contributed to three quarters of the total increase in budgetary revenues to date. In contrast, continued weakness was reported for goods and services tax revenues, down 1.1% or $166 million.

Within grogram expenses, major transfers to persons were up 2.3% or $735 million.  Elderly benefits increased 4.8% or $833 million, primarily reflecting in an increase in the eligible population and higher average benefits which are indexed to inflation.  Children’s benefits increased by 0.4% or $34 million. Employment insurance benefits declined by 2.2% or $132 million, reflecting continued strength in the labour market.

Major transfers to provinces and territories were up 14.0% or $3.5 billion. The increases in the components largely reflect 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 12.5% or $4.8 billion.  Other transfers increased by 11.8% or $1.3 billion.  The fuel charge refund amounted to $1.2 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 8.3% or $2.3 billion. About half of this increase was due to higher personnel costs, which were up 6.6%..
It is too early to assess what impact the results for the first four 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.  The final outcome for 2018-19 was $14.0 billion, slightly below the March 2019 Budget estimate of $14.9 billion.  The lower-than-expected outcome is not expected to have a material impact on 2019-20, but could well effect the various components. As noted above, it is not known what impact the $1.9 billion payment to Newfoundland and Labrador will have on the 2019-20. In addition, the Government has yet to indicate whether it will accept the ruling by the Canadian Human Rights Tribunal to compensate First Nations children and possibly their families impacted by the on-reserve child welfare system.. This could increase the 2019-20 deficit by $4 to $6 billion.