The federal government posted a deficit of $3.7 billion in August 2019, compared to a deficit of $2.0 billion August 2018.

Budgetary revenues declined by 1.2%, reflecting declines in all major components, except for personal income tax revenue, other excise taxes and duties and other revenues. Corporate income tax revenues were down 6.5% on a year-over-year basis, goods and services tax revenues declined by 7.9% customs import were 48.4% lower, due to the ending of temporary retaliatory surtaxes on steel, aluminum and other products, and other revenues were 5.3% lower.  In contrast, personal income tax revenues were up 4.5%, other excise taxes and duties were up 18.4% and employment insurance premium revenues were 4.6% higher. 

Program expenses were up 7.4% primarily reflecting double digit increases in other transfer payments (up 10.9%) and other direct program expenses (up 11.6%). Major transfers to persons were 6.4% higher, reflecting a 16% increase in employment insurance benefits and higher elderly benefits, up 5.2%.Major transfers to other levels of government increased were up slightly, as an extraordinary large negative adjustment to other fiscal arrangements nearly offset increases in the other components. Public debt charges were 17.0% lower, reflecting lower inflation adjustments on Real Return Bonds.

For the first five months of fiscal year 2019-20, the federal government posted a deficit of $5.2 billion compared to a surplus of $2.6 billion for the same five months of 2018-19. The April –August 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 deficit of about $3.3 billion.

The other major factor contributing to the deterioration in the fiscal balance to date was attributable to a 12.3% increase direct program expenses, primarily due to higher other transfer payments (up 11.6%) and personnel costs (up 9.1%), primarily due to an increase in pension and other benefit costs based on the latest actuarial valuations. .
On a year-over-year basis, budgetary revenues in the period April to August 2019 were up $3.9 billion from the same period in 2018, an increase of 2.9 per cent, program expenses increased by $10.9 billion, up 9.1 percent, while public debt charges were up $731 million, or 7.2 per cent, from year earlier levels.
The increase in budgetary revenues was primarily due to higher personal income taxes, up $3.0 billion or 4.8%, reflecting the increase in wages and salaries.  In addition, corporate income taxes were up $414 million, or 2.1%, other revenues increased by $644 million, or 5.6%.  The fuel charge proceeds yielded $436 million in the first five months. In contrast, continued weakness was reported for goods and services tax revenues, down 2.4% or $435.  The ending of the temporary retaliatory surtaxes resulted in a $423 million decrease in customs import duties (down 15.2%). million.

Within grogram expenses, major transfers to persons were up 3.1% or $1.2 billion.  Elderly benefits increased 4.9% or $1.1 billion, primarily reflecting in an increase in the eligible population and higher average benefits which are indexed to inflation.  Children’s benefits increased by 0.8% or $77 million. Employment insurance benefits were up 1.3% or $88 million.

Major transfers to provinces and territories were up 11.5% or $3.5 billion. Nearly half of this increase was attributable to the inclusion of the $1.9 billion expense to the Hibernia Dividend Backed Annuity Agreement. The remaining compo

Direct program expenses, which includes other subsidies and transfers and the operating costs of government, increased by 12.3% or $6.2 billion.  Other transfers increased by 11.8% or $1.7 billion. On a monthly basis, this component is strongly affected by the timing of payments. 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 9.1% or $3.2 billion. Nearly two-thirds of this increase was due to higher personnel costs, which were up 9.1%, in part due to the impact of the latest actuarial valuations affecting pensions and other benefits.

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. In addition, the year-to-date increase in direct program expenses is much greater than that forecast in the March 2019 Budget, which could increase the deficit outcome for 2019-20 even more.  It is expected that the Government will present an Economic and Fiscal Update in late November or early December.  This could include some new policy proposals, thereby furthering adding to the deficit outcome for 2019-20.