June 2020
The federal government recorded a deficit of $33.6 billion in June 2020, compared to a surplus of $1.3 billion in June 2019. This deterioration primarily reflects the impact of the COVID-19 on economic growth and the temporary COVID-19 support measures in June 2020. Budgetary revenues decreased by $7.9 billion (28.5%), program expenses increased by $27.9 billion (114.4%), while public debt charges declined by $0.9 billion (41.3%) from year earlier levels. 

Within budgetary revenues, all major components recorded declines with the exception of Goods and Services Taxes (GST), up $471 million (15.9%) and the fuel charge proceeds, up $135 million (98.5%), the latter reflecting an increase in the tax rate and the application of the tax to Alberta. Personal income tax revenues declined $2.3 billion (16.0%) due to lower employment levels, while corporate income tax revenues declined by $2.7 billion, due to the decline in profits. Other revenues (which include net profits from enterprise Crown corporations, revenues from consolidated Crown corporations, Exchange Fund profits/losses, return on investments, sales of goods and services and miscellaneous revenues) declined by $3.1 billion (148.2%) largely due to lower Bank of Canada profits resulting from the secondary purchases of Government of Canada securities to support liquidity in financial markets.

Within program expenses, major transfers to persons increased by $12 billion (155.4%), primarily due payments under the Canada Emergency Response Benefit. Major transfers to other levels of government advanced by $4.6 billion (75.4%), primarily attributable to advancing the Gas Tax Fund payment from the end of the fiscal year to June, as well as payments to top-up wages of essential workers. Direct program expenses were $11.3 billion (106.8%) higher, reflecting payments under the Canada Emergency Wage Subsidy and higher other transfers and operating costs, again primarily due to temporary COVID-19 support measures. The decline in public debt charges largely reflecting lower Consumer Price Index adjustments on Real Return Bonds. 

April to June 2020

For the first three months of fiscal year 2020-21, the federal government posted a deficit of $120.4 billion compared to a deficit of $85 million for the same three months of 2019-20.  The deterioration in the deficit was attributable to the impact of the temporary COVID-19 support measures as well as the effect of the virus on economic activity. The support measures expensed in the first three months accounted for at about three-quarters of the increase in the deficit on a year-over-basis. Budgetary revenues were $32.1 billion (down 37.9 %), lower program expenses increased by $90.3 billion (up 116.5%), while public debt charges declined by$2.1 billion (down 29.8%), from year earlier levels.

Within budgetary revenues, all major components were significantly lower, reflecting the impact of COVID-19 on economic activity as well as temporary COVID-19 support measures.  The latter includes the deferral of income tax payments, sales tax remittance and customs duty payments and the $5.5 billion temporary enhanced low-income GST Credit.  Personal income tax revenues declined $3.0 billion (7.4%), due to drop in economic activity and the resulting increase in unemployment. Corporate income taxes declined by $8.9 billion (68.3%), reflecting lower corporate profits. Excise and sales tax revenues declined by $9.8 billion (67.2%), of which about half of the decline was due to the one-time top-up to the low-income GST Credit in May. The remainder primarily was due to the decline in products and services subject to the GST.  Other revenues declined by $10.6 billion (148.1%), largely due to lower Bank of Canada profits. 

Within grogram expenses, major transfers to persons were up $46.5 billion (193.5%), of which $41.6 billion or ninety per cent was attributable to the Canada Emergency Wage Subsidy.  Elderly benefits increased $838 million (6.1%), reflecting in an increase in the eligible population and higher average benefits which are indexed to inflation.  Employment insurance benefits were up $1.9 billion (43.5%), due to an increase in the number of unemployed. Children’s benefits increased by $2.2 billion, primarily due to the one-time increase of $2 billion in the benefit in May.

Major transfers to provinces and territories increase by $3.3 billion (15.6%). The year-over-year increase was attributable to the advancement of the Gas Tax Fund payment and the one-time payments to top-up wages of essential workers, partially offset by the inclusion in April 2019 of the $1.9 billion expense to the Hibernia Dividend Backed Annuity Agreement. 
Direct program expenses, which includes other subsidies and transfers, the fuel charge proceeds returned and the operating costs of government, increased by $40.4 billion (126.0%).  Just over half of this increase was attributable to the Canada Emergency Wage Subsidy ($22.8 billion).  Other subsidies and transfers increased by $13.1 billion (141.4%), largely reflecting the impact of temporary COVID-19 support measures.  The fuel charge refund increased by $1.2 billion (101.4%), reflecting an increase in the rate for taxation 2020 year. 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 $3.4 billion (15.8%), reflecting in large part purchases of medical and personal protective equipment in response to the COVID crisis. Personnel costs and losses from employee future benefit plans were also higher.

The decline in public debt charges largely reflected lower Consumer Price Index adjustments on Real Return Bonds.
In the first three months for fiscal year 2020-21, the net increase in financing activities amounted to $297.7 billion, compared to a net increase of $6.4 billion in the first three months of 2019-20.  Most of this was in Treasury bills (up $229.6 billion). In the July 8th “Snapshot”, the Government indicated that it would convert this to longer-term market debt.

In the “Snapshot”, the deficit for 2020-21 was expected to reach $323.2 billion, due to impact of COVID-19 on the economy and the temporary support measures for individuals and businesses. Since then, the Government has announced an additional $36.4 billion in COVID-19 measures affecting 2020-21.  All other things remaining equal, this would increase the deficit for 2020-21 to $380 billion. This assumes that most of the support measures will end by September and that there will be no “second wave”. As such, monthly deficits will continue to be significantly above 2019-20 levels especially for the next three to four months. Thereafter, the deficit will largely be affected by economic developments, unless there is a second wave and/or a further extension of the support measures is required.