OTTAWA – Ottawa’s finances got off to a rocky start in the current fiscal year, posting a $2.7-billion deficit that was nearly $1 billion more compared to the same period last year.
The shortfall was larger than the $1.8-billion deficit recorded in the April and May period a year ago, the Finance Department reported Friday.
The 2012-13 fiscal year ended with an estimated $25.9 billion shortfall for the government — the first year Ottawa failed to make significant progress in reducing its deficit since the recession.
This year, the government is projecting an $18.7 billion negative balance, although the first two months represents a setback in reaching that goal.
Still, analysts warn against reading too much into the early balance sheet reports of government revenues and expenditures because they tend to be lumpy and subject to revisions.
“The year-to-date deficit figures do not give us much to hang our hats on when it comes to annual deficit forecasting,” explained TD Bank economist Sonya Gulati.
“In addition, we do not have a sufficient amount of economic indicators for the second quarter to gauge whether 2013 government planning assumptions remain on point.”
The Canadian economy outperformed expectations in the first quarter with a 2.5 per cent advance, but forecasting houses are at odds about what occurred in the second quarter, the April-June period encompassed by Friday’s report.
The Bank of Canada has set down a low-ball figure of one per cent, while many economists are anticipating a number closer to two based on the strong 1.9 per cent monthly increase in retail spending in May, and stronger employment growth.
Gulati said a better indicator about where the government stands will come later this summer when it closes the books on the 2012-13 period.
Finance Minister Jim Flaherty is counting on an improved economy going forward, continued low interest rates, and ongoing government restraint to take major chunks out of the deficit figure starting this year, resulting in a balanced budget for the 2015-16 fiscal period, only two years away.
In Friday’s report, the government said the deficit for April was a mere 0.3 billion but May brought a $2.4-billion shortfall.
For the two months combined, revenues rose slightly from last year by $557 million to $41.8 billion, with gains in personal and corporate tax receipts undercut by a fall-off in revenues from GST taxes and excise and duties receipts.
Meanwhile, program spending rose by $1.35 billion to $39.2 billion, mainly reflecting higher transfer payments to residents and provinces.
As well, the cost of servicing the national debt rose $106 million to $5.4 billion during the two months from last year.
Combined total spending was up 3.4 per cent relative to last year, a pace of growth that is unlikely to be sustained.
The finance ministry noted it had altered how it calculates monthly tax revenues to better align them to the methodology used in the annual public accounts, which had the effect of increasing last year’s April-May deficit from what was originally reported. The change in methodology will have no impact on the final fiscal numbers, the department added.