Ottawa's fiscal books continue to improve, deficit lower than expected
OTTAWA -- The federal deficit for the year just finished will come in lower than the $40.5 billion predicted in March's budget, Ottawa says.
Just how much lower won't be known for sure until the fall, but analysts expect it could be at least $1 billion to the good once the final accounting has been completed.
The assessment about the deficit is contained in the Finance Department's monthly update of the government's books, which sets the preliminary standing on the deficit at $34.4 billion for the fiscal year 2010-11.
That's about $6 billion shy of the government's previous estimate, but the department is careful to caution that the figure is preliminary and will likely rise after end-of-year adjustments on tax returns and valuation adjustments for assets and liabilities are done in the fall.
History has shown those adjustments can amount to billions of dollars in additional expenditures.
"We expect these end-of-year adjustments to increase the deficit from the $34.4-billion amount,'' the Finance Department said.
"However, based on the results to date, the final 2010-11 deficit is expected to be lower than the $40.5 billion as projected in the March 22 budget.''
For the department to make such a definitive statement suggests it is confident of beating its deficit target, said Scotiabank economist Mary Webb.
"Ottawa must be fairly confident, because they tend err on the side of caution,'' she said.
"If they are flagging they think it will be (lower), my expectation would be that it would be at least $1 billion, and I'm saying at least.''
Finance Minister Jim Flaherty will get a chance to table a new budget on June 6 -- and new estimates of the size of the deficit -- certain of its passage in the new Conservative majority Parliament.
A lower deficit for 2010-11 does not necessarily impact on this year's fiscal shortfall, last projected at $29.6 billion. That figure could rise once Flaherty accounts for an estimated $2.2 billion payment to Quebec to settle the HST issue.
Still, Ottawa's books are expected to steadily move toward balance as the economy improves and spending growth slows, particularly since most measures in the government's two-year stimulus package expired on March 31. Ottawa set a record $55.6 billion deficit in 2009-10, when the recession hit hardest, but has improved that position by between $15 and $20 billion in one year.
During the election campaign, the Conservatives pledged they would balance the budget in four years -- one year earlier than planned -- by finding an additional $4 billion in savings from operations.
Most of the improvement in Ottawa's books in the last year was the result of higher revenues.
The department said revenues were up $12.9 billion, or 5.9 per cent, primarily due to higher individual and GST tax revenues, and higher employment insurance premiums. The take from corporations was roughly the same as the previous year.
Meanwhile, program expenses were down by $1 billion as increased transfers to provinces were offset by the previous year's auto bailout.
The department said $17 billion, or about half, of last year's deficit was due the stimulus package.
Increased borrowing to finance the deficit added $1.4 billion in debt service charges.
In April, the International Monetary Fund pegged Canada's combined federal-provincial fiscal deficit at 4.1 per cent of gross domestic product, lower than the U.S. (10.5 per cent) and the United Kingdom (8.1 per cent).