Ottawa reports shrinking deficit in April and May, transfer payments higher

OTTAWA – Canada appears to be successfully dodging much of the economic flak currently circling the globe, having more than halved the federal deficit for the first two months of the current fiscal year.

The federal government rang up a small deficit during the April-May period, spending $832 million more than it collected in revenue, Finance Canada reported Friday in its Fiscal Monitor report.

The two-month deficit — $19 million in April, $813 million in May — is a significant improvement over the $2 billion reported during the same period a year ago.

Revenues in April and May were five per cent higher than a year earlier, with both corporate tax and GST revenues rising 9.3 per cent.

On the other side of the ledger, program expenses were up 3.4 per cent from the previous year, mainly due to higher transfer payments — an expenditure Finance Minister Jim Flaherty appears to have in his sights, much to the chagrin of Canada’s premiers.

On the final day of the Council of the Federation meeting in Halifax, Manitoba Premier Greg Selinger warned that Flaherty’s new formula will cut nearly $36 billion in health transfers to the provinces over the next decade if it’s allowed to stand.

Selinger slammed Ottawa for imposing the funding scheme without consulting the provincial and territorial leaders, some of whom have long complained that the federal government is taking a unilateral approach to policy development.

Flaherty’s plan to change the calculation for health transfers would take effect in 2014. In December, he announced a plan to increase health transfer payments by six per cent annually until 2017.

From there, transfers would be tied to the rate of economic growth and inflation — currently estimated to be about four per cent — but wouldn’t fall below three per cent.

Under that scheme, the premiers predict they’ll see $36 billion less in federal transfers from 2014 to 2024.

Selinger said the new scheme reduces Ottawa’s contribution to the health-care costs of provinces and territories to less than 20 per cent.

For the 2011-2012 fiscal year as a whole, Ottawa has reported a preliminary deficit of $23.5 billion, but that figure is likely to be adjusted.