Ottawa's annual deficit continues to fall despite $9 billion spike in March

OTTAWA – Ottawa’s books took an unexpectedly large $9-billion hit in March but the $23.5-billion deficit it expects for the just-ended budget year appears to be below the Harper government’s previous estimates.

The month included two large spending items that were out of the ordinary — a $2.2-billion payment mostly to compensate Quebec for adopting the harmonized sales tax and a $1.8-billion increase partly due to workforce adjustment costs related to public service cutbacks.

The Department of Finance cautioned that the deficit report issued Friday is preliminary and that a final number won’t be known until the fall.

However as things stand now, the deficit for the year is nearly $13 billion smaller than predicted for 2011-12 when the budget was announced last June and slightly better than in the most recent revised estimate, showing Ottawa continues to make progress towards balancing its budget.

TD Bank economist Sonya Gulati said the big deficit in March — the last month of the government’s financial year — came as a shock, given that there were surpluses in the previous two months.

But Gulati did not believe the red ink reflected so-called “March madness,” a term denoting last-minute splurges as department heads attempt to spend to their budget limits before the end of the fiscal year.

“Usually when you see that, you see it in the back office category,” she said. “We didn’t see that at all. We actually saw a year-over-year decrease in that.”

“I think it’s more timing issues (where spending) wasn’t necessarily recorded in the last two months and we’re seeing that hit in March.”

There was also a large deficit of $6.2 billion in the final month of the previous fiscal year.

The government attributed March’s overall $4.3-billion spending increase from last year mostly to increases in major transfers to the provinces — including the special HST payment to Quebec and legislated growth in other transfers.

Gulati said the 16.5 per cent decrease in the “other transfer payments” category suggests Ottawa has done a good job of trimming departmental costs.

The question is whether the government will be able to keep spending restraint in place in the next few years to meet its goal of returning to surplus by 2015-16, she said.

The data released Friday suggests Ottawa has at least made a good start.

The $23.5-billion preliminary deficit figure — subject to adjustments — follows a $33.4-billion shortfall in 2010-11 and a $55.6-billion hole the previous year.

Analysts attributed the improvement to better economic conditions, in conjunction to the phase-out of stimulus spending and departmental cost controls.

Revenues increased by $11.4 billion as personal income tax returns rose 7.2 per cent and business tax receipts increased by 8.9 per cent, offsetting a 3.8 per cent decrease in GST taxes.

Program expenses were mostly flat, rising 0.2 per cent over last year.

The government said it still expects the final deficit, once all adjustments are made, will be “in line with the deficit of $24.9 billion projected… in the March 29, 2012 budget.”