Ottawa's deficit deepens by $2.7 billion as revenues succumb to weak economy

OTTAWA – A slippage in revenues, particularly from sales and excise taxes, helped add $2.7 billion to the federal deficit in September — although the government balance sheet remained in better shape than at the same time last year.

The September shortfall brought the deficit for the first half of the fiscal year to $8.9 billion, still about two billion dollars less than where Ottawa’s finances stood at the end of the same month in 2011.

But the past two steep monthly deficits — including August’s $3.2 billion of red ink — appears to support Finance Minister Jim Flaherty’s recent announcement that this year’s deficit will be $5 billion higher than originally expected.

Flaherty recently said this fiscal year’s deficit will be higher than predicted in his March budget — $26 billion compared with the original projection of $21.1 billion.

The numbers so far don’t justify the gloomier deficit picture presented by Flaherty, but TD economist Sonya Gulati said that just means they are currently “out of sync” due to the timing of payments.

“It could also mean more year-end adjustments and restatements are anticipated than is normally the case,” Gulati said.

Flaherty told reporters in Victoria on Friday morning that it’s almost a personal goal to eliminate the deficit — although Flaherty announced on Nov. 13 that he doesn’t expect a surplus until 2016-17, a year later than projected in the budget.

Brushing aside some mild speculation he may be ready to quit after seven years as finance minister, Flaherty said he intends to stay until he finishes what he started.

“I intend to see my way through to the end until we are balanced, and as you know it will be in the medium term, during the course of this Parliament. So I intend to stay,” Flaherty said.

The September accounting from Finance shows no major deviations from past months, but a slow bleeding of the government’s financial position.

Revenues decreased by $25 million, or 0.1 per cent, to $18.5 billion, while monthly expenses rose $104 million, or 0.6 per cent, to $18.9 billion.

The department said the revenue decline was caused by a drop in excise taxes as well as lower receipts from the goods and services tax. Corporate taxes were positive.

For the first six months of the financial year that began April 1, government revenues are still up $3.3 billion, while program expenses were $1.5 billion higher, accounting for the modestly better result from last year.

Meanwhile, the government paid $1.1 billion less to service its debt than it did last year at the same point.

Government finances likely face a difficult few months going forward as well.

Statistics Canada reported Friday that Canada’s gross domestic product growth slowed to 0.6 per cent in the third quarter, which ended in September, about one third the rate of the second quarter.

Economists noted that given the weak hand-off in September, the economy is also likely to struggle in the current fourth quarter.