Deficit sets the tone for 2009

The federal government started off this fiscal year with an unprecedented $3.6 billion deficit for the month of March. Compare that to a deficit of $1.2 billion in March 2008, and a surplus of $11.4 billion reported in the period of 2007-08.

The deficit shows, in ample measure, the crippling impact of an economy in a recession, and the hefty declines in tax revenues.

According to the March 2009 Fiscal Monitor released by the finance department, budgetary revenues decreased by $9.2 billion, or 3.8%, primarily reflecting declines in corporate income tax and goods and services tax revenues. Personal income tax revenues decreased by $1.3 billion, or 12.4%, which indicates lower employment and personal income tax reductions announced in Canada’s Economic Action Plan. Corporate income tax revenues were also down $2.1 billion, or 46.8%, reflecting large refunds issued in March.

Withholdings from non-residents also decreased by 23.9%.

Expenses soared, while revenues plummeted. Elderly benefits increased by 5.8% while EI benefits increased by 55.9%, showing significantly higher regular benefits. Payment of children’s benefits, including the Canada Child Tax Benefit and the Universal Child Care Benefit, increased by $5 million.

Subsidies and other transfers increased by 21.3%. This number reveals increases across a number of departments and agencies including the Canadian International Development Agency, Indian and Northern Affairs Canada, Natural Resources Canada and Infrastructure Canada.

Program expenses were down $0.6 billion, or 2.8%, from March 2008, largely indicating lower operating expenses of departments and agencies. Public debt charges were $0.2 billion lower than in March 2008, and down $2.3 billion on a year-over-year basis, signalling a lower average effective interest rate on the stock of interest-bearing debt.

On the whole, the budgetary balance through March 2009 is $1.1 billion lower than projected for the year as a whole in Budget 2009. An update of the fiscal outlook for 2008-09 will be provided in the government’s June 2009 Report to Canadians on Canada’s Economic Action Plan.

(05/29/09)