Federal deficit shrinking faster than expected

The latest federal budget deficit numbers suggest the shortfall is shrinking faster than even the government expected, and prompting speculation Ottawa could be out of the red a year ahead of schedule.

The Finance department said Friday November's federal budget deficit was $1.9 billion, a slightly bigger shortfall than the $1.6 billion recorded in the same month of 2011.

However, after the first eight months of its current financial year, Ottawa's accumulated deficit is substantially lower at $12.4 billion — about $3.1 billion less than the $15.5 billion recorded a year before.

Overall revenues fell by $100 million in the month, despite a higher take from income tax, as the government collected less in excise taxes and other duties.

Still, two thirds of the way through the fiscal year, revenues are up by $4.8 billion compared with the same period in 2011.

Spending is up by $3 billion, or two per cent, so far in the fiscal year as transfers to individuals, other levels of government and outlays on programs grows.

But that was partially offset by lower interest charges on the government’s debt. Those fell by $1.3 billion from the earlier period.

With interest rates likely to stay low, the trend in falling interest expenses for the government will probably continue, TD senior economist Sonya Gulati predicts.

But predicting when the government’s finances will come into balance is “becoming more of a head scratcher,” Gulati said.

Her attempt to extrapolate for the rest of the year means Ottawa should be $22 billion in the red by the end of the fiscal year in March, she says, in “stark contrast” to its own latest estimate of a $26 billion shortfall and among “only a handful of Canadian governments to do so.”

Given that, Gulati said, Ottawa’s aim of eliminating the deficit in the 2016-17 fiscal year “could reasonably be brought forward by one year.”

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