Fiscal Monitor for April to September 2013

For the first six months of fiscal year 2013-14, the federal government posted a deficit of $10.7 billion, an increase of $1.3 billion from that reported in the same period in 2012-13.  The year-over-year increase in the deficit was more than attributable to the booking of a $2.8 billion liability for disaster assistance for the 2013 flood in Alberta.  In the absent of this one-time liability, the deficit over April to September 2013 would have been $1.5 billion lower than in the same period last year.

Budgetary revenues were up $4.3 billion while increases were reported in program expenses (up $5.4 billion) and public debt charges (up $0.2 billion).   

Within budgetary revenues, all major components were higher with the exception of corporate income taxes (down $0.6 billion) and other excise taxes duties (down $0.1 billion). 

Personal income taxes were up 2.9 per cent, about two-thirds the rate of growth expected for the year as a whole in the November 2013 Update of Economic and Fiscal Projections. Corporate income taxes were down 4.0 per cent, compared to no change expected for the year as a whole. However, it is expected that the estimate for the year as a whole was adjusted for the “risk adjustment factor” of $1.5 billion.  Excluding this, an increase of 4.3% is implicitly expected for the year as a whole.  This implies that that entire “risk adjustment factor” may be needed to offset the greater than expected weakness in corporate income taxes to date. Employment insurance contributions were up 9.1%, reflecting the increase in the employee premium rate (employer rate is 1.4 times the employee rate) from $1.83 (per $100 of insurable earnings) in 2012 to $1.88 in 2013 and a 3.3% increase in the base to which the premium rates apply. Other revenues were up 8.5%, primarily attributable to the inclusion of a $0.7 billion net gain from the sale of General Motors common stock.

On balance, budgetary revenues to date increased by 3.5% on a year-over-year basis, compared to a 3.3% increase expected in the November 2013 Update for the year as a whole.  However, this assumes that the “risk adjustment factor” will be required to offset a potential shortfall in corporate income tax revenues.

Although the year-to-date increase in program expenses of 4.6% exceeds the expected increase of 2.9% for the year as a whole, the results to date are affected by the timing of booking one-time liabilities.  The results to date include the booking of a $2.8 billion liability for the Alberta floods.  Liabilities of roughly a comparable amount were booked in the latter part of 2012-13, thereby distorting the year-over-year changes. To date, the increase in program expenses is roughly in line with that expected for the year as a whole.

In the November 2013 Update, the Minister of Finance revised his deficit forecast for 2013-14 to $17.9 billion, down only $1.0 billion from the final audited outcome for 2012-13. This is significantly less than the improvement of $7.4 billion recorded between 2011-12 and 2012-13. With the ending of the stimulus spending announced in the Economic Action Plan, coupled with the incremental impacts of the various restraint measures announced in previous budgets, one would have expected a much larger improvement in the deficit than the $1.0 billion projected in the November 2013 Update. Only time will time if the Minister of Finance has again buried extra prudence in his fiscal projections.

Add new comment