Fiscal Monitor for April – May 2017: A Small Surplus That Is Not Expected to Last

For the first two months of fiscal year 2017-18, the federal government posted a surplus of $68 million, compared to a surplus of $114 million from the same period in 2016-17. The slight deterioration in the surplus was largely attributable to a 28.3% year-over-year increase in the Canada Child Benefit, reflecting the 2016 Budget measures, which came into effect in July 2016.
In the March 2017 Budget, a deficit of $25.5 billion was forecast for 2017-18, which included a Contingency Reserve of $3 billion.  This implies an underlying deficit of $22.5 billion. Although a small surplus was recorded in the first two months of 2017-18, this is not expected to hold over the remaining months of the fiscal year.

At least five to six months of financial data are required before one can properly assess the outcome for the year as a whole. However, private sector forecasters have been revising upwards their growth prospects for 2017, which should have a positive impact on budgetary revenues. Nominal GDP, a proxy for the underlying tax base for budgetary revenues was estimated at 4.1% in the 2017 Budget.  Current forecasts are now calling for growth of just under 6%. Although interest rates are now expected to be slightly higher, on balance the deficit for 2017-18 should be lower than currently forecast.

In the first two months of 2017-18, budgetary revenues were up $2.3 billion (4.7%) compared to the same period last year.  Personal income tax revenues were up $0.8 billion (3.3%), well below the 2017 Budget forecast of 5.8% for the year as a whole.  In contrast, corporate income tax revenues (up $0.5 billion or 7.1%) and sales and excise taxes (up $1.2 billion or 14.9%) were well above their Budget forecasts of 2.6% and 2.2%, respectively. No explanations were provided in the Fiscal Monitor for these differences. Employment insurance premium contributions declined $0.5 billion or 11%, reflecting the decline in premium rates for 2017. 

Program expenses were up $2.6 billion, or 6.0% in the first two months of 2017-18, compared to the same period last year. as spread among all the major expense categories.  Major transfers to persons rose $1.3 billion (9.1%), primarily reflecting higher children’s benefits due to the replacement of the Universal Child Care Benefit by the Canada Child Benefit. Major transfers to other level of government were up $0.3 billion (2.8%), primarily due to legislated increases in the various components. Direct program expenses were up $1.0 billion (5.5%), primarily due to the timing of payments as well as an increase in federal government employee pension and other future benefit liabilities, reflecting the impact of lower interest rates.
Public debt charges were $0.3 billion lower (7.1%), largely reflecting lower CPI adjustments on Real Return Bonds.

Add new comment