Deficit rises $3.9 billion, but Ottawa on track to beat projections

OTTAWA — The federal government appears on track to meet or better its deficit projection for this year.

OTTAWA — The federal government appears on track to meet or better its deficit projection for this year.

The government fell $3.9 billion further into the hole in September, bringing the total for the first half of the fiscal year to $17.4 billion.

But with half of the fiscal year gone, that is better than where Ottawa stood at this time last year, with a $28.6 billion deficit on its way to a record $55.6 billion shortfall.

It is also well ahead of the pace for meeting the $45.4 billion deficit target for this fiscal year, which ends on March 31.

Economists say better than expected growth in the first half of the year and the rebound in employment has helped the government revenue and expenditure mix.

As well, Ottawa’s fiscal situation will benefit from the sale of millions of General Motors shares it acquired as part of last year’s rescue of the auto sector.

Last week, the government announced it sold 30 million shares — partly also owned by the government of Ontario — at $33 a share. It acquired the shares for $15 each through the bailout and, under the terms of the agreement, it must sell at least five per cent of its remaining holdings each year going forward.

Tax revenues for the first six months this fiscal year were up $7.8 billion, or 7.6 per cent, reflecting improvements in both person, corporate and GST tax receipts. GST receipts were particularly strong, rising almost 25 per cent from last year.

Meanwhile, program expenses fell $3.7 billion, or 3.2 per cent, reflecting lower payouts for employment insurance and other transfers, including to the auto sector bailout.

The government said roughly $9 billion of the budgetary deficit so far this year is due to the government’s economic stimulus package, which is slated to end March 31.

While the government is ahead of pace for the year, that does not mean it faces any less of a challenge meeting its other key target, balancing the budget in five years, said TD Bank economist Sonya Gulati.

She noted although Finance Minister Jim Flaherty has recently stressed there will be no major new spending in the upcoming budget, history suggests as pressure builds, it will be difficult for Ottawa to keep spending growth under two per cent.

The government’s growth assumptions going forward are also more optimistic than the TD’s own forecast, she said.

“If we take the government’s expenditure profile at face value and apply our more prudent economic assumptions, we project a deficit of about $5 billion in fiscal year 2015-16,” Gulati said in an analysis. That’s the year Flaherty is expecting a $2.6 billion surplus.

However, if the government is able to keep increases in transfers to provinces low after the current agreement expires in 2013-14, and the value of GM stock keeps rising, “budgetary balance may be achieved one to two years earlier,” she added.