OTTAWA — The federal government sustained the year’s worst monthly hit to its books this August, posting a recession-size $5.8-billion deficit.
That’s a big increase from the $473-million shortfall of the previous month and even higher than the $5.3 billion of red ink recorded last August, when the economy was still in recession.
But the Finance Department’s latest fiscal accounting also points out that the rate the deficit its piling up so far this year is well under what it was this time last year and more than on track to meet or better the $45.4-billion final deficit it has budgeted for this year.
Five months into the fiscal year, Ottawa is $13.5 billion in the hole, about $10 billion below last year’s accumulation for the period.
Analysts caution that wild monthly variations are not unusual in the departmental reports, based more on timing issues than on underlying factors.
That is especially true this year, said economist Mary Webb of Scotiabank, when the government is absorbing stimulus costs.
“What’s interesting is that revenue growth seems solid,” she said.
On the spending side, she anticipates expenditures will pick up steam as the year goes on as the bills for construction stimulus start coming in.
“When the government said our deficit is going to be $45 billion, hopefully they’ll outperform that, but not by nearly as much as these numbers are suggesting.”
For August, revenues actually increased a healthy 12.5 per cent from last year, or $1.9 billion.
But expenditures rose even more, by 14.2 per cent, or $2.5 billion.
The department said transfers to provinces and First Nations, and increased spending on infrastructure projects as part of the Ottawa’s stimulus agenda, accounted for much of the growth.
For the year-to-date, which gives a truer picture of the government’s fiscal position, revenues are up $5.8 billion, or 6.7 per cent, from last year.
Meanwhile, program expenses were down $4.3 billion, mainly the result of last year’s one-time bailout of the automobile industry.
TD Bank economist Sonya Gulati agreed that the government “seems on track to at least meet” its deficit target.
“(But) On the economic front, our projections are more subdued than consensus suggests,” Gulati said in a commentary.
“Even with the additional prudence built in the federal nominal GDP forecast, we estimate that $5 billion-$10 billion could be added to the cumulative deficit over the next five years,” she said.
However, given the multi-year time frame and the magnitude of the deficits “we do not currently view these sensitivities as particularly concerning,” she added.
Meanwhile, Gulati says TD does not believe the government can achieve its goal of a balanced budget by 2015-16 through economic growth alone and will have to constrain annual program spending growth to below 2.5 per cent.
“With details as to how this will be achieved lacking to date, we expect the government to gradually announce its restraint measures and savings targets leading into next year’s budget release,” she said.