Federal deficit shrinks in first quarter to $7.2-billion

OTTAWA -- Canada's budget gap is shrinking in line with the government's projections, the Finance Department said Friday, while cautioning that "considerable uncertainty" about the strength of the global recovery means it is too early to reach conclusions about where the deficit will be at the end of the fiscal year.

Through the three months of the year that started April 1, Canada's deficit sits at $7.2-billion, compared with $12.5-billion in the same period of 2009 when the economy was still in recession. The three-month shortfall is "broadly consistent" with Finance Minister Jim Flaherty's projection that the $54-billion budget shortfall the government had at the end of the last fiscal year will shrink to just over $49-billion this year, the department said in its monthly Fiscal Monitor.

The budget deficit for June was $2.8-billion, the department said, compared with almost $5-billion in the same month a year earlier. The smaller discrepancy came as the government spent less on transfer payments such as employment insurance and aid that was provided for the automotive industry during the downturn.

For the three-month period, program spending was down 5.5-per-cent on a year-over-year basis, to $54.4-billion, partly reflecting a 6.4-per-cent drop in EI transfers to unemployed workers.

The government took in $54.7-billion from April though, a 3.7-per-cent increase over the same three-month period in 2009, in part because of a 54-per-cent gain in sales-tax revenues and higher personal income-tax revenues. The government's intake from corporate income taxes dropped by 10.5 per cent.

More than $3-billion of the deficit so far this fiscal year is attributable to the Conservative government's stimulus measures - called the Economic Action Plan - which includes tax cuts and infrastructure spending, the Finance report said.

The government's debt charges fell by $100-million, due to lower average interest rates on its stock of interest-bearing debt. Record overseas demand for Canada's relatively safe government bonds has helped Ottawa fund its deficit spending without much fear of being crippled by interest payments.

Mr. Flaherty's March fiscal plan pledged to slash the budget deficit by two-thirds over the next three years.

However, the government suggested Friday that while faster-than-expected economic growth has led to rosier projections for tax revenue, the fizzling U.S. rebound and austerity measures in Europe mean the global rebound, and Canada's, are less than solid.