Tuesday, December 23, 2008

Federal government posts $603M deficit in October

Economy 'is weakening significantly,' Flaherty says

The federal government posted a $603-million deficit in October as tax revenues fell, according to figures released by the Finance Department on Tuesday.

Ottawa's October shortfall was $87 million higher than the deficit for the same month last year and almost totally eliminated the government's surplus for the April-to-October period.

For those seven first months of fiscal 2008, the government posted a surplus of $200 million, down from an excess of revenue over expenses for the same period last year of $6.1 billion.

The figures indicate that the amount Ottawa accumulates in tax revenue is falling faster as the year — and the global recession — progresses.

Finance Minister Jim Flaherty acknowledged Tuesday that the economy "is weakening significantly."

The Canadian government will run a deficit as it strives to fend off a looming recession, Flaherty said, but it will offer detailed measures in the January budget on how it plans to balance the books once the ongoing economic crisis settles.

"We will ensure that spending that puts us into deficit is temporary, is for finite purposes, so that we will not be into a permanent deficit," Flaherty said Tuesday before meeting with his newly assembled economic advisory panel in Toronto.

The finance minister said no decisions had yet been made about what exactly will be included in the 2009-2010 budget, to be presented Jan. 27, except that it will contain some sort of stimulus measures.

Nevertheless, he said it will show "how we'll come out of deficit, so that it'll be clear to Canadians that as the economy recovers the deficit will disappear and we'll be in surplus again."

Canada's expanding pool of red ink in October was mostly attributable to falling tax revenues.

The government pulled in $18.76 billion in total revenue for the month, an increase of 3.7 per cent compared with October 2007.

Tax intake down
Considering only tax monies, however, the federal government actually gathered 1.6 per cent less for the public treasury this October compared with a year earlier. Ottawa posted tax revenue of $15.59 billion in those 31 days.

In this case, the goods and services intake was down a hefty 17 per cent, to $2.3 billion, in the month. The federal cut to the GST was the reason for lower revenues in this category throughout 2008, the Finance Department said.

"GST revenues were down $2 billion, or 11 per cent (for April to October), reflecting the one-percentage-point reduction in the GST rate effective January 1, 2008," the department noted.

For the April-to-October period, Ottawa's overall tax take stood at $111.6 billion, down 0.3 per cent compared with the same seven months a year earlier.

Of the $15.59 billion the government levied from Canadians in October, only 12.8 per cent, or $1.99 billion, came from corporate income taxes, down from 14.4 per cent for the same period one year earlier.

Corporate income taxes were off 23 per cent in the month and 12.6 per cent in the April-to-October period, compared with one year earlier.

Corporate taxes can be volatile in a single month. But shrinking corporate tax figures over a longer period can indicate a slowing economy.

Costs up
What Ottawa gives back to Canadians in the form of transfer payments to provinces and individuals rose in October.

The federal government had program expenses of $16.77 billion in the month, up 5.9 per cent versus October 2007. For the April-to-October period of 2008, Ottawa spent an additional 7.2 per cent compared with the same period one year earlier.

Welfare payments and higher medical transfers to provincial governments were the categories exhibiting the biggest increases in October.

In addition, employment insurance payments rose by 4.2 per cent in the April-to-October span, reaching $8.1 billion. For October, however, EI costs fell to $1.05 billion.

Still, the number of Canadians without work increased by slightly less than 110,000 in November compared with January. As a result, fiscal experts believe Ottawa might need to fork out more in terms of unemployment benefits in the coming months.