Monthly federal budget deficit widens

The federal government’s latest numbers on its budget deficit give few clues about whether it will come in on target with its $26 billion forecast.

The federal finance department said Friday it ran a deficit of $600 million in December, bringing the total for the first nine months of the current financial year to $13 billion.

The December deficit was $100 million higher than in the same month of 2011 but the nine-month total remains $3.1 billion lower thanks to savings in previous months of the current financial year.

TD Economist Jonathan Bendiner suspects Ottawa may come in a little lower than the prediction it made in November.

"The current nine-month reading of the cumulative deficit points to a moderate outperformance versus the $26 billion target announced in the federal fiscal update," he said in a commentary.

"However, given the lack of momentum currently seen in the Canadian economy over recent months, there may be room for the deficit to grow in the final stretch of fiscal year 2012-13."

"There have also been signals that the depressed oil price environment faced by Canadian oil producers will have an impact on fiscal coffers," Bendiner said.

Finance minister Jim Flaherty acknowledged earlier this month that his planning for the next federal budget expected in March has been affected by the fact that Canadian crude is being sold at a substantial discount to international prices.

Countering that effect on revenue, however, is that debt servicing costs have been kept down by low interest rates.

Revenues grow

That’s something Bendiner predicts will continue, "given the Bank of Canada's recent dovish stance on interest rates at its last fixed announcement date.

The December deficit grew as program expenses increased by $700 million from a year earlier to $20.3 billion for the month.

Payments for benefits for the elderly increased by $200 million, while employment insurance benefit payments increased by $200 million. Children's benefits increased by $15 million.

Meanwhile, major transfers to other levels of government increased by $600 million, while direct program spending was down $200 million.

The federal government's revenue grew by $600 million to $22.2 billion, with personal income tax revenues up $1 billion and corporate income tax revenues were down $400 million.

Non-resident income tax revenues were down $200 million, while excise taxes and duties were up $400 million, due to an increase in GST revenue.

EI premium revenues were up $44 million and other revenues were down $200 million.

Public debt charges dropped by about $100 million.

For the first nine months of the 2012—13 fiscal year ending March 31, the federal deficit stood at $13 billion, compared with a deficit of $16.1 billion in the same period a year earlier.