The Canadian Press
A collapse in corporate profits and higher spending due to the recession helped send the federal government deep into the red in August, when Ottawa had a $5.3 billion deficit.
The Finance department’s monthly fiscal monitor shows Ottawa is now awash in red ink with a year-to-date deficit of $23.7 billion for the first five months of the fiscal year, which runs from April 1 to the end of next March.
That compares to a $1.1-billion surplus the government enjoyed at this point last year.
While timing issues makes it difficult to accurately gauge where the government stands regarding its projections, the shortfall so far would appear to be in line with Finance Minister Jim Flaherty’s forecast that the deficit will wind up at $56 billion for the 2009-2010 fiscal year.
In a speech to the Brampton, Ont. Board of Trade on Friday, Flaherty said Canada is in the best position compared to other G7 nations when it comes to its national debt.
“It has become obvious that Canada was well prepared for the crisis that hit us a year ago — paying down debt in good times, maintaining a prudent financial system, and reducing taxes as the U.S. entered into recession in early 2008, to provide both a short-term gain and a long-term advantage,” Flaherty said in a prepared text of Friday’s speech.
“It is also clear that, when extraordinary times demanded it, extraordinary measures were taken.”
He said Canada had “by far” the best fiscal position among the G7 nations going into the recession, including the lowest debt-to-GDP ratio.
Flaherty said Canada has the lowest forecasted overall debt coming out of the current crisis.
He said his government’s so-called Economic Action Plan has protected and created “tens of thousands of jobs.”
“Our action plan is one of the largest fiscal stimulus packages among the G20, a two-year investment in jobs for today and prosperity for tomorrow,” Flaherty said.
Citing Statistics Canada data, Flaherty said the growth in government capital investment almost doubled in the second quarter of this year to an annualized rate of almost 16%, reversing a downward trend that had been in place for more than a year.
That said, the recession, which struck Canada last fall, has also hammered government revenues from both personal and corporate tax receipts, while also increasing costs for such things as payouts to the unemployed, the department said.
For the April-August period, Ottawa’s revenues were down $10.6 billion, or about 11%, with about half of those due to a deep drop in corporate income tax receipts.
Corporate tax revenues fell $5 billion, or 36.6% in the five months, and were down $1 billion, or 78.6%, in August alone.
Personal income tax revenues were down a more modest $2.7 billion, or 5.7%, reflecting fewer people employed and tax cuts.
Meanwhile, expenses for running programs like employment insurance and bailing out the auto sector rose by $15.3 billion, or 18.6%.
About $11 billion is directly tied to the federal government stimulus measures introduced in last January’s budget, including a jump of $3.1 billion in employment insurance benefits to laid-off workers, a 54% increase over the previous year.
The rare benefit the government has derived from the recession is that mortgage payments on the national debt were down $1.1 billion on a year-over-year basis, largely due to lower interest rates.