Deficit for the first two months of the fiscal year contrast with year-earlier surplus
It’s no surprise that the Canadian government has started its fiscal year in the red; a deficit was always part of the plan amid spending commitments in the Budget 2024.
New stats from the Finance Department reveal a deficit of $3.9 billion for the April-May period, the first two months of the fiscal year, as program expenses rose $10 million or almost 16%, excluding net actuarial losses, while higher tax revenues (up $4.5 billion, or 7.5% from a year earlier) helped boost overall revenues by around 9% or $6.5 billion to $79.5 billion.
Major transfers to persons were up $2.6 billion or 14% including elderly benefits which were up by $0.9 billion (around 7%) largely reflecting growth in the number of recipients and changes in consumer prices, to which benefits are fully indexed.
The deficit is contrary to the $1.5 billion surplus in the same two months of last year, with the cost of government debt adding to picture with a 34% rise due to interest rates taking public debt charges to $2.3 billion. The financial requirements of the April-May period saw the government add $8.8 billion to its debt burden.
Although Ottawa had planned for a deficit of $40 billion in FY2024, with a plan to reduce the deficit in the years ahead ($18.4 billion by 2028/20), there are concerns that this will not be achieved.
In March, Desjardins warned that the budget may balloon to $47 billion by the end of the current fiscal year, and last week its senior director of Canadian economics, Randall Barlett, again flagged how government policies, including a reduction of non-permanent residents, could impact revenues and deepen the deficit.
“Add to this additional spending not included in Budget 2024, such as the greater expenditures on defence announced recently, and the federal government’s fiscal anchors are very much at risk,” Bartlett said.
Trans Mountain pipeline sale
With government finances already challenged, the last thing the government would want before an election is a heavy loss on the Trans Mountain pipeline.
The sale is being delayed by several factors, Bloomberg reports, including greater complexity. With the cost of the pipeline expansion construction ending up above expectations, recouping around $34 billion plus the $4.5 billion the government paid for the pipeline in 2018, looks impossible given analysts’ expectations that a sale price would fall between $15 billion and $30 billion.
The Bloomberg report, citing unnamed sources, suggests the sale will not happen until after the national election in 2025, but an email from Katherine Cuplinskas, a spokesperson for finance minister Chrystia Freeland, says “the federal government will launch a divestment process in due course.” No exact details on timing are included.
A delayed sale could mean a higher price is achievable as interest rates fall and a longer period of operating revenues are available. The new owner will not receive all of the equity in the pipeline though as Indigenous groups in Western Canada have been promised an, as yet undecided, stake.
