OTTAWA: Canada recorded another hefty budget deficit in July as the federal government’s fiscal stimulus plan kicked in and weakness in corporate and energy taxes persisted.
The Finance Department’s monthly fiscal monitor publication indicated Canada posted a July deficit of 1.76 billion Canadian dollars ($1.34 billion), compared with a C$150 million surplus in the same year-ago month. Four months into the 2016-17 fiscal year, Canada is running a budget deficit of C$2.76 billion, compared with a C$5.16 billion surplus in the year-earlier period.
The deficit is swelling due to increased government spending, as Prime Minister Justin Trudeau follows through on the Liberal Party’s plan to stoke growth through increased investments in infrastructure. Funds made available to cities and communities, which stand to benefit from new infrastructure, rose 5.8% in July from a year earlier.
Canada’s Liberal government, which took office almost a year ago, forecast a budget deficit for 2016-17 of C$29.4 billion and fiscal shortfalls for the remainder of the decade. The deficit-spending plan is a sharp reversal after years of spending restraint under the former Conservative government.
The Canadian government forecast economic growth at 1.4% in 2016, followed by years of 2%-plus expansion for the remainder of the decade. Those forecasts could be downgraded in the fall economic update, to be released sometime in the coming months, as nonenergy exports have disappointed.
Overall, total government revenue fell 3.1% in July to C$23.11 billion, on a 24.5% decline in corporate tax receipts. Other tax categories also showed declines, such as receipts from value-added taxes, down 11.1%; energy taxes, down 17%; and custom duties, down 10.6%. Corporate receipts have taken a hit due to the slide in commodity prices.
On the spending side, expenses related to government programs rose 6.5% in July to C$22.72 billion. Offsetting the drop in tax revenue and higher outlays was a decline in public-debt financing, reflecting rock-bottom borrowing rates. Public-debt charges fell 9.2% in July to C$2.15 billion.
