Federal deficit back with bang
TheStar.com – Business – Federal deficit back with bang: More than a decade of budget surpluses ends in 2008-09 as corporate tax revenues fall 27%
Published On Sat Oct 17 2009. Les Whittington Ottawa Bureau
OTTAWA–Canada’s long string of budget surpluses – a trend that has made Canadian leaders the envy of other industrialized nations during the global recession – came to an end on Friday.
With little fanfare, the Harper government announced that last year it recorded the first annual budget deficit – $5.8 billion – in more than a decade.
The 2008-09 shortfall is minuscule compared with the budget deficit forecast for the current fiscal year, which the government now says will hit $55.9 billion.
But the final numbers for last year are still significant because it’s the first time Ottawa has been in the red on its annual budget since then-finance minister Paul Martin put an end to a series of yearly deficits by balancing the books in 1997.
Prime Minister Stephen Harper’s government inherited a $13.2 billion surplus when it came to power in 2006.
But by last year, a combination of tax cuts and increased spending had left the fiscal cupboard nearly bare.
As a result, the Conservatives had to scrap their promises never to run a deficit in order to engage in economic pump-priming once the unexpectedly deep recession hit.
“As an open economy, Canada has been significantly affected by these global developments,” the government said in Friday’s report.
Last year’s result contrasts with the previous 2007-08 fiscal year, when Ottawa recorded a $9.6 billion surplus.
The long-term federal debt rose to $463 billion at the end of last year, up from $457 billion the previous year.
The Annual Financial Report identified falling corporate tax revenues as a major contributor to Ottawa’s financial woes. As a result of corporate tax cuts and the recession’s negative impact on business profits, corporate tax revenues last year nose-dived by $11.2 billion – or 27.4 per cent.
Another factor in the deficit was the one-percentage-point reduction in the Goods and Services Tax that came into effect Jan. 1, 2008, which contributed to a 14-per-cent drop in GST receipts last year.
In contrast, personal income tax revenue rose slightly, by 2.6 per cent.
At the same time, government spending rose 4.2 per cent over the previous 12-month period to $207.9 billion as Employment Insurance benefits, financial transfers to the provinces and support for the military increased.
In the current fiscal year, as the federal government’s commitments to increase pro-growth economic spending have ballooned, predictions for the 2009-10 budget deficit have climbed to $55.9 billion.
Over this year and the next five years, cumulative deficits are expected to hit $164 billion.
The Harper government has said it hopes to put an end to deficit financing as soon as possible but doubts that can be done before 2014-15.
The federal government’s fiscal year ends March 31, but it takes several months for officials to complete the financial calculations and arrive at final results.
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