Ottawa's deficit shrinks as tax income rises ? Financial Press

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OTTAWA ? With much of the world paralyzed by debt and sinking into recession, Canada is continuing down a different path of deficit reduction and modicum growth.

So far, the federal government?s balancing act is tilting favourably toward its budget estimates ? even though the economy is still slowing and leading to calls for Ottawa to consider spending more and cutting less.

Two months into fiscal 2012-13, the budget deficit stands at $832-million, down from $2-billion for the same period a year earlier, according to initial estimates released Friday by the Finance Department.

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Revenue rose by $2-billion, or 5%, to $42.2-billion during April and May as income from personal and corporate taxes rose, along with employment insurance premium increases. Expenses during the same period were up by $1.2-billion, or 3.4%, to $37.8-billion, with transfer payments accounting for much of the increase.

Avery Shenfeld, chief economist at CIBC World Markets, said ?you have to be a little cautious about comparing a short number of months to a short number of months. The timing of when you make major purchases, and when tax revenues come in can shift a bit from year to year.

?Nevertheless, there?s lots of reasons to believe they?re positioned well to meet their targets for deficit reduction.?

Ottawa finished fiscal 2011-12, which ended March 31, with a $23.5-billion deficit, and it expects a shortfall of $21.1-billion for 2012-13.

In its March budget, the government projected the 2013-14 deficit at $10.2 billion, falling to $1.3 billion the following year.

The government expects to return to a surplus, of about $3.4-billion, in 2015-16 and see that increase to $7.8-billion a year later.

To balance the books, Ottawa is cutting programs and reducing the public service, while relying on economic growth ? though tepid ? to do the rest. The plans call for $5.2-billion in spending cuts and the elimination of 19,200 jobs over three years.

Those austerity measures have come under fire by organizations that say the cuts will lead to many more jobs losses than thought and pose a threat to economic growth.

The Canadian Centre of Policy Alternatives has calculated that more than 68,000 public sectors positions could be lost by 2015-16. As well, two of the world?s biggest rating agencies ? Moody?s and Fitch ? have warned the measures were unnecessary, and that cuts made too quickly and too deeply will actually hurt the economy.

This week, the London-based Association of Chartered Certified Accountants, said a survey on the state of the global economy found its Canadian members ?feel that Canada is increasingly pursuing an unsustainable austerity program.?

?Whatever the debate internally in Canada, the country is seen as really quite safe from the outside, as far as bond markets are concerned,? said Emmanouil Schizas, the group?s senior global policy advisor.

?The argument that you get in these situations is: You know that yields are quite low. We might not have it this good for a while, so why not borrow now and invest in infrastructure or other sorts of public investments? Why not do that now while we can afford it?? Mr. Schizas said in an interview from London.

CIBC?s Mr. Shenfeld said the government is making ?tremendous progress? reducing the deficit, ?in part, because of the interest costs they?re paying on their debt are giving a pleasant surprise.?

?Should the global economy falter, it does give Canada room to increase infrastructure spending by borrowing at very low rates and putting Canadians back to work again.?

Still, Mr. Schizas said a ?fiscal sustainability outlook shifts very, very quickly and countries find themselves moving from the safe zone to the danger zone virtually overnight.?

?[But] the kind of scrutiny the bond markets have put on more troubled sovereigns in Europe and elsewhere, Canada is very unlikely to see [that] in the near future.?

Article source: http://business.financialpost.com/2012/07/27/ottawas-deficit-shrinks-as-tax-income-rises/

Source: http://financialpress.com/2012/07/28/ottawas-deficit-shrinks-as-tax-income-rises/

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