Rising program expenses propel fed 2016-17 deficit to $21.8B: preliminary estimate

OTTAWA — A $21.7-billion surge in federal program expenses was almost entirely responsible for the government’s expected 2016-17 deficit, according to a preliminary analysis of Ottawa’s books.

The Finance Department numbers released Friday suggest the government’s on track to run a $21.8-billion shortfall in the last fiscal year. The new figure puts the Liberal government close to its 2016-17 deficit projection of $23 billion, without counting a $3-billion risk adjustment that was added to the accounting framework.

The fiscal monitor Friday showed an 8.2 per cent expansion last year in federal program expenses, which included a $10.6-billion or 9.1 per cent increase in direct program spending.

Those expenses also feature an $8.3-billion or 10 per cent gain in government transfers to individuals, which include increases in federal benefit payments for children, seniors and employment insurance.

Revenues increased by $600 million or 0.2 per cent compared with a year earlier, the Finance Department said. The analysis found personal income tax revenues rose $300 million or 0.2 per cent, while corporate tax revenues were up $2.3 billion or 5.4 per cent.

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In March alone, the document showed the government ran a monthly shortfall of $10.4 billion, a number comparable with Ottawa’s March 2016 deficit of $9.4 billion.

The 2016-17 figure released Friday was not the final result because end-of-year adjustments still need to be completed to account for tax-return assessments.

The Liberal government is regularly attacked by opponents for its fiscal plan, which is forecasting double-digit, multibillion-dollar deficits in each of the next several years.

Rivals have also criticized Ottawa for not providing a concrete timetable as to when the books will be balanced.

The government defends its plan by arguing that its commitments to invest tens of billions over the coming years into enhanced child benefits, large infrastructure projects and the innovation economy will lift Canada’s long-term growth trajectory.

The Liberals won the 2015 election on a platform that vowed to invest billions in those areas and to finance the plan with annual deficits of no more than $10 billion. They also promised to return to balance by 2019-20.

Instead, Finance Minister Bill Morneau shifted his focus to a so-called fiscal “anchor” to lower the debt-to-GDP ratio by the end of the Liberal mandate.

However, the government now predicts the ratio — a measure of the public debt burden — to only drop below 2016-17 levels in 2020-21, after the next election.

Not counting the $3-billion contingency cushion, Morneau’s March budget projected shortfalls of $25.5 billion next year, $24.4 billion in 2018-19, $20.4 billion in 2019-20, $18.7 billion in 2020-21 and $15.8 billion in 2021-22.

A spokesman for Morneau released a statement arguing that Friday’s deficit figure was evidence the government has been “responsible” with its program because Canada has the lowest debt-to-GDP in the G7 and because Ottawa’s 2016-17 deficit forecast has shrunk since its initial prediction of $29.4 billion in 2016.

Follow @AndyBlatchford on Twitter.

Andy Blatchford, The Canadian Press