For some reason the turnaround in the Canadian Federal Government's finances continues to be ignored by the media. This is, of course, allowing the Conservatives, particularly their noisy new leader Pierre Poilievre, free rein to spout endless untruths about the dire state of the national fisc. Poilievre is probably right to say that the COVID measures were initially overdone and then removed too slowly, but that does not alter the fact that the situation has now changed dramatically.
The Department of Finance reported this past week that the Federal budget recorded a deficit of C$ 2,2 billion in September 2022, down from a shortfall of C$ 11.4 billion in the same month last year. For the 2022/23 fiscal year to date (i.e. April-September), the budget has seen a surplus of C$ 1.7 billion, compared to a deficit of C$ 68.6 billion in the same period of fiscal 2021/22. Revenues are up across the board, while spending is sharply lower as a result of the expiry of COVID-related programs. One small blot on the overall picture is the rise in public debt charges, as Bank of Canada tightening translated into higher financing costs as maturing debt is rolled over.
The Government's Fall Economic Statement at the start of November projected a deficit for the full fiscal year of C$ 36.4 billion -- and here we are, halfway into the fiscal year, with the budget still in cumulative surplus. There are at least three reasons to expect the budgetary position to worsen in the next few months: the regular seasonal pattern in Federal budgets always sees worse results in the second half of the fiscal year; the new spending measures announced in the Fall Statement will start to kick in; and the much-anticipated recession may finally materialize. Still, it already seems likely that the final outcome will be a significantly lower deficit than the Finance Minister projected less than a month ago.
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