Canada fiscal update

This never seems to get much media attention, but Canada's fiscal situation, at least at the federal level, continues to evolve favourably. The latest Fiscal Monitor, published by the Department of Finance this week, shows that the cumulative deficit for the first eight months of fiscal 2022/23 (i.e. April-November) stood at C$ 3.6 billion. That compares to a deficit of C$ 73.7 billion for the same period of fiscal 2021/22.  The remarkable improvement is fairly evenly split between higher revenues and lower program spending. 

In the Fall financial statement just a couple of months ago, Finance Minister Chrystia Freeland projected a deficit for the full year of C$ 36.4 billion, a number which seemed improbably high even at the time. At first blush, the latest data suggest that the actual outcome will be very much lower than that projection. That will probably turn out to be the case, but it is likely that the monthly data for the rest of the fiscal year will not be as good as those seen so far. 

It is noteworthy that revenues for the month of November were slightly down on the previous year's level.  This reflects the impact of some of the measures announced in the Fall statement, notably a temporary doubling of the GST credit, and a similar impact on revenues is likely to be evident in the remaining months of the fiscal year, especially with the economy growing more slowly.  Spending is always higher in the latter part of the fiscal year, and there is no reason to expect anything different to happen this year.  

Lastly, the Government always uses a "thirteenth month" to allow for unforeseen factors (and outright window-dressing) at the end of the fiscal year. With the prospect of an unusually large gap between budget estimates and the actual outcome, the adjustment for the thirteenth month is likely to be even larger than usual this year. Still, the final budget deficit looks set to be much lower than expected -- which, this being a Liberal government, will likely set the stage for further spending announcements come budget day.