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Canada’s Deficit Widens in First Two Months on Inflation

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July 26 (Bloomberg) -- Canada’s budget deficit widened in the first two months of the fiscal year as slower than expected inflation damped revenue growth.

The federal government ran a deficit of C$2.71 billion ($2.63 billion) in April and May, compared with a two-month gap of C$1.82 billion a year ago, the finance department said in an e-mailed statement. Revenue grew 1.4 percent, less than half the 3.4 percent increase in total expenses.

Inflation this year has been slower than policy makers predicted as the country’s economy struggles to build momentum, crimping revenue from price-sensitive levies such as the sales tax. Finance Minister Jim Flaherty’s annual budget, released in March, projected inflation of 1.3 percent this year, along with a deficit shrinking to C$18.7 billion, from C$25.9 billion last year.

The Bank of Canada last week lowered the average of its quarterly forecasts for price increases this year to 1 percent.

Revenue from the country’s goods and services tax fell 7.7 percent during the two-month period to C$4.89 billion. Income tax gains rose 2 percent to C$25.8 billion.

Total revenue was up 1.4 percent to C$41.8 billion, including an 8.2 percent increase in employment insurance premiums.

Total expenditures rose to C$44.5 billion, driven by a 3.6 percent gain in program expenses.

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net