Canada Confirms Return to Deficits on Surge in Transfer Spending

After just one year in surplus, Canada’s federal government is back in the red.

The finance department reported a C$1 billion ($755 million) deficit for the fiscal year that ended March 31, according to final budget numbers released Friday, after a 6.7 percent increase in program spending.

The numbers are sure to fuel the argument between Prime Minister Justin Trudeau’s Liberals and the opposition Conservatives over who is actually responsible for the return to deficits. The Liberals say they inherited a deficit when they took power last November, a claim the Conservatives dispute.

Either way, the data show the era of fiscal consolidation in Canada -- aimed at reducing recession-era deficits -- has ended. Former Prime Minister Stephen Harper spent his last five years in office seeking to return the country to balance after the recession pushed the nation into deficits for the first time in more than a decade.

Harper eventually generated a surplus in 2014. Trudeau, however, is taking the country in another direction to help offset slow growth, arguing Harper’s surplus was illusory and didn’t reflect the true fiscal picture.

Increased Spending

The gain in program expenses is the biggest since the 2009 recession and compares with a 0.5 percent increase in nominal gross domestic product. As a result, program expenses as a share of GDP rose to 13.7 percent from 12.9 percent a year earlier. Program expenses are budgeted to rise to well above 14 percent in coming years.

There were across-the-board gains in spending last year -- most mandated under the previous Conservative government -- including a 21 percent increase for national defense and 26 percent higher spending for child benefits.

Revenue has also been on the march higher, with the federal government posting a 6.2 percent increase in tax receipts and a

4.6 percent gain in total revenue.

The numbers are better than the government had projected in its March budget, when the fiscal plan forecast a C$5.4 billion shortfall. That reflected more revenue than expected due to tax planning by high-income individuals anticipating a tax increase in 2016, the department said.

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