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Ottawa bled $1.7-billion in red ink in August, offering the latest sign that Canada is in serious economic turmoil and that balancing the federal books will be a tricky challenge this year. "We`re in for rough times. These are difficult times. Canadians should not underestimate what we`re facing. We`re not an island. We`re a trading nation," Finance Minister Jim Flaherty said Friday. The deficit for August is much larger than the one the federal government incurred in the same period a year ago, when it had a $100-million shortfall. Overall, the government is running a relatively small $1.2B surplus in the first five months of its fiscal year, which is an 83% drop from the $6.6B surplus at the same time last year. The government`s revenues stagnated in August as Prime Minister Stephen Harper`s government dealt with its cuts to corporate taxes and the goods-and- services tax. Spending, on the other hand, continued to balloon, rising by 10% - or $1.5B - over the same period in 2007.
Derek Burleton, senior economist at the Toronto Dominion Bank, said the new numbers are forcing him to reconsider past assumptions of a balanced budget. Burleton said Ottawa has to contend with the fact that a number of companies are seeing their profits dwindle as commodity prices fall. Capital gains of years past stand to become losses, and companies will be getting refunds at the end of the year instead of paying taxes. "It`s going to be a challenge balancing the books this year," he said. "The area of biggest risk in the near term is the corporate income tax side, which is coming back from the stratosphere quite dramatically." Flaherty said the federal government is still on track to finish the year with a balanced budget, including a "modest surplus." "We remain the envy of other industrialized countries," he said, promising a fiscal update at the end of November.
(Globe and Mail 081025)
Derek Burleton, senior economist at the Toronto Dominion Bank, said the new numbers are forcing him to reconsider past assumptions of a balanced budget. Burleton said Ottawa has to contend with the fact that a number of companies are seeing their profits dwindle as commodity prices fall. Capital gains of years past stand to become losses, and companies will be getting refunds at the end of the year instead of paying taxes. "It`s going to be a challenge balancing the books this year," he said. "The area of biggest risk in the near term is the corporate income tax side, which is coming back from the stratosphere quite dramatically." Flaherty said the federal government is still on track to finish the year with a balanced budget, including a "modest surplus." "We remain the envy of other industrialized countries," he said, promising a fiscal update at the end of November.
(Globe and Mail 081025)