Canadian Government Sinks Into Deficit On Corporate Tax Revenue Plunge

by Mike Godfrey, Tax-News.com, Washington

27 October 2008

The Canadian government has reported a CAD1.7 billion deficit for August. The monthly deficit was the first since April and shrinks the accumulated surplus to a five-month total of CAD1.2 billion.

It has been suggested that there will be a further fall with the recent slowdown in the Canadian economy. A small surplus is expected at the end of the fiscal year but for 2009-2010 a surplus cannot be expected.

Budgetary revenues were up by just CAD0.1 billion, or 0.5%, from August 2007, as higher personal income tax and other revenues were largely offset by lower corporate income tax, goods and services tax (GST) and sales and excise tax revenues. Corporate tax revenues were down by 43.1%, CAD1 billion, following a 15.7% increase in July 2008.

There was also a 10.1% surge in spending, reflecting higher transfer payments and operating expenses of departments and agencies.

The government’s fiscal margins have become tighter after a number of personal sales and corporate tax cuts came into effect in January.

The first five months of the fiscal year has seen the government’s budgetary surplus go down by CAD5.5 billion from where it stood last year. The government has already spent CAD82.7 billion this year compared to CAD76.3 billion at the same point last year.

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