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Canada's Budget Deficit Plummets

by Mike Godfrey,, Washington

17 October 2011

An 8.5% increase in tax receipts helped reduce Canada’s deficit by 40% during the last financial year, according to the latest government figures.

The Annual Financial Report of the Government of Canada for 2010/11, released recently by Finance Minister Jim Flaherty, shows that the federal deficit for that year was CAD2.8bn (USD2.76bn) lower than forecast in the June 2011 Budget, thanks to higher tax revenues and lower expenditure than projected.

Tax revenues were up CAD18.5bn (8.5%) on the prior year. The government attributes over half of this increase to growth in personal income tax revenues, which rose by CAD9.5bn. This reflects growth in personal income, combined with the expiration of the Home Renovation Tax Credit on January 31, 2010. The remaining growth in revenues is largely put down to increases in other revenue streams and Goods and Services Tax (GST) revenues, which rose by CAD6.5bn and CAD1.4bn, respectively.

Personal income tax revenues account for the largest proportion of federal tax receipts, making up 47.9% of total revenues in 2010/11. The second-largest source was corporate income tax revenues, worth 12.6%, followed closely by GST revenues at 12.0%, and employment insurance (EI) premium revenues at 7.4%. Other revenues made up 11.9% of total revenues, up 2.0% on 2009/10, due mainly to an increase in the net profits of Crown corporations (enterprises owned by the federal government of Canada).

Corporate income tax revenues were, however, lower by CAD0.4bn (1.3%), reflecting one-time factors which boosted 2009/10 revenues. However, these receipts were CAD1.0bn higher than projected in Budget 2011, which the government says reflects strong gains in corporate profits.

Non-resident income tax revenues were down CAD0.2bn (2.9%), which is attributed to large reassessments of prior-year revenues, partially offset by growth in revenues from the current taxation year. Other excise taxes and duties increased by CAD0.7bn (14.2%), energy taxes increased by CAD0.2bn (3.2%), while customs import duties increased by CAD30m (0.9%). EI premium revenues increased by CAD0.7bn (4.4%), reflecting lower unemployment.

Revenue as a percentage of GDP stood at 14.6% in 2010/11, up 0.3% from 2009/10. However, the ratio has been declining gradually since 2001/02, and is down significantly from an average of 18% over the period 1996/97 to 2000/01. The government says the decline is due primarily to tax reduction measures.

The government estimated a deficit of CAD36.2bn for 2010/11 in the June 2011 Budget. The final audited budgetary deficit was CAD33.4bn. This deficit compares with the 2009/10 figure of CAD55.6bn, representing a 40% reduction.

Commenting on the statistics, Flaherty said: “We are exercising fiscal responsibility and we are urging other countries around the world to demonstrate the same discipline. Canada’s net debt-to-GDP ratio is the lowest among G-7 countries, and this report shows we are making solid progress toward our goal of returning to budget balance.”

”Going forward, we will continue to carefully monitor the economy and will remain flexible and pragmatic in responding to any material deterioration in global economic conditions. At the same time, our government will focus on creating the right conditions for long-term prosperity, which means returning to budget balance in the medium-term and implementing the next phase of the Economic Action Plan”, Flaherty concluded.

TAGS: tax | economics | fiscal policy | gross domestic product (GDP) | corporation tax | excise duty | unemployment | Canada | revenue statistics | individual income tax

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