Canada’s budget deficit widened in December, driven by increased spending on government initiatives and public-debt charges, surpassing revenue gains by a significant margin.
Fiscal Monitor Report
The Department of Finance’s monthly fiscal monitor publication revealed that the budget shortfall in December amounted to 4.47 billion Canadian dollars, equivalent to $3.32 billion. This marked a substantial increase from the C$1.93 billion deficit in the same period last year.
Overall Fiscal Year Performance
With one quarter remaining in the 2023-24 fiscal year, Canada’s budget deficit stands at C$23.13 billion, considerably wider than the C$5.54 billion seen in the same period last year.
Future Projections
Finance Minister Chrystia Freeland has reiterated the Liberal government’s commitment to maintaining an annual budget deficit of C$40 billion for the current fiscal year, representing 1.4% of gross domestic product. Despite facing challenges in public opinion polls, the Liberal government faces pressure from the left-wing New Democratic Party to increase spending on a universal drug plan.
New Democrats Push for Universal Drug Plan
The New Democrats are propping up the minority Liberal government in the legislature, making their support contingent on the implementation of a universal drug plan. This plan, estimated to cost upwards of C$10 billion a year, is a key demand from the left-wing party. They have set a deadline of March 1 for its establishment, and failure to do so might lead to the NDP withdrawing from the political accord signed with the Liberals in 2022.
Economic Warnings and Fiscal Deficit
Economists at Desjardins Securities have issued warnings about Canada’s current economic trajectory. Based on spending and tax revenue receipts, the country is projected to face a significant deficit of C$50 billion for the fiscal year ending on March 31.
Financial Indicators
Recent data from the finance department reveals that total tax revenue in December saw a modest 0.3% increase compared to the previous year, reaching C$31.23 billion. While gains were seen in personal income tax receipts, declines were observed in corporate and sales tax categories. Concurrently, government program spending in December surged by 8.7% to C$36.06 billion, with debt-financing charges rising by 21.7% due to increased interest rates.
Year-long Trends
Analyzing data spanning nine months, it is evident that total tax revenue for the Canadian government has grown by 0.7% compared to the same period last year. Meanwhile, spending on programs and benefits for individuals has surged by 6.6%. Public debt charges have experienced a notable escalation of nearly 36%.
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