Canada’s federal budget deficit narrows to $4.2B in April-May period

Canada’s federal budget deficit narrows

TORONTO — Canada’s federal budget deficit amounted to $4.2 billion during the first two months of the fiscal year, much smaller than in the same period last year when the economy was mired in recession, the finance department reported Friday.

The Finance Department’s fiscal monitor noted the government spent $7.2 billion more than it took in during April and May of 2009 because tax revenues were down and social and economic spending to offset the slump was higher.

“The data is reassuring that the deficit should continue to narrow,” said Mary Webb, an economist with Scotia Capital. “And it continues a trend we saw in the last quarter of fiscal 2009-2010, which is that revenues were coming back reflecting the strength of the Canadian recovery.”

The improvement in the deficit year-over-year was most visible in revenues from personal income taxes and provincial sales and services taxes.

The government says the deficit includes about $1.7 billion in spending under the stimulus package introduced in January 2008.

Canada withstood the global economic crisis better than most developed countries and appears to be pulling itself out of the aftermath of the recession better than most. There has been no crippling mortgage meltdown or banking crisis in Canada, where there is greater oversight of mortgages.

In the March budget, Finance Minister Jim Flaherty projected the federal deficit would come in at $47.4 billion this fiscal year, which runs from April to March 2011.

But economic conditions in the first quarter of this year were far better than projected. The economy grew at a decade-high 6.1 percent during the first three months of 2010, and employment growth has kept advancing.

In the last three months ending in June, the economy created 227,000 jobs, adding to tax revenues and reducing the government’s burden for unemployment insurance.

The jobless rate has gradually declined from last summer’s high to the current 7.9 percent.

Webb said she would not be surprised if the deficit for the current fiscal year also comes in well below estimate, even though the Bank of Canada and analysts see growth braking to about half the pace of the first quarter.