Canada's budgetary deficit for 2011-2012 dropped to $26.2 billion this year from $33.4 billion last year, according to the Department of Finance's annual fiscal report released Friday. 

Yet the deficit is $1.3 billion higher than Finance Minister Jim Flaherty estimated in his March budget. Ottawa's fiscal year goes from April 1 to the end of March.

"This positive performance is encouraging and reflects Canada’s sound economic and fiscal fundamentals," said Flaherty.

"However, the global economic environment is still fragile and uncertain, and recent economic developments suggest that there are downside risks to the fiscal outlook contained in Economic Action Plan 2012."

"Nonetheless, our Government remains committed to achieving our goal of returning to balanced budgets over the medium term."

Canada's debt-to-GDP ratio lowest among G7

Canada’s total government net debt-to-GDP ratio, which includes the net debt of the federal, provincial/territorial and local governments, as well as the net assets held in the Canada Pension Plan and Québec Pension Plan, stood at 33.3 per cent in 2011, according to the Organisation for Economic Co-operation and Development. 

This is the lowest level among G7 countries, with Germany the second lowest at 52 per cent and the G7 average estimated at 80.4 per cent of GDP for that same year.

This year's budget on target

Canada's Parliamentary Budget Officer, Kevin Page, says the Harper government is on track to meeting this year's shortfall target of $21.1 billion as Ottawa's deficit stands at a comfortable $3 billion four months into the current fiscal year.

According to Page, overall spending for the first three months of this year is unchanged from the same period last year — an amount below the March budget's projection of a 1.1 per cent increase for the overall 2012-13 fiscal year.

While last March's budget had targeted direct program spending as an area of savings, including the reduction of about 19,000 public service jobs, Ottawa has so far focused on keeping operating costs low, a strategy Page says has been adopted across most departments.