The federal government ran a $1.7-billion deficit in August but remains poised to deliver a "modest surplus" for the fiscal year, the finance minister said Friday.

But Jim Flaherty refused to forecast whether the government would see deficits in the years to come.

"The reality is that there's substantial global uncertainty right now, and we have to monitor that and the effects that that has on our revenues and our spending in Canada," he said after a speech to the Niagara Falls Chamber of Commerce.

The overall surplus for April to August stands at $1.2 billion, according to the Finance Department.

"I can assure you that we remain on track for a balanced budget this fiscal year, with a modest surplus by the end of the fiscal year," said Flaherty.

The newly re-elected Conservative government will be better positioned to assess the situation when it releases a fall economic update in about a month, said Flaherty. One of the party's campaign promises was not to run a deficit.

Canada 'envy' of industrialized countries

Flaherty pointed out that spending often fluctuates throughout the year and last August was also in the red, with a monthly deficit of about $100 million. That year, the government posted a $6.6-billion accumulated surplus for the April-August period.

As the country has run into economic headwinds, speculation has increased that the government may wind up in a deficit position.

"A position that I can tell you remains the envy of other industrialized countries," Flaherty said.

On Friday, the Finance Department said August revenues were up by about $100 million, or 0.5 per cent, from August 2007, because of higher personal income tax but a lower corporate income tax, goods and services tax, and other sales and excise taxes.

The government's program expenses increased by $1.5 billion, or 10.1 per cent, compared with the same month of last year, due to higher transfer payments and operating expenses of departments and agencies.

Each province has 'own circumstances'

Flaherty refused to directly comment on Ontario's decision to run a $500-million deficit but suggested it was the wrong path.

"Each province has its own circumstances," said Flaherty, who was once the province's finance minister under the previous Conservative government.

"I certainly am of the view as a fiscal conservative that paying down debt and reducing taxes are certainly ways of creating economic stimulus," he said.

But he renewed his call for the Ontario Liberals to cut corporate taxes further in an effort to spur investment in the province's beleaguered manufacturing sector. Ontario Premier Dalton McGuinty has rejected such suggestions, saying he's already cut business taxes and won't jeopardize needed revenue.

Flaherty also noted what other provinces are doing about the ongoing economic turbulence, including Saskatchewan which announced its biggest single-year tax cut in history.

B.C. Premier Gordon Campbell has also voiced plans to implement accelerated tax cuts and other measures in response to the economic crisis.

With files from the Canadian Press