Spending by the federal government outpaced revenue by $5.8 billion in July, the Finance Department reported Friday.

A year ago, the government had a surplus of $2.2 billion.

Finance Minister Jim Flaherty projected a deficit of $34 billion in the federal budget in January. It's now expected reach $56 billion. (Tom Hanson/Canadian Press)

The department said revenue fell by $3.4 billion, or 15.4 per cent, in July as the recession and unemployment hit the incomes of individuals and businesses, and as some tax breaks took effect.

Spending rose $5.1 billion from 2008 with the federal bailout of the auto sector, Ottawa's two-year, $46.6 billion stimulus spending and higher Employment Insurance payouts.

Lower interest rates also meant reduced interest income.

Ottawa released estimates in September predicting a deficit of $56 billion this year, up from the previous projection of $50 billion.

The government expects annual deficits extending out to 2014-15. The Conservative government has said it does not plan to raise taxes in order to return to a surplus.

With files from The Canadian Press