The federal government says its deficit shrank to $1.1 billion in July, an improvement from last year's $1.7-billion shortfall that takes it closer to its goal of balancing the budget.

For the first four months of fiscal year, the deficit shrank to $3 billion compared with $5.9 billion for the same period last year.

As a result, Ottawa appears to be on track to meet its budget projection of a $21.1-billion deficit for the 2012-13 fiscal year, almost $4 billion lower than the previous year.

The government says revenues increased by $153 million, or 0.8 per cent, in July while program expenses declined by $72 million.

For the first third of the year, revenues were up $3 billion, or 3.7 per cent. Program expenses were also up but not as much — by $933 million, or 1.2 per cent.

The government says charges to service the national debt were down by $826 million in the first four months.