The federal government ran a deficit of $517 million over April and May, the first two months of the current fiscal year, mainly due to lower corporate income tax and GST revenues.

Over the same time period last year, the government ran a $2.8 billion surplus.

The federal finance department said Friday that during this April and May revenues declined by $1.6 billion, or 4.1 per cent.

The revenue estimates for the first two months of the year include the impact of tax reduction measures for people, businesses and the GST.

Corporate tax revenue fell by $1.1 billion, or 16.6 per cent, from the same two months of last year.

GST revenues dropped by $1 billion, or 20.9 per cent, partly as a result of the one percentage point reduction in the GST rate, which was effective Jan. 1.

Spending on programs rose by $2.1 billion, or seven per cent, on higher transfers and other expenses.

"The monthly profile of growth in spending will initially be quite high but by mid-year will moderate considerably, consistent with the 3.4 per cent annual growth projected in budget 2008," said the finance department forecast.

Speaking earlier in the day in Toronto, Finance Minister Jim Flaherty said the government is looking at presenting a fiscal update — a midyear look at the state of the government's finances — in October.