Federal deficit is billions less than expected

The federal deficit is growing at a much slower pace than Ottawa's last estimate, according to data released Thursday by the Finance Department.

The deficit grew by $600 million in February, the department said.

With one month left in the government's fiscal year, the annual deficit is now $28.3 billion.

That puts Ottawa on a faster track to get out of the red, mainly due to strong economic growth at the end of last year and the start of this year.

Last month, Finance Minister Jim Flaherty shaved the deficit projection for the 2010-11 fiscal year to $40.4 billion, about $5 billion less than what he projected in October.

But with March accounting remaining, Ottawa is $12.1 billion to the better of even that improved projection.

Economists noted that the final month, and subsequent adjustments, traditionally can result in wild swings in the fiscal position, but the current gap is unusually large this late into the fiscal year.

One unknown in this year's accounting is the final bill for the government's stimulus spending program, which has accounted for more than $14 billion of the deficit.

Strong economy helps

The Canadian economy grew by 3.3 per cent in the last quarter of 2010 and was expected to have expanded by more than four per cent in the first quarter of 2011.

Strong growth means more income tax revenue for the government and decreasing costs, such as payouts for unemployment insurance.

The department said revenues rose by $1 billion in February. For the first 11 months of the year, revenues rose by $13.1 billion, or 6.6 per cent, over last year.

Meanwhile, program expenses were down by $400 million, or 0.2 per cent.

Annual expenses fell largely because the one-time 2009-10 bailout of the auto industry has come off the books, but there have also been better economic conditions.

Receipts from personal income taxes rose by 5.8 per cent in the current fiscal year so far, while receipts from corporate income taxes rose 6.2 per cent, despite a cut to the tax rate. GST receipts rose 8.7 per cent.

"Other revenues were up $2.8 billion, or 13.4 per cent, reflecting an increase in net profits of enterprise Crown corporations, as well as gains realized on the government's sale of common shares in General Motors," the department added.

Deficit financing has taken a toll on the costs faced by Ottawa to service the growing national debt, however. Public debt charges were $1.3 billion more as of February than the previous year.