About six months later, or half way through the fiscal year, the revenue, expenditure, and deficit/surplus numbers, announced and projected in the budget (for both the current and future fiscal years), are updated by the Minister in the Fall Fiscal and Economic Update. On occasion, the federal government will use the Fiscal and Economic Update to announce new taxation and expenditure measures.
The first Fall Economic Update, issued by the current federal government, was announced on November 1 by Minister of Finance Bill Morneau. There were no taxation measures included in the Update, but some plans for future government expenditures, generally related to economic growth, were announced.
The news, with respect to current year revenue and expenditure figures and the resulting deficit, was not especially positive. While better than expected results were recorded for the 2015-16 fiscal year, those results were not sufficient enough to outweigh the effect of lower projections for 2016-17.
Both income tax and sales tax revenue are now expected to be lower than forecast. The government attributed the higher personal income tax revenues for 2015-16 to “tax planning behavior of individuals to recognize income in the 2015 tax year before the new 33% tax rate came into effect in 2016”, and noted that that such behavior will impact personal income tax revenues in both 2016-17 and future years. The reasons for the drop in sales tax revenue were more broad-based, and were attributed by the Minister to a weaker outlook for nominal GDP.
On the expenditure side of the equation, major transfers to persons (which include Old Age Security, the Canada Child Benefit and Employment Insurance) are now projected to be lower in 2016-17 than was originally stated in this year’s Budget, once again as the result of the carryforward of better-than-expected 2015-16 results. However, the government expects the amount of such expenditures to be higher over the remainder of its forecast period, as the weaker economic outlook leads to projected increases in such costs.
Little change is expected in the cost of major transfers to other levels of government over the short term, but those costs are expect to decline over the longer term. A similar short-term pattern is forecast for direct program expenses, which are projected to remain largely unchanged in 2016-17, but the government expects those costs to increase over the remainder of its forecast horizon.
The numbers which Canadians are most interested in are the deficit or surplus figures for the current and upcoming fiscal years. That news, at least over the short and medium term is not positive, as the government is projecting deficits from now through the 2021-22 fiscal year. Specifically, the government anticipates a deficit of $25.1 billion for the current (2016-17) fiscal year, $27.8 billion for 2017-18, $25.9 billion for 2018-19, $19.3 billion for 2019-20, $16.8 billion for 2020-21, and $14.6 billion for 2021-22.
The full Fall Economic Statement papers can be found on the Finance Canada website.