OTTAWA — Even though it still has one month of data to come, the federal government is on pace to beat expectations and avert an anticipated deficit in 2008-09 based on February's results released Friday.
But analysts warn a deficit remains possible due to end-of-year accounting adjustments.
For the month of February, the Department of Finance said it recorded a surplus of $823 million, down from the $3 billion posted in the year-ago period — but much better than the $37-million surplus in the previous month, January.
For the first 11 months of the fiscal year ended in February, Ottawa had a budget surplus of $1.3 billion, off substantially from the $12.6-billion gain in the same period for 2007-08. Nevertheless, it appears Ottawa could be on pace to avert a deficit in 2008-09.
In the last budget, the Conservative government projected it would record a deficit for the fiscal year just passed of $1.1 billion, followed by a cumulative four-year shortfall of roughly $83 billion, based on deteriorating economic conditions and a $40-billion fiscal stimulus package.
"Perhaps the underlying fiscal position is not quite as weak as some forecasters have suggested," said Douglas Porter, deputy chief economist at BMO Capital Markets, adding a surplus for 2008-09 "is still a real possibility."
The results for February emerge as the Bank of Canada said the economy shrank for the first three months by a record amount — 7.3 per cent.
However, Porter cautioned against reading too much into the February results, as Ottawa could still record a deficit for the year based on year-end adjustments that could sway the final results by as much as $5 billion.
Derek Burleton, senior economist at Toronto-Dominion Bank, said Friday he still expects a deficit once the March data comes in, as the government may be forced to treat certain revenue recorded to date differently for accounting purposes.
"This adjustment will reflect corporations having overpaid on their installments of corporate income taxes and individuals having much lower capital gains," Burleton said.
For instance, individuals could obtain refunds on capital-gains tax paid in the previous three years if they engaged in tax-loss selling before the end of 2008.
Preliminary results for March are expected at the end of May, but a final tally for the 2008-09 fiscal year, including year-end adjustments, won't be released until the fall.
Overall in February, revenue dropped nearly 12 per cent annually to $19.6 billion, largely powered on a 44 per cent plunge in corporate-tax receipts. Finance said the heavy drop in corporate-tax revenue was due to refunds it had to issue as businesses overpaid their taxes in the previous year. GST revenue also fell by a substantial 20 per cent.
Meanwhile, program expenses in February fell slightly, 0.6 per cent, to $16.5 billion. This can be largely attributed to a 5.4 per cent drop in operating expenses at government departments and Crown agencies.
In contrast, transfers to individuals and provinces were up.
For the 11 month period ended Feb. 28, revenue is down 2.7 per cent to $212.6 billion, pushed by a 25 per cent decrease in corporate-tax receipts. Program expenses rose 4.2 per cent to $182.8 billion on higher transfers. The cost to financing the debt dropped 6.7 per cent, reflecting lower interest rates.
http://www.vancouversun.com/news/Can...694/story.html 
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