By Paul Vieira
OTTAWA--Preliminary data indicate the Canadian government's budget deficit for the just-completed fiscal year is sharply wider than anticipated in part because of a 35% jump in public-debt charges.
The preliminary results underscore the impact that higher interest rates are having on the Canadian economy and public finances, and are likely to prompt more criticism over the Liberal government's loose fiscal policy to drive growth.
Canada's finance department reported that initial data indicate the budget deficit for the 2023-24 fiscal year ended March 31 widened to 50.93 billion Canadian dollars, or the equivalent of $37.23 billion. The Liberal government's 2024 budget plan, introduced in parliament last month, said the deficit would hit C$40 billion, or 1.4% of gross domestic product.
The finance department, in its monthly Fiscal Monitor publication, cautioned that these preliminary fiscal figures aren't final because tax-revenue totals could be adjusted to reflect assessments of tax-filing returns. Final figures are likely to be issued some time in the fall. Canadian public-finance data historically tend to show a relatively large budget deficit in March because of adjustments to tax receipts. For March, the budget deficit was C$33.59 billion, or narrower than the C$44.41 billion recorded in the same year-ago month.
Finance Minister Chrystia Freeland vowed to limit the annual budget deficit to no greater than C$40 billion. In her most recent budget plan, Freeland introduced an increase in the capital-gains tax, which raised revenue to limit the budget deficit to C$40 billion and less, while financing new measures to encourage housing construction, improve access to healthcare, and feed school children.
In March, Canada's parliamentary budget watchdog warned the government was on pace to post a nearly C$47 billion budget deficit in 2023-24.
Freeland this week defended the budget plan before senators, saying it was "fiscally responsible." She cited on at least two occasions in testimony before the senate a decision this month by credit-rating firm Moody's to reaffirm Canada's triple-A rating. The governing Liberals are struggling in public-opinion polls, trailing the Conservative Party by between 15 and 20 percentage points. The Conservatives have argued that government spending has added to inflationary pressure in the country. Bank of Canada officials have previously said that spending by federal and regional governments were "not helpful" in trying to wrestle down inflation.
According to the finance department data, total expenses in the 2023-24 fiscal year rose by 4.9%, to C$495.69 billion, powered by a 35% increase in public-debt charges. Public-debt charges, as a share of GDP, are set to rise to 1.8% in the current fiscal year from 1.6% in 2023-24. Total revenue climbed 3.2% in the fiscal year just ended, to C$444.76 billion, as proceeds from a national sales tax, carbon tax and payroll levies helped offset a meager 0.2% rise in income-tax revenue.
Last week, the government, via filings in the legislature, said it was revising upward its forecast for total public-debt charges for the current fiscal year, by nearly C$2 billion, to about C$56 billion, citing higher-than-projected interest rates and higher borrowing requirements. At that level, public-debt charges would exceed the revenue raised by Canada's national sales tax, and the money Ottawa distributes to the provinces to help deliver health-care services.
The Bank of Canada is scheduled to deliver a rate-policy decision next week, and economists and traders expect Canada's central bank to be the first among Group of Seven economies to cut interest rates after monetary authorities aggressively raised borrowing costs to slow historically high inflation.
Write to Paul Vieira at paul.vieira@wsj.com
(END) Dow Jones Newswires
05-31-24 1321ET
