OTTAWA - The federal government started off the new fiscal year in the hole, recording a rare $500 million deficit that showed the impact of a slowing economy and new tax cuts, the Finance Department said Friday.
The department's fiscal monitor release showed revenues from taxes falling by $1.6 billion, or 4.1 per cent, in April and May as opposed to the same period last year.
Receipts from the goods and services tax fell $876 million, or 20.9 per cent, largely as a result of the one percentage point cut in the GST that went into effect in January.
Last year, when Ottawa is projected to have amassed a $10.2 billion surplus, the government took in $2.8 billion more than it spend during the April-May period.
But the department cautioned against reading too much into the poor initial results.
"The results of the first two months of the fiscal year are not indicative of the outcome for the year as a whole," it stated.
"Financial results can be volatile on a monthly basis due to variations in the timing of significant payments or receipts."
One area in which the early results may not reflect true weakness is in revenues from businesses, which fell 16.6 per cent during the first two months.
The department also said an early seven per cent increase in spending on transfers to provinces and individuals, as well as government programs, will also moderate as the year goes on.
"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."
On a monthly basis, the government said it recorded a $900 million deficit in April, but a $300 million surplus in May.
In the February budget, Finance Minister Jim Flaherty all but declared the era of large surpluses over as a result of personal and corporate taxes. The minister projected a $2.3 billion surplus during this fiscal year and a slim $1.3 billion surplus on the 2009-2010 year.
Flaherty has repeatedly insisted that the government will not go into a deficit under his watch, and he will be helped considerably in his goal by the just-completed wireless spectrum auction, which produced an unexpectedly large $4.25 billion windfall for the government.
Speaking in Toronto, Flaherty told reporters that Canada's economy remains relatively robust, in contrast to what is occurring in the United States.
"There are some fundamental differences between the U.S. economy and our economy, like the housing sector in Canada in which we have not had a bubble, like the consumption in Canada with respect to automobiles for example, that remains strong," he said.
Flaherty spoke before the fiscal monitor was released at 11:30 a.m. and did not comment directly on the government's budgetary situation.
