UPDATE 1-Canada's budget gap increases in April-May

Fri Jul 26, 2013 12:14pm EDT
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* April gap shrinks to C$283 mln from yr-earlier C$713 mln

* May deficit grows to C$2.43 bln from C$1.11 bln

* April-May deficit C$2.71 bln from yr-earlier C$1.82 bln

OTTAWA, July 26 (Reuters) - Canada's federal budget deficit widened in the April-May period to C$2.71 billion ($2.63 billion) from C$1.82 billion a year earlier, predominantly because of higher transfers to seniors and to the provinces, the Department of Finance said on Friday.

Conservative Finance Minister Jim Flaherty has made eliminating the deficit a priority. His budget in March forecast that the gap for fiscal year 2013-14, which began in April, would shrink to C$18.7 billion from C$25.9 billion the year before. He has promised to balance the budget by the October 2015 federal election.

The deficit shrank to C$283 million in April from C$713 million in the same month the year before, while it rose in May to C$2.43 billion from C$1.11 billion a year earlier.

A 3.6 percent rise in program spending during the two months outstripped a 1.4 percent increase in revenues. Public debt charges also rose by 2.0 percent, reflecting higher inflation adjustments on real return bonds.

Seniors' benefit payments jumped by 4.4 percent due to inflation and growth in the elderly population. Major transfers to other levels of government, mainly the provinces, rose by 5.6 percent.

Ottawa has pledged to boost its transfers to the provinces for health care by 6 percent through 2016 and thereafter only at the same rate as nominal growth in gross domestic product, estimated at about 4.3 percent from 2017 on.   Continued...