October 7, 2016 / 5:06 PM / 2 years ago

UPDATE 1-Canada posts smaller than expected 2015-16 deficit, revenue rises

(Adds details, background, quotes, byline; changes dateline, previous Toronto)

By Leah Schnurr

OTTAWA, Oct 7 (Reuters) - The Canadian government posted a much smaller-than-expected budget deficit in the fiscal year 2015-16, helped by increased income tax revenue related to changes to tax brackets made by the new government, the finance department said on Friday.

Canada ran a budgetary deficit of C$1.0 billion ($755 million) for the fiscal year that ended on March 31, 2016, according to the annual financial report released by the government.

That is well short of the deficit of C$5.4 billion that the government had forecast in its budget released earlier this year. Still, the swing to a deficit comes after the government posted a surplus of C$1.9 billion in the previous fiscal year.

Revenue was up 4.6 percent from the 2014-15 fiscal year, due to the growth in income tax revenue and other taxes. That was C$4.2 billion, or 1.5 percent, higher than had been forecast.

The Liberal government has sizeable deficits forecast for the next five years as it looks to invigorate the economy with infrastructure and other spending.

The smaller deficit for last year could give the government room to roll out even more stimulus, said Doug Porter, chief economist at BMO Capital Markets.

“Arguably, they could loosen fiscal policy by just a notch further without doing any damage to where we thought the fiscal position was beforehand,” said Porter.

The government is trying to dispense infrastructure investments into the economy as quickly as possible, Prime Minister Justin Trudeau said in an interview with Reuters on Friday.

The 2015-16 fiscal year encompassed both the former Conservative government and the new Liberal government that came to power last November.

Shortly after, the Liberals made good on a campaign promise to reduce income taxes for lower income earners, while raising them for higher earners.

A 6.7 percent increase in personal income tax revenue in the fiscal year was due to gains in personal income and wealthier Canadians recognizing income in 2015 before the higher tax came into effect this year, the finance department said.

The previous Conservative government’s sale of its shares of General Motors in April last year also contributed C$2.1 billion to revenue, while program expenses and public debt charges were C$100 million lower than forecast. ($1 = 1.3246 Canadian dollars) (Additional reporting by Jeffrey Hodgson in Toronto; Editing by James Dalgleish)

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