October 28, 2011 / 4:34 PM / in 6 years

Budget deficit narrows in August

OTTAWA (Reuters) - The withdrawal of extraordinary stimulus spending combined with higher tax intake helped Canada slim down its budget deficit in the first five months of the fiscal year from the year-before period.

The Department of Finance said on Friday the April-August deficit narrowed to C$10.73 billion ($10.84 billion) from C$13.51 billion in the same period last year.

The Conservative government, which has pledged to balance its budget by 2014-15, expects a shortfall of C$32.3 billion in the 2011-12 fiscal year, down from C$55.6 billion in 2010-11.

It may tweak its fiscal outlook, however, in a budget update expected next month that will take into account sharply lower economic growth assumptions.

In the five months to August, revenues increased by C$3.1 billion, or 3.5 percent, as intake from personal and corporate income taxes and employment insurance premiums rose.

Expenses fell by C$300 million, or 0.3 percent, as the economic stimulus plan wound down and the federal government transferred less money to provinces and cities for infrastructure projects. Lower unemployment benefits also contributed to the decline in overall expenses.

The monthly deficit in August was C$3.64 billion, down from C$5.81 billion in August of 2010.

Revenues climbed by C$700 million, or 4.1 percent, in the month. Expenses fell $1.3 billion, or 6.2 percent, with the biggest drops seen in transfer payments to other levels of government and employment insurance benefits.

($1=$0.99 Canadian)

Reporting by Louise Egan; editing by Peter Galloway

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