OTTAWA - The federal government, which ran a small deficit in the first two months of its current fiscal year, turned the red ink to black in June, the Finance Department said Friday.
But, it also hedged its bet on economic growth this year, cutting its prediction by a third, blaming the general international economic malaise.
"We are feeling the impacts of global economic factors beyond the control of any one individual or government," Finance Minister Jim Flaherty said.
"While over the course of the year we are projecting positive economic growth, the outlook for real GDP growth in Canada, based on private sector forecasts, has been revised down to 1.1 per cent in 2008, from 1.7 per cent in the budget projection."
John McCallum, the Liberal finance critic, said the minister has finally recognized what others have known for months -- that growth has slowed sharply.
"But there's still no sign Flaherty is aware the Canadian economy is in trouble," he said. "Where's the minister's sense of urgency?"
The books showed a surplus of $1.2 billion for the first quarter of its fiscal year, down from the $5.6 billion surplus recorded in the same period a year earlier.
The government earlier reported it was $500 million in the red for the first two months of the year. That turned around in June with a surplus of $1.7 billion, the department's fiscal monitor said.
In his February budget, Flaherty essentially said the era of big surpluses was over because of personal and corporate tax cuts. He projected a $2.3-billion surplus in this fiscal year and a slim $1.3 billion overrun for 2009-2010.
The department said things were on track to meet those projections.
The fiscal monitor showed revenues from taxes rose $500 million in June compared with the same month last year.
The June surplus came even as Ottawa's spending jumped by $1.7 billion or 11.1 per cent over June 2007. The increase was attributed largely to increased transfer payments to other governments.
The department said spending is likely to be higher this year than last until mid-year and will then moderate.
It said the large increase in expenses in June reflects lower spending in the early months of 2007. Spending rose in the second half of last year.
John Williamson of the Canadian Taxpayers Federation wasn't buying that argument, saying the Tories have turned out to be profligate spenders.
"The Conservatives continue to claim they will still hit 3.4 per cent in spending growth for the year, but they've proven throughout their term in office that they can't stop themselves from spending," he said.
He accused the government of being on a spending spree that will make if impossible to cut taxes.
Flaherty said in a statement Friday that three months of data isn't enough to produce any solid conclusions about the year as a whole. He said a better picture will be available when he produces his annual economic update this fall.
The minister has insisted that he won't fall into deficit this year, but he sounded a cautious note in the fiscal monitor.
"The global economy is slowing and Canada is not an island," Flaherty said.
Troubles in the American economy have economists north of the border worried.
Canada's inflation rate hit 3.4 per cent in July, the highest level in more than five years and while the unemployment rate dropped to 6.1 per cent in July, that was due mainly to people abandoning their search for work.
He said, though, that the country is in better shape than most to weather the fiscal storm swirling around the world.
"Our economic fundamentals remain solid," he said.
