OTTAWA - The days of the federal government routinely recording surpluses in the tens of billions appear to be over, a new finance department report on its fiscal position suggests.
The department's fiscal monitor released Friday shows that revenue growth came to a sudden halt in January, shrinking the surplus for the month to a mere $600 million as the GST cut and personal income tax reductions announced last fall began eating away at Ottawa's tax haul.
The finance department said revenues dropped $900 million, or 3.9 per cent, in January. Last year during the month, the budgetary surplus was $2.4 billion.
For the first 10 months of the fiscal year that ends Monday, the accumulated surplus was $10 billion, down $600 million from the corresponding period last year.
"The results to date reflect the impact of personal income tax relief measures introduced in the October 2007 economic statement,'' the report states.
Meanwhile, program expenses were up $10.8 billion, or 7.2 per cent, for the period, due to higher transfer payments to provinces and individuals, and program expenses, such as the cost of fighting the war in Afghanistan.
Program spending by the Defence Department stood at $14.5 billion by the end of January, up 10.7 per cent from the corresponding 10-month period last year.
Prior to Finance Minister Jim Flaherty's fall mini-budget, many had been predicting the federal surplus for the fiscal year could top $20 billion.
But in last month's budget, Flaherty forecast the year's surplus would be $10.2 billion, dropping to $2.3 billion next year and $1.3 billion in the 2009-2010 period.
The January fiscal monitor appears to confirm that the surpluses enjoyed in recent years are unlikely to be matched for some time due to a combination of tax cuts and a slowing economy expected to grow just slightly above last year's 2.7 per cent rate.
But Dale Orr of Global Insight Canada said he doesn't believe the government is in any serious danger of falling into a deficit position, even though economic growth this year is unlikely to reach the budget's working premise of 1.7 per cent.
"The drivers of their revenues and expenses have been doing better than you would suppose because the labour market remains strong and payouts for employment insurance are low,'' he said. "On top of that, they could get $1 billion from the spectrum auction (for cellphone providers), and they didn't account for that in the budget.''
Orr said real gross domestic product growth is now expected to come in at about 1.5 per cent this year. But nominal GDP, which includes inflation, is likely to meet the government's 3.5 per cent forecast due to higher revenues from high-priced oil.
And most government revenues from personal taxes, GST revenues and business taxes reflect nominal -- not inflation adjusted -- growth, he noted.
Another bright spot for the government is that the cost of servicing the national debt continues to fall as a result of lower interest rates and the government's record of making payments on the principal. Debt charges were down $400 million during the first 10 months of the fiscal year.
