OTTAWA - The worse things look for the economy and Canadians, the better they seem to get for the federal government's treasury.
Despite a slumping economy and two consecutive months of job losses, the odds of Ottawa recording its first budgetary deficit in more than a decade this year appears to be growing longer not shorter.
In fact, the government could wind up doubling up on its projected $2.3-billion surplus for the current fiscal year, economists say.
"The minister of finance is being overly prudent again," says Dale Orr, managing director of Global Insight Canada. "There's not a large probability at all of having a deficit this year."
Orr predicts the government will wind up with a surplus in the $4 billion to $5 billion range, barring any additional spending by a government conceivably heading into a general election in the next few weeks.
That appears to defy all logic, given that last week Finance Minister Jim Flaherty officially joined the Bank of Canada and pretty well every private sector economist in downgrading expected 2008 real gross domestic product growth to a paltry 1.1 per cent, from the merely weak 1.7 per cent projection contained in the February budget.
Earlier this year, debt rating agency DBRS sounded an alarm on the first deficit since the 1996-97 fiscal year, when Paul Martin was finance minister, should real growth be significantly lower than 1.7 per cent.
"Given the short-term inflexibility inherent in expenditures, it is likely that the government would run its first budgetary deficit in over a decade," the agency said in April.
But on Friday, the department's fiscal monitor revealed the government took in $21.2 billion in revenues in June, 2.4 per cent more than last June, despite cuts to personal and corporate taxes and the GST.
The monthly reports can swing wildly, but three months are now in and they show the government with a $1.2-billion surplus despite an outsized 8.4 per cent increase in spending during the April-June. The department says spending will settle to an overall 3.4 per cent increase by the end of the fiscal year.
"I don't think there is anything in the numbers that would indicate a deficit would be a good bet," said TD Bank's chief economist Don Drummond, who cautioned that even after three months, it is still too early to draw definitive conclusions.
The key reason the government books remain in the black is that the nominal GDP - or the value of what Canada produces - is well above real GDP, or the level of production, thanks to higher commodity prices, particularly oil.
The budget anticipated nominal GDP to average 3.5 per cent in 2008, but Orr says the number is closer to 4.5 per cent, which will mean a big boost in tax revenues.
As well, the final tally on the Canadian economy for 2007 came in $7 billion above the $1.53-trillion forecast in the budget, meaning any growth from last year's base line will be higher than the projection.
And finally, despite 5,000 jobs losses in June and 55,000 job losses in July, there are still 227,000 more Canadians employed and paying taxes today than last year. The economy has created 72,000 net jobs since the beginning of the year.
What could upset the apple cart for the government is if oil prices and other commodities Canada exports continue to slide, bringing nominal growth closer in line with the weak real GDP numbers. That would not only further undercut the economy, but slice deeply into government revenues, says Drummond.
If that were to happen, Flaherty will still have the option of accounting trickery to make good his promise of continued budgetary surpluses. Under the current rules, the government is only permitted to apply 10 per cent of the $4.25 billion windfall from the broadband spectrum auction in each of the next 10 years, or $425 million this year.
Orr says Flaherty could decide to earmark more to any particular year, but given government revenues continue to defy the economic reality faced by Canadians, he doubts that will be necessary.
