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Drop in corporate tax revenues doubles federal deficit

OTTAWA - A sharp drop in corporate tax revenues in August helped push Ottawa's deficit for the current fiscal year to $6.2 billion, about double what it was at the end of the previous month, the federal government reported Friday.

The Finance Department said the August deficit was $3.2 billion, slightly more than the $3.1 billion recorded in the same month of 2011.

Corporate tax revenues fell by $239 million to $1.53 billion, a 13.5 per cent decline compared with August 2011 and a 16 per cent decline from $2.1 billion in July of this year.

Ottawa remains on sounder fiscal footing than last year at this time, when its deficit stood at $9 billion after the first five months, but the government is no longer as far ahead as its strives to cut the annual deficit to $21.1 billion.

That's to be expected, said TD senior economist Sonya Gulati, given that the economy has underperformed during the first half of the year with growth rates below two per cent.

"There (was) simply no economic rationale for the fiscal out-performances," Gulati said. "While the deficit did not roar back to life today, the year-to-date figures are more in line with what was seen during these same months last fiscal year."

Finance Minister Jim Flaherty, who said recently he may need to revise downward growth projections for the rest of the year, is due to issue a mid-term report card on the government's books in a few weeks.

Gulati said she expects Flaherty to report that the deficit estimate for the 2012-13 fiscal year will be close the $21.1 billion budget target, and that Ottawa won't return to surplus until 2015-16.

The government recently closed the books on last year's $26.2 billion deficit.

During August, the government's total tax revenues rose $372 million to $19.1 billion, as increases in personal, GST and employment insurance receipts offset the setback in the corporate sector.

Total expenses increased year-to-year by $442 million to $22.28 billion. Ottawa spent $513 million more on programs this August, as transfers to persons and program expenses rose, but that was partially offset by a decline in public debt charges, which fell 3.1 per cent to $2.24 billion in August.

Analysts caution that receipts and expenses can vary widely in the monthly accounts. They say looking at several months' reports gives a better reading of the state of the government finances.

For the financial year so far, the government said its tax revenues are up $3.4 billion, or 3.4 per cent, while program expenses rose at a slower pace — 1.5 per cent, or $1.4 billion.

Personal income tax receipts are up 3.8 per cent for the year so far, while corporate taxes are up 1.3 per cent. The government paid out about $900 million less during the first five months of this year to service the national debt, reflecting low interest rates.

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