Federal deficit shrinking for now, but Ottawa warns of trouble ahead

OTTAWA – The federal government says its budget is closer to balance than it was a year ago, but warns that its solid fiscal performance may not last.

The Finance Department’s Fiscal Monitor says the deficit for the first three months of the 2012-13 fiscal year was $2 billion — less than half the $4.2-billion recorded for the same period last year.

The department says that’s consistent with its plan to reduce the 2012-2013 deficit to $21.1 billion.

But it also warns that a weak economy poses a mounting risk for the fiscal situation.

The economy has been sluggish and Statistics Canada is reporting that growth in the second quarter of 2012 was just 1.8 per cent at an annual rate.

From April to June, federal revenues rose 4.7 per cent because of higher income tax payments and a hike in the Employment Insurance rate, while expenses rose at a more modest pace.

For the month of June alone, the deficit was $1.1 billion, compared with $2.3 billion for June 2011.

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