OTTAWA - The federal government ran a $7.5-billion deficit in the first two months of the current fiscal year as the impact of its stimulus spending and lower tax revenues from companies squeezed by the recession ballooned the deficit more than eightfold from last year.
In his latest report on spending and revenue, Finance Minister Jim Flaherty said the figure compares with a $900-million deficit over the same period a year earlier, when the economy was doing much better.
The report, released Friday, said revenues were down $2.6 billion in April and May, or 6.9 per cent, largely due to lower tax revenues from corporations and the reduced goods-and-services tax.
Program expenses were up $4.4 billion, or 13.4 per cent.
The stimulus spending announced in the January budget involves infrastructure and other projects to boost job growth as well as increased spending on employment benefits and social programs.
Ottawa's forecasts for future deficits for the next four years has led to debates about how long it will take for the federal government to balance the books. That's an important issue because until the budget is balanced, it's unlikely the government will cut taxes further for consumers or embark on any new social or economic spending.
TD Bank said last month it expects Canada will be more than $172 billion in the hole over the next five years -- double the government's last budget projection of an $85-billion deficit.
And last week, Toronto-based economist Dale Orr said Ottawa will need a full decade of economic growth to eliminate the deficit, six years longer than the government projects.
With the latest forecasts on the expected recovery rosier than expected, the deficit may shrink faster than believed earlier.
On Thursday, the Bank of Canada declared the recession technically over and said Canada's economy will begin growing this summer after nine months of stagnation and lead most of the industrialized world next year.
However, experts say the renewed growth after three quarters of economic shrinkage -- two straight declining quarters is the technical definition of a recession -- won't lead to job growth until much later, when companies regain confidence and begin hiring again.
Statistics Canada calculates 370,000 jobs have disappeared since October, and some economists believe more than 500,000 will be lost before labour markets begin to recover.
That means the jobless rate of 8.6 per cent could rise above nine per cent or higher until employment begins to recover.
