Budget deficit shrinks as economy rebounds

Canada's budget deficit narrowed to $500 million in July, as tax revenues grew and program spending fell, the Finance Department said Friday.

The July deficit marks a significant improvement over the $5.8 billion deficit recorded in the same month a year earlier.

The Finance Department said program spending in July was down $3.6 billion year-over-year, reflecting the end of last year's support package for the auto industry.

At the same time, Ottawa took in an extra $1.9 billion, mainly because it was collecting more in taxes. Personal tax revenues rose by $700 million, while corporate taxes grew by $900 million.

For the first four months of the current fiscal year, the federal treasury was running a budget deficit of $7.7 billion.

That compares to a deficit of $18.3 billion in the same four-month-period last year — a time when the country's economy  was mired in the worst of the recession.

The Finance Department estimates that about $5 billion of the $7.7-billion deficit is due to federal stimulus spending and tax reductions from the government's Economic Action Plan. 

The last federal budget in March projected a deficit of $49.2 billion for fiscal 2010-11, which began in April. 

It also said the red ink for 2009-10 would come in at $53.8 billion. Finance Minister Jim Flaherty confirmed Sept. 17 that the deficit for the 2009-10 fiscal year would top $50 billion.