The 1.74 Billion dollar deficit

According to the Fiscal Monitor for August 2008 that was issued by Department of Finance for the Government of Canada, the deficit for the month was 1.7Billion dollar. The Minister of Finance is predicting that the GOC will end up with a modest surplus this fiscal year ending March 2009.

A closer look at the report, reveals bigger problems in store for the Conservatives. As table 1.0, one can notice the following problems that will occur within the few months left to March 2009. As the economy start the nose dive towards recession, companies will be shedding jobs as they start to mount losses. The effects of this are as follows:
1: Drop in the personal income tax.
2: Drop in the corporate income tax.
3: Drop in the GST revenues as people start to spend less
4: Increase in the Employment insurance paid to laid off workers.

	August 2007	August 2007	%
Personal Income tax	8,448	9,038	+7.0
Corporate income tax	2,243	1,277	-43.1
GST Revenues	2,044	1,846	-9.7

Table 1.0 Selected Revenue items


Another big problem for the GOC is that income tax paid by banks and Canadian companies with US operations for 2008-2009 fiscal year will drop significantly and for the following reasons: Most of these entities with US operations need to report the loses for this fiscal year. The loses will be reported in Canadian dollars at a rate of 1.25-1.30 Canadian dollar for every 1 US dollar loss. The exchange rate will magnify the losses incurred by the US operations, thus less taxes paid.

The Minister of Finance had prior knowledge to the state of finances for the month of August. He might not have known the exact numbers but he would have known the drastic drop in corporate income tax (43%) and its effect on the budget. This is very true as that single item reflects about 55% of the total deficit for the whole month.

Equipped with this insider knowledge, the Conservative government fabricated an impasse and called a snap election.