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Canada deficit shrinks at start of new fiscal year

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Canada's federal budget deficit shrank in the first two months of the 2012-13 fiscal year, with the government reporting a shortfall on Friday that was more than half the size of the one a year earlier.

Helped by higher revenues, continued economic growth and ultra-low borrowing costs, Ottawa posted a deficit for April and May of $832 million, compared with a $2 billion deficit in the same period last year.

The monthly deficit in April was $19 million but it grew to $813 million in May, the Department of Finance said in its monthly fiscal monitor report.

Canada slipped into deficit during the global financial crisis following more than a decade of surpluses, which had made it the fiscal darling of the Group of Seven industrialized nations.

Eager to retain that status, the Conservative government promises to balance its books by 2015-16 through a combination of economic growth and a 6.9-percent spending cut across the federal bureaucracy.

It has reported a preliminary deficit of $23.5 billion, about 1.5 percent of gross domestic product, for 2011-12, below forecast, but the number could be revised after year-end adjustments.

Revenues in April-May climbed 5 percent from a year earlier on higher intake from all tax categories and growth in other revenue streams.

Program expenses rose by a more modest 3.4 percent as a decrease in employment insurance benefits partially offset higher payments for other social benefits and transfers to other levels of government.

Public debt charges fell 6.9 percent due in part to near record-low borrowing costs.

The report reflects for the first time new accounting rules that change the way refundable tax credits are classified. Previously such credits were reported as a reduction in tax revenues but will now be classified as transfer payments.

The change resulted in an increase of $0.3 billion in revenues and expenses in April 2011 and May 2011, with no overall impact on the budget balance.

Previous budget data has been restated to make figures comparable.

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