The Canadian federal government deficit widens, net debt increases year-on-year

⑴ The Canadian federal government deficit widened in the most recent quarter as spending increased. ⑵ According to data from Statistics Canada, the nationwide general government surplus, excluding social security funds, increased year-on-year by 2.3 billion CAD in the second quarter, reaching 10.5 billion CAD, equivalent to 1.2% of nominal GDP. ⑶ However, the federal government deficit expanded by 1.1 billion CAD to 4.1 billion CAD, equivalent to 0.5% of GDP. ⑷ Federal government revenue grew by 5.6%, driven by increases in income, profit, and capital gains taxes, but this growth was outpaced by a 6.3% increase in total expenditure. ⑸ The growth in total expenditure was mainly led by social welfare spending, supported by disbursements made by Ottawa under the food and essentials benefits program. ⑹ With rising liabilities, federal government net debt increased by 5.7% year-on-year, reaching 1.05 trillion CAD, mainly due to an increase in debt securities. ⑺ From a market perspective, the widening deficit and rising debt may increase supply pressure on Canadian government bonds, and it will be important to monitor the impact of fiscal planning and interest rate paths on Canadian dollar assets going forward.