The federal budget deficit in July rose to $1.6 billion, compared with $0.5 billion in the same month a year earlier, the Finance Department reported Friday.

So far this fiscal year, spending has surpassed revenue by $7.1 billion, compared with $7.7 billion in the first four fiscal months of 2010.

“Revenues and expenditures are in line with expectations made at the time of the June budget,” Sonya Gulati, an economist with TD Bank said in a commentary. "The federal government appears to be on track to meet its $33.2-billion deficit projection for the current fiscal year.”

Many economists have lowered their predictions for Canadian growth this year, said Gulati, but Ottawa’s lower budget estimate for economic growth than the markets had earlier predicted “gives the fiscal plan a bit of breathing room,” she said.

Transfers To Other Governments Up 24.4%

“However, if uncertainty on the global stage were to amplify, the government would be hard-pressed to meet medium-term deficit targets.”

The deficit numbers were released a day after Parliament's budget watchdog, Kevin Page, warned that an aging population and other factors mean the country's finances are not sustainable over the long term.

Page warned that debt can't continue to grow faster than the economy, meaning the government either has to raise taxes, reduce overall program spending, or deliver a combination of the two.

Revenues in July fell by $0.2 billion, or 1.1 per cent. Revenue from personal income taxes rose by $0.7 billion, or 6.7 per cent, while corporate income tax collections fell by $0.3 billion, or 12.8 per cent.

Program spending rose $0.8 billion, or 4.3 per cent. Transfers to the provinces and other levels of government increased by $1.1 billion, or 24.4 per cent.

The cost of servicing the debt rose by $0.1 billion.