Finance Minister Jim Flaherty tabled documents Tuesday showing Ottawa's deficit for the just completed 2012-13 fiscal year was $18.9 billion, not the $25.9 billion he had projected in the March budget.
"It will be less next year," Flaherty said. "We have another 18 months to go until the budget in 2015 ... but Canadians can be assured their federal government is on track fiscally and we will balance the budget in 2015."
The timing is critical to the Conservatives, who have seen their polling numbers suffer under the dual threat of a revitalized Liberal party with a charismatic new leader in Justin Trudeau and a more formidable NDP.
In the 2011 campaign, the first to give Stephen Harper a majority government, the Conservatives pledged not only to balance the budget by the time they again faced voters, but also to introduce partial income splitting — a significant tax cut for families — as well as to double the limit on popular tax-free savings accounts.
Flaherty would not speculate about whether the government would offer other tax savings goodies in the campaign.
He expressed pride in the fact the figures show the big savings realized were a result of aggressive cost-cutting measures introduced in the 2011 budget, as well as previous years. That was necessary because despite an increase in revenues, the economy has underperformed expectations this year.
"Spending is clearly under control ... which is not easy to do," he said.
Total expenditures were a mere $200 million, or 0.1 per cent, above the previous year's total, thanks in part to spending $1.9 billion less on debt servicing.
Meanwhile, revenues rose $7.5 billion, or three per cent, with both individual and corporate receipts rising.
The announcement is the second major boost to the government's fortunes in the past week. On Friday, the prime minister and his European Union counterpart announced a comprehensive trade deal between the two economies after four years of intense and at times disappointing talks.
The improved deficit position was tabled on the same day Flaherty also introduced the second budget implementation bill, which will now be debated in the Commons.
Although larger than expected, many analysts had predicted the final deficit tally for 2012-13 would be better than the budget projection, which was virtually unchanged from the previous year.
Scotiabank economist Mary Webb, who specializes in fiscal analysis, said she was always skeptical of the lumpy deficit elimination path outlined in the March budget, which showed no progress between 2011-12 and 2012-14, then a sudden fall-off the next two years. The new number shows the deficit diminishing more gradually and is more credible, she said.
"Could something blow them off track? Absolutely," Webb said.
"But now that they have the deficit down to one per cent of gross domestic product, the consequences of being blown off track becomes less severe."
Flaherty noted that Canada's accumulated debt to gross domestic product is also under control at 34.5 per cent — once provincial debt and assets from public pension plans are included — "by far" lower than any other nation in the G7 club.
"We are also among five or six countries in the entire world rated by all three major credit agencies with the highest credit rating," he boasted. "In fact, we can sell any bonds we want, any denomination, any time we wish to."
Flaherty would not speculate about the impact on this year's deficit other than it will be lower. He said he will present new projections in the fall economic update next month.
Despite the improvement, Flaherty said he does not see it as likely to balance the budget one year earlier. He noted that in this year's expenses, the government will need to ante up to deal with two unexpected disasters, the train derailment in Lac-Megantic, Que. and the massive flooding in Alberta.