03/29/2012 05:43 EDT | Updated 05/29/2012 05:12 EDT

Ottawa reports first monthly surplus in three years on road to balanced budget

OTTAWA - The Canadian government was back in the black in January, a clear signal it is getting its books in order even if the surprising surplus lasts no further than the month.

The latest data from the Finance Department shows it recorded a $1.7 billion surplus in January, the first time Ottawa has been out of the hole in its monthly accounting since February 2009 — near the depths of the recession.

The relatively large January number comes with a caveat, mostly reflecting repayment of funds that had been given to British Columbia to convert to a harmonized sales tax.

But even without the special $1.6-billion pay-back, January would still have been in the black by a more modest $100 million.

And with two months of returns left to be reported for the current fiscal year ending March 31, the federal deficit stands at $16 billion, compared to $27.7 billion for the same period a year earlier.

In addressing reporters during a media lock-up prior to tabling his new budget, Finance Minister Jim Flaherty credited the better fiscal position to brightening prospects of the economy.

"The economy is growing albeit modestly, (and) the American economy is starting to show some positive signs," he said.

But he would not speculate whether the better starting point, and spending cuts he unveiled Thursday, would enable Ottawa to balance the books as early as 2014-15, fulfilling an election promise last spring that was shelved when conditions turned sour over the summer.

Now economists are again suggesting the ambitious goal could be reached.

According to the newest budget estimates, the federal deficit will come in at $24.9 billion in the current fiscal year ending Saturday, and falls steadily after that. It will shrink to $1.3 billion during the pivotal 2014-15 year, and revert to a $3.4 billion surplus in the election year budget of 2015-16.

It would not take much to tip the $1.3 billion into surplus. In fact, it is only a deficit because Flaherty chose to double the risk set-aside in his projections to $3 billion.

"A surplus could easily be reached that year simply on the basis of the government not being required to use the ... adjustment for risk allocation," said Royal Bank economists Craig Wright and Paul Ferley in an analysis.

TD Bank chief economist Craig Alexander said a minuscule increase in the economic growth profile could also tip the books into the black three years down the road.

But he cautioned against too much optimism. The global economy remains risky, he said, defending Flaherty's decision to increase the rainy-day buffer. As well, for the target to be reached, the Conservatives must keep spending growth at just slightly over two per cent for five consecutive years, unprecedented in recent Canadian political history.

For the year so far, Finance said improvement in the fiscal position has come about through a combination of a higher tax haul and lower spending.

For the 10 months, revenues are up $8.7 billion, or 4.6 per cent, from the same period last year. Meanwhile, program spending is down $3.3 billion, or 1.7 per cent. Public debt charges are up by about $300 million, reflecting the larger national debt.