09/27/2013 11:02 EDT | Updated 11/27/2013 05:12 EST

Ottawa posts $2-billion deficit for July compared with $1.4 billion a year ago

OTTAWA - The federal government posted a deficit of $2 billion in July, compared with a deficit of $1.4 billion in the same month last year, mostly as a result of lower income tax revenue and higher spending to service the public debt.

A drop in personal and corporate income tax offset higher revenue from other sources, while spending increased slightly, according to the Finance Department's monthly Fiscal Monitor report issued Friday.

Overall revenue dropped by $500 million to $19.8 billion. Personal income tax revenue fell $200 million to roughly $10.5 billion. Corporate income tax revenue was off by $1.3 billion or 73.7 per cent, to $454 million, due to timing issues.

The lower income tax revenue was partially offset by an increase in excise taxes and duties, employment insurance premiums and other revenue.

"The fiscal outlook for 2013–14 remains on track with the projection set out in Budget 2013," the report said Friday.

The government estimated in the March budget the year's deficit would fall to $18.7 billion from the $25.9-billion shortfall recorded last year.

Total program spending by the federal government increased by $24 million, to $19.3 billion, while public debt charges increased by roughly $100 million or 3.8 per cent.

For the April to July period, the first four months of its current financial year, Ottawa posted a deficit of $4.5 billion. That compares with a deficit of $4.2 billion in the same four-month period a year ago.

Revenue for April to July was up about $2.1 billion from a year ago at $84.4 billion, while program spending was up $2.6 billion at $78.7 billion.

Public debt charges were about $10.1 billion, down about $100 million from a year ago.

TD Bank economist Jonathan Bendiner noted the report was consistent with the projections set out in the spring budget and the current weak economic backdrop.

Earlier this week, TD forecast that Canada's export-led growth would be slightly delayed due to a softer U.S. economy.

"We now expect to see an increase in economic activity towards the end of 2013 and into 2014," Bendiner said.

"That said, nominal GDP readings should begin to come in slightly higher in 2013 Q3 — buoyed by an anticipated rise in export prices — providing solid momentum heading into 2014."