Ottawa says deficit shrinking but warns that trouble looms

OTTAWA — The federal government says its budget is closer to balance than it was a year ago, but warns that its solid fiscal performance may not last.The Finance Department’s Fiscal Monitor says the deficit for the first three months of the 2012-13 fiscal year was $2 billion — less than half the $4.2-billion recorded for the same period last year.The department says that’s consistent with its plan to reduce the 2012-2013 deficit to $21.1 billion.[np-related /]But it also warns that a weak economy poses a mounting risk for the fiscal situation.The economy has been sluggish and Statistics Canada is reporting that growth in the second quarter of 2012 was just 1.8% at an annual rate.From April to June, federal revenues rose 4.7% because of higher income tax payments and a hike in the Employment Insurance rate, while expenses rose at a more modest pace.For the month of June alone, the deficit was $1.1 billion, compared with $2.3 billion for June 2011.

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