Canada’s budget surplus got smaller in July, despite an increase in revenue, the Department of Finance reported today.

The budget surplus of $840 million represents a drop from a surplus of $1.76 billion a year earlier. The government attributes the decline to a $1.5-billion increase in expenses, including payments under the Universal Child Care Benefits program and increases in transfer payments to the provinces.

Revenue increased by $700 million, driven largely by growth in personal income tax revenue. Revenue from employment insurance premiums and corporate income taxes declined.

Finance estimates the surplus for the first four months of fiscal year 2006-2007 (April to July, 2006) is $6.3 billion, up $1.2 billion from the $5.1 billion surplus posted in the corresponding period a year earlier.

Revenue for the four-month period is up $4.2 billion, or 5.8%, driven by strong growth in income tax revenue, slightly offset by declines in EI premium revenue, sales and excise taxes and GST revenue.

Program expenses were up $2.8 billion, or 5.1%, due to higher transfers and other program expenses, the department said.

The department points out that these results do not include a significant portion of the $14.3 billion in tax reductions and expenditure increases for 2006–2007 announced in the May 2006 budget. July represents only the first month of benefit payments under the UCCB program, which totalled $181 million in July. The program is expected to cost $1.6 billion over the full fiscal year.

July is also the first month of the one-percentage-point reduction in the GST rate, expected to cost $3.5 billion over the fiscal year.