April Federal Budget Surplus Boosted by Robust Tax Payments

The federal government ran a surplus of $214.3 billion in April. Rising equity markets and more tax certainty likely helped boost nonwitheld tax payments, but the deficit in the second half of the year remains large.

Nonwitheld Tax Receipts Help Drive Surplus

Nonwitheld individual income tax payments, or taxes paid not directly taken out of a paycheck, typically surge in April as taxpayers square up with the federal government. Nonwitheld collections have been solid this year, with rising equity markets and more tax certainty likely boosting capital gains realizations. Though these tax collections have been stronger than the recent past, they are by no means unprecedented (top left chart).

More Red Ink to Come

This surge in tax payments, a phenomenon we anticipated as far back as last July, helped bring down the government’s Q2 borrowing need even more than usual.* With plenty of cash on hand, we continue to expect that net T-bill issuance will be negative in Q2. Strong tax collections in April, however, have not altered our view that the budget deficit will materially worsen in the second half of the year, driving a much larger borrowing need.

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