The federal government ran a $2-billion deficit in July – up from $1.4-billion in July, 2012 – but Finance Canada says Ottawa is still on track to meet its targets for the year.

Finance Minister Jim Flaherty's department released the monthly Fiscal Monitor report on Friday, which tracks government revenues and expenses. Over the first four months of the current fiscal year, the federal deficit stands at $4.5-billion, which is slightly larger than the $4.2-billion deficit posted during the same period in 2012.

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

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The March budget estimated the 2013-14 deficit at $18.7-billion, to be followed by a deficit of $6.6-billion in 2014-15 and a small surplus of $800-million in 2015-16.

Friday's fiscal monitor report appears to suggest that the government is not holding the line on program expenses, which were targeted as the main route to balanced books. The report states that from April to July, direct program expenses are up $1.8-billion, or 5.5 per cent. Within that category, the report states that spending on "Agriculture and Agri-food" is down 34.8 per cent so far this year, but the steep drop is not explained.

Messages also continue to be mixed in terms of defence spending. On Aug. 29, the Department of National Defence released a report stating that, over the first three months of the fiscal year, "total annual budgetary authorities available for use decreased" by 9 per cent. However, Friday's Finance Canada report states that National Defence spending is up 8 per cent over the first four months of the year.

A DND official notes that defence expenditures are up 6.6 per cent over the first three months of the year, but that finance and DND figures differ because of accounting and timing issues.

The Globe and Mail wrote in May that senior officials at National Defence have taken issue with Finance Canada in the past over the Fiscal Monitor report.

Last year, the deputy minister of national defence, Robert Fonberg, sent a terse letter to Finance Canada's deputy minister, Michael Horgan, over one report that claimed National Defence spending was up 14 per cent. In a letter obtained by The Globe and Mail through Access to Information, Mr. Fonberg said the claim was "misleading and inexplicable" and caused embarrassment to the defence minister at the time, Peter MacKay.

Officials at both departments told The Globe in May that they had sorted out their dispute over the accounting and reporting of defence spending.