Annual Financial Report of the Government of Canada
Fiscal Year 2002–2003: 2
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Comparison of Actual Budgetary Outcomes to Budget Estimates

This section compares the actual outcome for the major components of the budgetary balance for 2002–03 to the estimates presented in the February 2003 budget. As the estimates contained in the December 2001 budget for 2002–03 were not presented on a full accrual basis, no attempt will be made to provide a reconciliation to those estimates.

The Government targeted a balanced budget for 2002–03 in the February 2003 budget. Under the Debt Repayment Plan, the fiscal target for each year is based on:

• Using the average of private sector economic forecasts for budget-planning purposes.
• Including an annual Contingency Reserve to cover risks arising from unpredictable events and unavoidable inaccuracies in the economic and fiscal models used to translate the economic assumptions into detailed budget forecasts. It is not a source of funding for new policy initiatives. If not needed, it is used to pay down the public debt. For 2002–03 the Contingency Reserve was set at $3 billion in the February 2003 budget.
• Adding an extra degree of economic prudence to provide further assurance against falling back into deficit. No additional prudence was added in the February 2003 budget for 2002–03, given that the fiscal year was nearly over.

After accounting for the fiscal impact of the new spending initiatives and tax cuts, the February 2003 budget estimated a balanced budget or better in 2002–03. This target was backed by the normal $3-billion Contingency Reserve.

On a full accrual basis of accounting, the final audited budgetary surplus for 2002–03 was $7.0 billion. This improvement is primarily attributable to one-time factors affecting program expenses. Within program expenses, all other expenses were $2.5 billion lower than estimated in the February 2003 budget, primarily reflecting one-time adjustments to allowances for loans to foreign countries, and revisions to the accrual adjustments. Entitlements under the fiscal arrangements programs, primarily equalization entitlements, were also lower than estimated at the time of the 2003 budget. Data revisions since the budget indicated a narrowing of fiscal disparities between the equalization- and non-equalization-receiving provinces, which resulted in lower equalization entitlements for both 2001–02 and 2002–03. The downward adjustment in 2002–03, therefore, incorporates both the prior-year revisions as well as those in 2002–03. In addition, employment insurance benefits were $0.5 billion lower than expected, while elderly benefits were $0.1 billion lower.

In contrast, budgetary revenues were $1.2 billion lower than estimated in the February 2003 budget, primarily attributable to lower-than-expected personal income tax revenues. Offsetting some of this decline were higher net gains from enterprise Crown corporations and exchange fund activities. Public debt charges were marginally lower than expected.

Table 8
Comparison of Actual Outcomes to February 2003 Budget

	Actual	2003 budget	Difference
	($ billions)
Budgetary revenues
Personal income tax	81.7	84.2	-2.5
Corporate income tax	22.2	21.9	0.3
Other income tax	3.3	2.9	0.4
Excise taxes and duties	41.4	41.6	-0.2
Employment insurance    premium revenues	17.9	18.3	-0.4
Non-tax revenue	11.1	9.8	1.3
Total	177.6	178.7	-1.2
Program expenses
Major transfers to persons
Elderly benefits	25.7	25.8	-0.1
Employment insurance benefits	14.5	15.0	-0.5
Major transfers to other    levels of government
Canada Health and      Social Transfer	22.6	22.6	0.0
Fiscal arrangements	10.4	12.7	-2.4
Alternative Payments for      Standing Programs	-2.3	-2.5	0.2
All other expenses	62.5	65.0	-2.5
Total	133.3	138.6	-5.2
Public debt charges	37.3	37.2	0.1
Budgetary outcome/estimate	7.0	3.0	4.0

Report of the Auditor General on the Condensed Financial Statements of the Government of Canada

To the Minister of Finance:

The accompanying condensed statements of operations and accumulated deficit, financial position, change in net debt and cash flow are derived from the complete financial statements of the Government of Canada as at March 31, 2003, and for the year then ended on which I expressed an opinion without reservation in my Report to the House of Commons dated September 29, 2003.

My Report drew two matters I have raised before to Parliament’s attention: a concern about the Employment Insurance Account, and the recording of transfers to Foundations. For more complete information, readers should refer to my Report, which will be included in Volume I of the 2003 Public Accounts of Canada, expected to be tabled in the House of Commons later this year.

The fair summarization of the complete financial statements is the responsibility of the Government. My responsibility, in accordance with the applicable Assurance Guideline of The Canadian Institute of Chartered Accountants, is to report on the condensed financial statements.

In my opinion, the accompanying condensed financial statements fairly summarize, in all material respects, the related complete financial statements in accordance with the criteria described in the Guideline referred to above.

Since these are condensed financial statements, readers are cautioned that these statements may not be appropriate for their purposes. For more information on the Government’s financial position, results of operations and cash flow, reference should be made to the related complete financial statements, which will also be included in Volume I of the 2003 Public Accounts of Canada.

 

Sheila Fraser, FCA
Auditor General of Canada

Ottawa, Canada
September 29, 2003

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Condensed Financial Statements of the Government of Canada

The fundamental purpose of these condensed financial statements is to provide an overview of the financial affairs and resources for which the Government is responsible under authority granted by Parliament. Responsibility for the integrity and objectivity of these statements rests with the Government.

These financial statements are extracted and condensed from the audited financial statements included in Section 2 of Volume I of the 2003 Public Accounts of Canada, which are expected to be tabled in Parliament later this year. As these condensed financial statements are, by their nature, summarized, they do not include all disclosure required for financial reporting by governments in Canada. Readers interested in the disclosure of more detailed data should refer to the audited financial statements in the Public Accounts.

Table 9
Government of Canada Condensed Statement of Operations and Accumulated Deficit for the Year Ended March 31, 2003

	2003		Restated 2002
	Budget1	Actual	Actual
	($ millions)
Revenues
Income tax	117,000	115,043	114,139
Other taxes and duties	41,600	41,357	37,133
Employment insurance premiums	18,300	17,870	17,637
Other revenues	14,200	15,962	14,767
Total revenues	191,100	190,232	183,676
Expenses
Transfer payments
Old Age Security and    related payments	25,800	25,692	24,641
Other levels of government	32,800	30,645	26,616
Employment insurance benefits	15,000	14,496	13,726
Other transfer payments	28,000	27,899	25,792
	101,600	98,732	90,775
Other program expenses	49,400	47,261	46,231
Total program expenses	151,000	145,993	137,006
Interest on debt	37,100	37,270	39,651
Total expenses	188,100	183,263	176,657
Annual surplus	3,0002	6,969	7,019
Accumulated deficit, beginning  of year—previously reported		517,545	545,396
Changes in accounting policies  (see note 2 on page 28)			20,832
Accumulated deficit, beginning  of year—restated		517,545	524,564
Accumulated deficit, end of year		510,576	517,545
1 Derived from Budget 2003 and adjusted to a gross basis. 2 In Budget 2003 the surplus for the year is equivalent to the Contingency Reserve.

Table 10
Government of Canada Condensed Statement of Financial Position as at March 31, 2003

	2003	Restated 2002
	($ millions)
Liabilities
Accounts payable and  accrued liabilities	79,384	81,453
Interest-bearing debt
Unmatured debt
Payable in Canadian currency	418,611	415,239
Payable in foreign currencies	21,141	27,032
Total	439,752	442,271
Pension and other liabilities
Public sector pensions	125,708	126,921
Other employee and veteran      future benefits	38,844	38,280
Other	16,452	15,417
Total	181,004	180,618
Total interest-bearing debt	620,756	622,889
Total liabilities	700,140	704,342
Financial assets
Cash and accounts receivable	62,626	59,833
Foreign exchange accounts	48,950	52,046
Loans, investments and advances
Enterprise Crown corporations and    other government business enterprises	14,555	13,688
Other	18,631	17,355
Allowance for valuation	(9,438)	(9,487)
Total loans, investments and advances	23,748	21,556
Total financial assets	135,324	133,435
Net debt	564,816	570,907
Non-financial assets
Tangible capital assets	47,034	45,724
Other	7,206	7,638
Total non-financial assets	54,240	53,362
Accumulated deficit	510,576	517,545

Table 11
Government of Canada Condensed Statement of Change in Net Debt for the Year Ended March 31, 2003

	2003		Restated 2002
	Budget1	Actual	Actual
	($ millions)
Net debt, beginning of year—previously reported	570,900	570,907	545,396
Changes in accounting policies (see note 2 on page 28)			30,909
Net debt, beginning of year—restated	570,900	570,907	576,305
Change in net debt during the year
Annual surplus	(3,000)	(6,969)	(7,019)
Acquisition of tangible capital assets	4,400	5,051	4,485
Amortization of tangible capital assets	(3,000)	(3,341)	(2,583)
Other		(832)	(281)
Net decrease in net debt	(1,600)	(6,091)	(5,398)
Net debt, end of year	569,300	564,816	570,907
1 Derived from Budget 2003.

Table 12
Government of Canada Condensed Statement of Cash Flow for the Year Ended March 31, 2003

	2003	Restated 2002
	($ millions)
Cash provided by operating  activities
Annual surplus	6,969	7,019
Items not affecting cash	4,620	(4,831)
	11,589	2,188
Cash used for capital  investment activities	(4,763)	(4,429)
Cash provided by investing  activities	819	1,932
Total cash generated (required)  before financing activities	7,645	(309)
Cash provided by (used for)  financing activities
Net increase in Canadian currency  borrowings	3,372	1,994
Net decrease in foreign currency  borrowings	(5,891)	(6,126)
	(2,519)	(4,132)
Net increase (decrease) in cash	5,126	(4,441)
Cash at beginning of year	11,360	15,801
Cash at end of year	16,486	11,360

Notes to the Condensed Financial Statement

1. Significant Accounting Policies

The Government of Canada reporting entity includes all departments, agencies, corporations and funds which are owned or controlled by the Government and which are accountable to Parliament. The financial activities of all these entities are consolidated in these statements, except for enterprise Crown corporations and other government business enterprises, which are not dependent on the Government for financing their activities. These corporations are reported under the modified equity basis of accounting. The Canada Pension Plan is excluded from the reporting entity as it is under the joint control of the Government and participating provinces.

The Government accounts for transactions on an accrual basis. Financial assets recorded on the Condensed Statement of Financial Position can provide resources to discharge liabilities or finance future operations and are recorded at the lower of cost or net realizable value. Non-financial assets cannot normally be converted into cash to finance future operations without disrupting government operations; they are recorded at cost less accumulated amortization. Liabilities are recorded at the estimated amount ultimately payable, with public sector pension and other employee and veteran future benefits being determined on an actuarial basis. Valuation allowances are established for loan guarantees, concessionary and sovereign loans, and other obligations.

Some amounts in these statements are based on estimates and assumptions made by the Government. By their nature, such estimates are subject to measurement uncertainty, although all of them are believed to be reasonable.

Comparative figures for 2002 have been reclassified to conform to the current year’s presentation.

2. Changes in Accounting Policies

In 2003 the Government changed its basis of accounting from modified accrual to full accrual. These changes have been applied retroactively, with restatement of the 2002 financial statements. The nature of the changes and their effect on the 2002 opening accumulated deficit and net debt are as follows:

	Accumulated deficit	Net debt
	($ millions)
Tangible capital assets	-42,785	1,429
Other employee  and veteran future benefits	34,466	34,466
Tax revenues	-11,024	-11,024
Other liabilities	10,008	10,008
Inventories and  prepaid expenses	-7,527
Investments in enterprise  Crown corporations	-3,970	-3,970
Total effect	-20,832	30,909

The Government also adopted a new financial statement format to reflect the full accrual basis of accounting and introduced a new Statement of Change in Net Debt.

3. Contractual Commitments

Contractual commitments that will materially affect the level of future expenses include transfer payment agreements, acquisitions of goods and services, operating leases and funding of international organizations. At March 31, 2003, contractual commitments amounted to approximately $33 billion ($30 billion in 2002).

4. Contingent Liabilities

Contingent liabilities related to guarantees by the Government and international organizations amount to $75 billion ($77 billion in 2002). There are thousands of claims and pending and threatened litigation cases against the Government; the total amount claimed in these instances is significant but the final outcome is not determinable. Insurance in force relating to self-sustaining insurance programs operated by three enterprise Crown corporations amounted to approximately $646 billion ($615 billion in 2002). The Government expects that it will not incur any costs to cover insurance claims under these programs.

Other Sources of Information The Public Accounts of Canada The Public Accounts of Canada, as required under section 64(1) of the Financial Administration Act, are tabled in the fall of each year by the President of the Treasury Board. This report is presented in two volumes: Volume I contains the Government’s audited financial statements and supporting schedules and information; and Volume II contains details of financial operations by ministry (Part I) and additional information and analyses (Part II). The Budget The budget, usually introduced in February, presents the Government’s overall fiscal plan, incorporating revenue projections and spending plans, which combine to determine the resulting budgetary balance. The budget also introduces proposals for changes in taxation. The Fiscal Monitor This monthly newsletter produced by the Department of Finance highlights the financial results of the Government together with the reasons underlying major variances. Debt Management Strategy This report is tabled annually in Parliament. It provides information on the federal government’s debt management strategy for the coming fiscal year. Debt Management Report This annual document provides an accounting of the key elements of federal debt strategy and describes various strategic and operational aspects of the Government’s debt program and cash management activities over the past fiscal year. The Estimates Each year the Government prepares Estimates in support of its request to Parliament for authority to spend public monies. This request is formalized through the tabling of appropriation bills in Parliament. The Estimates are tabled in the House of Commons by the President of the Treasury Board and consists of three parts: Part I – The Government Expenditure Plan provides an overview of federal spending and summarizes the relationship of the key elements of the Main Estimates to the Expenditure Plan set out in the budget. Part II – The Main Estimates directly support the Appropriations Act. Part III – Departmental Expenditure Plans, which consist of two components – Reports on Plans and Priorities and Departmental Performance Reports.

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