Archived - Annual Financial Report of the Government of Canada
Fiscal Year 2006–2007 : 1

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Message from the Minister

We should be proud of Canada’s strong economic performance over the past year. Our government has taken great care to create an environment that encourages further growth and investment. The key to our success has been our determination to develop our long-term economic plan, Advantage Canada, and put that plan into action.

Advantage Canada is designed to give Canada and Canadians five distinct advantages: a tax advantage, a fiscal advantage, a knowledge advantage, an infrastructure advantage and an entrepreneurial advantage.

As you can see in the 2006–07 Annual Financial Report, we are delivering on those advantages for Canadian individuals, families and businesses. Revenue growth is strong, government spending is focused and providing good value for money, our debt is lower and taxes are coming down.

In fact, as part of our Tax Back Guarantee, we are giving Canadians a direct stake and a direct benefit in how we manage government finances on their behalf. The higher-than-expected reduction in the federal debt in 2006–07 will result in approximately $260 million in additional ongoing personal income tax reductions. That’s more money in the pockets of hard-working Canadians.

Since taking office our government has provided relief in every way we collected taxes: personal taxes, consumption taxes, excise taxes and corporate taxes. As we continue to implement Advantage Canada, we intend to provide further tax relief for Canadian families and businesses in a responsible and meaningful way.

Over the past two years the federal debt has been reduced by an amount equivalent to $1,142 for every Canadian man, woman and child. We will continue to lift that burden off the shoulders of future generations, and at the same time, invest in priority programs.

Our objectives are clear: more and better jobs; a higher standard of living; and greater opportunity for Canadians to learn, earn, and invest to create the future they want for themselves and their families.

We have come a long way in a short period of time and that has not gone unnoticed internationally. Canada remains a shining example to the rest of the world of what a truly great, prosperous and compassionate nation can be.

 

Jim Flaherty
Minister of Finance


Note to Readers

The Government reports all revenues and expenses on an accrual basis. Further details on the Government’s accounting policies can be found in the section entitled “Notes to the Condensed Financial Statements of the Government of Canada” and in the Public Accounts of Canada 2007.

During 2006–07, the Government adopted new recommendations of the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants regarding the accounting treatment of other comprehensive income. Other comprehensive income consists of unrealized gains and losses on financial instruments held by enterprise Crown corporations and other government business enterprises. In accordance with the recommendations, other comprehensive income is recorded directly in the Government’s Condensed Statement of Accumulated Deficit and Condensed Statement of Change in Net Debt, but is excluded from the calculation of the Government’s annual surplus. Therefore, for 2006–07 and future years, the annual change in the federal debt (accumulated deficit) will reflect the annual budgetary balance plus any gains or losses recognized in other comprehensive income. This accounting policy change resulted in a $479-million decrease in the federal debt in 2006–07.

Report Highlights

The Budgetary Balance

A budgetary surplus of $13.8 billion was recorded in 2006–07. Budgetary revenues increased by 6.2 per cent over the prior year. This gain was due to strong growth in income tax revenues, which was only partially offset by a decrease in goods and services tax (GST) revenues due to the impact of the July 1, 2006, GST rate reduction. Program expenses rose by 7.5 per cent as a result of higher transfers to individuals and to other levels of government, as well as higher operating expenses. Public debt charges increased by $0.2 billion, or 0.5 per cent, due to a higher average effective interest rate on the stock of interest-bearing debt.

In the absence of policy changes, the budgetary balance primarily mirrors economic developments. To enhance the comparability of financial results over time and across jurisdictions, the budgetary balance and its components are often presented as a percentage of GDP.

Budgetary Balance

The budgetary surplus was 1.0 per cent of GDP in 2006–07. This ratio was unchanged from 2005–06.

All orders of government in Canada continue to post strong fiscal results. In 2006–07 the provinces and territories were in a strong surplus position due to ongoing revenue growth, particularly personal and corporate income tax revenues. The aggregate provincial-territorial surplus is currently estimated at $16.1 billion[1] for 2006–07, up from the $13.6-billion aggregate surplus posted in 2005–06. This would mark the third consecutive year that the aggregate provincial-territorial surplus has exceeded the federal surplus.

As a result of improving budgetary balances and economic growth in recent years, both federal and provincial-territorial debts have declined as a share of GDP. Federal debt as a share of GDP still exceeds that of most provinces and remains significantly higher than the provincial average. Lower debt has enabled both orders of government to allocate a smaller portion of revenues to debt interest payments, freeing up funds to reduce taxes and invest in other priorities. Lower debt also strengthens our country’s ability to deal with economic shocks and challenges, such as the aging of our population.

Federal and Provincial-Territorial Debt

Total Government Financial Balances (2006)

The Organisation for Economic Co-operation and Development (OECD) estimates that Canada was the only G7 country to record a total government surplus in calendar year 2006. Moreover, it expects Canada to continue to be the only G7 country to post a surplus again in 2007 and 2008.

Federal Debt

The federal debt is the difference between the Government’s total liabilities and its assets. At the end of 2006–07 the federal debt stood at $467.3 billion, down $95.6 billion from its peak of $562.9 billion in 1996–97. As a share of GDP, federal debt dropped to 32.3 per cent in 2006–07, down from the peak of 68.4 per cent in 1995–96, bringing it to its lowest level since 1981–82. Federal debt at the end of 2006–07 was $14,223 for each Canadian, down from $15,365 two years earlier.

Federal Debt (Accumulated Deficit)

Federal Debt (Accumulated Deficit)

The financial statements of the Government of Canada are presented on a full accrual basis of accounting. On this basis, government debt can be defined in several ways.

Net debt represents the total liabilities of the Government less its financial assets. Financial assets consist of cash and other accounts receivable, tax receivables, foreign exchange accounts, and loans, investments and advances.

The accumulated deficit is equal to total liabilities less total assets—both financial and non-financial. Non-financial assets include tangible capital assets (such as land and buildings), inventories and prepaid expenses. Prior to 2006–07, the accumulated deficit was also equal to the net accumulation of all annual surpluses and deficits since Confederation. However, as discussed in the “Note to Readers” section, the accumulated deficit now includes accumulated other comprehensive income, which is excluded from the calculation of the Government’s surplus, in accordance with recommendations of the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants.

The federal debt, referred to in the budget documents and the Annual Financial Report of the Government of Canada, is the accumulated deficit. It is the federal government’s main measure of debt.

Table 1
Financial Highlights


2005–06

2006–07


($ billions)

Budgetary transactions

  Revenues

222.2

236.0

  Expenses

    Program expenses

-175.2

-188.3

    Public debt charges

-33.8

-33.9


    Total expenses

-209.0

-222.2

Budgetary balance

13.2

13.8

Non-budgetary transactions

-6.4

-5.2

Financial source/requirement

6.8

8.5

Net change in financing activities

-6.3

-7.0


Net change in cash balances

0.5

1.5

Cash balance at end of period

21.1

22.7

Financial position

  Total liabilities

702.5

705.8

  Total financial assets

165.6

181.9


  Net debt

536.9

523.9

  Non-financial assets

55.4

56.6


Federal debt (accumulated deficit)

481.5

467.3

Financial results (% of GDP)

  Budgetary revenues

16.2

16.3

  Program expenses

12.7

13.0

  Public debt charges

2.5

2.3

  Budgetary balance

1.0

1.0

  Federal debt (accumulated deficit)

35.0

32.3


Note: Numbers may not add due to rounding.

Financial Source/Requirement

The financial source/requirement measures the difference between cash coming in to the Government and cash going out. It differs from the budgetary balance, which measures revenues and expenses as they are earned or incurred rather than when the associated cash is received or paid. There was a financial source of $8.5 billion in 2006–07, compared to a financial source of $6.8 billion in 2005–06.

Budgetary Balance and Financial Source/Requirements

Budgetary Revenues

Budgetary revenues totalled $236.0 billion in 2006–07, up 6.2 per cent from 2005–06 (Table 2). Tax revenues rose by $12.3 billion, or 6.6 per cent, while Employment Insurance (EI) premium revenues rose by $0.3 billion, or 1.5 per cent. Other revenues increased by $1.2 billion, or 6.1 per cent. Budgetary revenues were $3.7 billion, or 1.6 per cent, higher than estimated in the March 2007 budget.

The largest source of budgetary revenues in 2006–07 was personal income tax revenues, which stood at 46.8 per cent of budgetary revenues. The second largest source was corporate income tax revenues at 16.0 per cent, up 10.3 percentage points from a low of 5.7 per cent in 1992–93. GST revenues were 13.3 per cent of budgetary revenues, while EI premium revenues contributed to 7.1 per cent of budgetary revenues.

Personal income tax revenues increased by $6.8 billion, or 6.5 per cent, in 2006–07. This reflects solid growth in employment and wages and salaries combined with the progressive nature of the personal income tax system. Personal income tax revenues usually grow somewhat faster than personal income—in other words, they have an “income elasticity” greater than one—because marginal tax rates rise as taxable income rises. These factors pushing up revenues were partially offset by tax relief measures announced in the March 2007 budget and the October 2006 Tax Fairness Plan.

Composition of Revenues for 2006-07

Corporate income tax revenues were $6.0 billion, or 19.0 per cent, higher in 2006–07 than in 2005–06. Growth in corporate income tax revenues far exceeded growth in corporate profits as measured in the National Accounts, which rose by only 5.0 per cent in 2006. As such, the gain in corporate income tax revenues largely reflects a significantly higher tax yield per dollar of corporate income earned. The higher average effective tax rate is likely due to a decline in corporate loss pools. After five consecutive years of profit growth, corporations have a dwindling supply of prior-year losses available to reduce their tax liabilities. Indeed, there appear to be a number of large corporations, particularly in the resource sector, that have just recently started paying income taxes as they have exhausted their pools of losses or credits. The cause of the increase in the average effective tax rate can only be confirmed in two years, when detailed assessment data will be available. In addition, corporate income tax revenues reported in 2006–07 were boosted by an unusually high level of corporate income tax pertaining to the prior year that was assessed after the financial statements for 2005–06 were closed, and for which corresponding instalment payments had been underpaid. This boosted corporate income tax revenues in 2006–07 by more than $1 billion.

Other income tax revenues—largely withholding taxes levied on non-residents—were $0.3 billion, or 7.7 per cent, higher in 2006–07 than in the previous year.

Other taxes and duties decreased by $0.8 billion, or 1.8 per cent, in 2006–07, driven by a $1.7-billion drop in GST revenues, reflecting the impact of the July 1, 2006, GST rate reduction. This decline was partially offset by the one-time charge on duty deposit refunds under the Canada-United States Softwood Lumber Agreement, which raised other excise taxes and duties by $0.5 billion. Other excise taxes and duties were also boosted by the introduction of an export charge on softwood lumber exports to the U.S., effective October 12, 2006, consistent with the Agreement. There is no net budgetary impact from either the charge on duty deposit refunds or the export charge: revenues from the former have been transferred to certain U.S. interests under the terms of the Agreement and revenues from the latter, net of the costs of administering the Agreement, will be transferred to provincial governments. Customs import duties rose $0.4 billion, or 11.2 per cent.

EI premium revenues increased by $0.3 billion, or 1.5 per cent, from the previous year, reflecting growth in employment and wages and salaries during the year, which more than offset the reductions in premium rates on January 1, 2006 and January 1, 2007, as well as the impact of the transfer to the province of Quebec of the responsibility for delivering maternity and parental benefits in that province along with the associated premiums, effective January 1, 2006.

Other revenues consist of net profits from Crown corporations, such as the Bank of Canada, Export Development Canada and Canada Mortgage and Housing Corporation; foreign exchange revenues; and other program revenues, primarily revenues from the sales of goods and services. Other revenues were up $1.2 billion, or 6.1 per cent, in 2006–07, primarily reflecting growth in interest and penalties on outstanding balances of taxes receivable.

Table 2
Revenues


2005–06

2006–07

Net change


($ millions)

(%)

Tax revenues

  Income tax

    Personal income tax

103,691

     110,477

     6,786

        6.5

    Corporate income tax

31,724

37,745

6,021

19.0

    Other income tax

4,529

4,877

348

7.7


    Total

139,944

153,099

13,155

9.4

  Other taxes and duties

    Goods and services tax

33,020

31,296

-1,724

-5.2

    Energy taxes

5,076

5,128

52

1.0

    Customs import duties

3,330

3,704

374

11.2

    Air Travellers Security Charge

353

357

4

1.1

    Other excise taxes and duties

4,377

4,832

455

10.4


    Total

46,156

45,317

-839

-1.8

Total tax revenues

186,100

198,416

12,316

6.6

Employment Insurance premium revenues

16,535

16,789

254

1.5

Other revenues

  Crown corporation revenues

7,198

7,503

305

4.2

  Foreign exchange revenues

2,014

1,714

-300

-14.9

  Other program revenues

10,356

11,544

1,188

11.5


  Total

19,568

20,761

1,193

6.1

Total revenues

222,203

235,966

13,763

6.2


Note: Numbers may not add due to rounding.

The revenue ratio—budgetary revenues as a percentage of GDP—compares the total of all federal revenues to the size of the economy. The revenue ratio stood at 16.3 per cent in 2006–07, up from 16.2 per cent in 2005–06. This increase is primarily due to the significant growth of corporate income tax revenues.

Revenue Ratio

Total Expenses

Total expenses consist of program expenses and public debt charges. In 2006–07 total expenses amounted to $222.2 billion, up 6.3 per cent from 2005–06.

Major transfers to persons (elderly benefits, EI benefits, and children’s benefits) and major transfers to other levels of government (the Canada Health Transfer, the Canada Social Transfer, fiscal arrangements and other transfers, transfers to provinces on behalf of Canada’s cities and communities, and Alternative Payments for Standing Programs) were the two largest components of total expenses in 2006–07, representing 25.0 and 19.1 per cent of total expenses. Other transfers made by various federal departments to individuals, businesses and other organizations and groups made up 12.1 per cent of total expenses in 2006–07.

After transfers, the next largest component of total expenses was the operating costs of government departments and agencies, excluding National Defence, at 18.2 per cent. Operating costs include items such as salaries and benefits, facilities and equipment, and supplies and travel.

Public debt charges amounted to 15.3 per cent of total expenses in 2006–07. This is down from a peak of nearly 30 per cent in the mid-1990s, when they were the largest component of spending, reflecting the large stock of interest-bearing debt and high average effective interest rates on that stock. With the reductions in interest-bearing debt and lower interest rates, their share of total expenses has fallen 14.5 percentage points from a high of 29.8 per cent in 1996–97.

Composition of Expenses for 2006-07

Program expenses amounted to $188.3 billion in 2006–07, up 7.5 per cent from 2005–06 (Table 3). Within program expenses, transfers increased by $6.6 billion and operating expenses of departments and agencies, excluding National Defence, increased by $5.7 billion. Operating expenses of National Defence grew by $0.7 billion while Crown corporation expenses were virtually unchanged.

Public debt charges rose by $0.2 billion, or 0.5 per cent, reflecting higher average effective interest rates on the stock of interest-bearing debt.

Table 3
Total Expenses


2005–06

    2006–07

    Net change


($ millions)

(%)

Major transfers to persons

  Elderly benefits

28,992

30,284

1,292

4.5

  Employment Insurance benefits

14,417

14,084

-333

-2.3

  Children’s benefits

9,200

11,214

2,014

21.9


  Total

52,609

55,582

2,973

5.7

Major transfers to other levels of government

  Support for health and other programs

27,225

28,640

1,415

5.2

  Fiscal arrangements and other transfers

12,439

13,066

627

5.0

  Canada’s cities and communities

582

590

8

1.4

  Transfers in support of post-secondary education,
    public transit and affordable housing

3,300

-3,300

  Early learning and child care

650

650

  Clean Air and Climate Change Trust Fund

1,519

1,519

  Patient Wait Times Guarantee Trust

612

612

  Transition Trust

614

614

  Alternative Payments for Standing Programs

-2,731

-3,177

-446

16.3


  Total

40,815

42,514

1,699

4.2

Direct program expenses

  Subsidies and other transfers1

24,893

26,844

1,951

7.8

  Other program expenses

    Crown corporations

      Canada Mortgage and Housing Corporation

2,119

2,102

-17

-0.8

      Canadian Broadcasting Corporation

1,672

1,666

-6

-0.4

      Other cultural agencies

631

606

-25

-3.9

      Canadian Air Transport Security Authority

349

438

89

25.4

      Other

2,424

2,399

-25

-1.0


      Total

7,195

7,211

16

0.2

    National Defence

15,034

15,732

698

4.6

    All other departments and agencies

      Bad debt expense

1,366

4,179

2,813

205.9

      Other operating expenses

33,301

36,207

2,906

8.7


      Total

34,667

40,386

5,719

16.5

    Total other program expenses

56,896

63,329

6,433

11.3

  Total direct program expenses

81,789

90,173

8,384

10.3

Total program expenses

175,213

188,269

13,056

7.5

Public debt charges

33,772

33,945

173

0.5

Total expenses

208,985

222,214

13,229

6.3


Note: Numbers may not add due to rounding.
1 See Table 4 for details.

In 2006–07 major transfers to persons increased by $3.0 billion, or 5.7 per cent, over 2005–06.

Major transfers to other levels of government include the Canada Health Transfer (CHT), the Canada Social Transfer (CST), fiscal arrangements (Equalization, transfers to the territories, as well as a number of smaller transfer programs), transfers to provinces on behalf of Canada’s cities and communities, and Alternative Payments for Standing Programs. These transfers increased by $1.7 billion, or 4.2 per cent, over 2005–06, resulting largely from legislated increases in the CHT, the CST, Equalization and Territorial Formula Financing in 2006–07.

In 2006–07 subsidies and other transfers increased by $2.0 billion, or 7.8 per cent, over 2005–06 (Table 4). This growth largely reflects increased agricultural assistance announced in Budget 2006, $0.5 billion in transfers to U.S. interests under the Canada-United States Softwood Lumber Agreement, and a $0.4-billion transfer to the Canada Health Infoway to support early movement by provinces towards patient wait times guarantees.

Table 4
Subsidies and Other Transfers


2005–06

2006–07

Net change


($ millions)

(%)

Agriculture and Agri-Food

  Grains and Oilseeds Payment Program

756

0

-756

-100.0

  CAIS (Canadian Agricultural Income Stabilization)
    Inventory Transition Initiative

873

873

n/a

  Cost of Production Payment

400

400

n/a

  Other

1,839

1,849

10

0.5


  Total

2,595

3,122

527

20.3

Foreign Affairs and International Trade

  Canada-United States Softwood Lumber Agreement

503

503

n/a

  Other

3,357

3,501

144

4.3


  Total

3,357

4,004

647

19.3

Health

  First Nations and Inuit health

857

927

70

8.1

  Canadian Institutes of Health Research

758

800

41

5.5

  Primary Health Care Transition Fund

185

73

-112

-60.7

  Canada Health Infoway

400

400

n/a

  Other

281

315

35

12.3


  Total

2,080

2,514

434

20.8

Human Resources and Skills Development

  Student assistance programs

848

874

26

3.1

  Labour market programs

746

740

-6

-0.8

  Energy Cost Benefit

210

4

-207

-98.3

  Other

389

300

-89

-22.9


  Total

2,193

1,918

-275

-12.6

Indian and Northern Affairs

5,448

5,161

-287

-5.3

Industry/regional agencies/granting councils

  Technology Partnerships Canada

452

342

-109

-24.2

  Infrastructure Canada

368

286

-83

-22.4

  Regional agencies

537

613

76

14.1

  Natural Sciences and Engineering
   Research Council  
   of Canada/Social Sciences and
   Humanities Research Council of Canada

1,371

1,458

88

6.4

  CANARIE

120

120

n/a

  Genome Canada

100

100

n/a

  Other

266

273

7

2.6


  Total

2,994

3,192

198

6.6

Other

6,225

6,933

708

11.4


Total

24,893

26,844

1,951

7.8


Note: Numbers may not add due to rounding.

Other program expenses—total program expenses less transfers—consist of the operating costs of the more than 130 departments, agencies, Crown corporations and other federal bodies that deliver programs and services to Canadians. These expenses amounted to $63.3 billion in 2006–07, up $6.4 billion, or 11.3 per cent, from 2005–06. Within this component:

The expense ratio—total expenses as a percentage of budgetary revenues—stood at 94.2 per cent in 2006–07. An expense ratio of less than 100 means that revenues exceed expenses, resulting in a surplus. The expense ratio has been less than 100 since the federal government first recorded a surplus in 1997–98. This is in sharp contrast to the previous 27 years, in which revenues did not cover expenses.

Public debt charges increased by $0.2 billion, or 0.5 per cent, to $33.9 billion in 2006–07, due to higher average effective interest rates on the stock of interest-bearing debt.

Expense ratio

The interest ratio—public debt charges as a percentage of budgetary revenues—declined from 15.2 per cent in 2005–06 to 14.4 per cent in
2006–07. This ratio means that, in 2006–07, the Government spent about 14 cents of every revenue dollar on interest on the public debt. This is down from the peak of about 38 cents in 1990–91 and is the lowest this ratio has been since the late 1970s. This is money that must be paid to meet the Government’s ongoing obligations on its debt. The lower the ratio, the more flexibility the Government has to address the key priorities of Canadians.

Interest Ratio

The Budgetary Balance and Financial Source/Requirement

The budgetary balance is the most comprehensive measure of the federal government’s fiscal results. It is presented on a full accrual basis of accounting, recording government liabilities when they are incurred, regardless of when the cash payment is made, and recording tax revenues when earned, regardless of when the cash is received.

In contrast, the financial source/requirement measures the difference between cash coming in to the Government and cash going out. It differs from the budgetary balance in that it includes cash transactions in loans, investments and advances, federal employees’ pension accounts, other specified purpose accounts, foreign exchange activities, and changes in other financial assets, liabilities and non-financial assets. These activities are included as part of non-budgetary transactions. The conversion from full accrual to cash accounting is also reflected in non-budgetary transactions.

Non-budgetary transactions in 2006–07 resulted in a net requirement of funds amounting to $5.2 billion, compared to a net requirement of $6.4 billion in 2005–06. The non-budgetary requirement of funds in 2006–07 was due to cash requirements resulting from the acquisition of capital assets and loans, financial investments and advances, as well as from other activities, including payment of accounts payable, increases in accounts receivable and foreign exchange activities. These were partly offset by a source of funds related to public sector pension benefits.

With a budgetary surplus of $13.8 billion and a net requirement from non-budgetary transactions of $5.2 billion, there was a financial source of $8.5 billion in 2006–07, up $1.7 billion from the $6.8-billion source posted in 2005–06 (Table 5).

With this financial source, the Government retired $7.0 billion of its unmatured debt and increased its cash balances by $1.5 billion. Cash balances at March 31, 2007, stood at $22.7 billion.

Table 5
Budgetary Balance, Financial Source/Requirement and Net Financing Activities


2005–06

      2006–07


($ billions)

Surplus for the year

13.2

13.8

Non-budgetary transactions

  Pension and other accounts

    Public sector pensions

1.5

3.7

    Other employee and veteran future benefits

1.8

1.8

    Canada Pension Plan

-2.6

-0.1

    Other

-0.6

-0.2


    Total

0.1

5.1

Non-financial assets

-0.6

-1.2

Loans, investments and advances

-3.7

-2.7

Other transactions

  Accounts payable, receivable, accruals and allowances

-2.3

-3.1

  Foreign exchange activities

0.0

-3.4


  Total other transactions

-2.2

-6.5

Total non-budgetary transactions

-6.4

-5.2

Financial source/requirement

6.8

8.5

Net change in financing activities

  Marketable bonds

-4.7

-3.7

  Treasury bills

4.4

2.5

  Canada Savings Bonds

-1.7

-2.2

  Other

-4.3

-3.6


  Total

-6.3

-7.0

Change in cash balances

0.5

1.5

Cash at end of year

21.1

22.7


Note: Numbers may not add due to rounding.

Federal Debt

Total liabilities consist of interest-bearing debt and accounts payable and accrued liabilities. Interest-bearing debt includes unmatured debt and liabilities for pension and other accounts. At March 31, 2007, interest-bearing debt amounted to $599.3 billion, down $1.8 billion from March 31, 2006 (Table 6). Within interest-bearing debt, unmatured debt decreased by $7.0 billion while liabilities for pension and other accounts increased by $5.1 billion. Accounts payable and accrued liabilities amounted to $106.5 billion, up $5.1 billion from 2005–06. As a result, total liabilities at March 31, 2007 stood at $705.8 billion, up $3.3  billion from the previous year.

Financial assets consist of cash and other accounts receivable, tax receivables, foreign exchange accounts, and loans, investments and advances. Financial assets totalled $181.9 billion at March 31, 2007, up $16.3 billion from March 31, 2006. Increases were recorded in cash and other accounts receivable (up $2.4 billion), tax receivables (up $7.4 billion), loans, investments and advances (up $3.2 billion) and foreign exchange accounts (up $3.4 billion). As a result, net debt stood at $523.9 billion at March 31, 2007, down $13.0 billion from March 31, 2006, and $85.1 billion below the peak of $609 billion at March 31, 1997. As a per cent of GDP, net debt dropped to 36.2 per cent in 2006–07, down 37.7 percentage points from its peak of 73.9 per cent in 1995–96. This is the 11th consecutive year in which the net debt-to-GDP ratio has declined.

Non-financial assets, consisting of tangible capital assets, inventories and prepaid expenses, amounted to $56.6 billion at March 31, 2007, up $1.2 billion from March 31, 2006.

With total liabilities of $705.8 billion, financial assets of $181.9  billion and non-financial assets of $56.6 billion, the federal debt (accumulated deficit) stood at $467.3 billion at March 31, 2007, down $14.2 billion from 2005–06 and $95.6 billion from its peak in 1996–97. The decline in federal debt between 2005–06 and 2006–07 was largely due to an increase in financial assets.

The reduction in the federal debt results in effective interest savings that will be passed on to Canadians through personal income tax reductions under the Government’s Tax Back Guarantee. These effective interest savings result not only from reductions in the Government’s market debt, but also from increases in its financial assets. For example, the Government’s ownership interests in enterprise Crown corporations and other government business enterprises generate returns in the form of corporate profits. Similarly, reserves held in the foreign exchange accounts are generally invested in marketable securities which yield investment returns. The Government also earns interest revenue from the issuance of loans and advances.

Table 6
Outstanding Debt at Year-End


2005–06

   2006–07


($ billions)

Liabilities

  Accounts payable and accrued liabilities

101.4

106.5

  Interest-bearing debt

    Unmatured debt

421.1

414.2

    Pension and other liabilities

179.9

185.1


    Total

601.1

599.3

  Total liabilities

702.5

705.8

Financial assets

  Cash and other accounts receivable

23.7

26.1

  Tax receivables

59.1

66.5

  Foreign exchange accounts

40.8

44.2

  Loans, investments and advances

41.9

45.1


  Total financial assets

165.6

181.9

Net debt

536.9

523.9

Non-financial assets

  Tangible capital assets

48.4

49.0

  Inventories

5.9

6.0

  Prepaid expenses

1.2

1.6


  Total non-financial assets

55.4

56.6

Federal debt (accumulated deficit)

481.5

467.3


Note: Numbers may not add due to rounding.

Both net debt and unmatured debt, expressed as a percentage of GDP, are now below their respective levels in the early 1980s.

Net Debt and Unmatured Debt

Comparison of Actual Budgetary Outcomes to Budget Estimates

This section compares the actual outcome for the major components of the budgetary balance for 2006–07 to the estimates presented in the March 2007 budget. The Government estimated a surplus of $9.2 billion for 2006–07 in the March 2007 budget. This amount was allocated to planned federal debt reduction. The final audited budgetary surplus for 2006–07 is $13.8 billion.

The increase in the 2006–07 surplus compared to the March 2007 budget estimate is largely attributable to higher-than-anticipated corporate income tax revenues.

Total revenues were 1.6 per cent, or $3.7 billion, higher than projected in the budget. Corporate income tax revenues were $2.7  billion higher than projected, as revenues rose by significantly more than profits across a number of sectors. Budget 2007 projections were prepared based on data up to January 2007, at which time corporate income tax revenues were up 12.4 per cent. Over the remaining two months of the fiscal year, corporate income tax revenues rose nearly 20 per cent. These gains, plus year-end adjustments, which reflect assessments up to the end of May 2007, raised the growth rate for the year as a whole to 19.0 per cent, well above the increase in the tax base. An unusually high level of corporate income tax pertaining to the prior year was assessed after the financial statements for 2005–06 were closed, for which instalments had been underpaid.

Non-tax revenues (excluding EI premium revenues) were $1.1 billion higher than projected in the budget, reflecting growth in interest and penalties on outstanding balances of taxes receivable along with growth in profits of Crown corporations. Excise taxes and duties were $0.9 billion higher than projected, primarily reflecting the impact of a one-time systems change and stronger-than-expected growth in GST revenues.

Program expenses were 0.4 per cent, or $0.7 billion, lower than forecast in the 2007 budget. Actual results were lower than forecast in all major categories of spending. The Government is committed to only approving funds that are actually needed to achieve measurable results in a way that is effective and provides value for money on behalf of Canadians. Within major transfers to persons, elderly benefits were marginally lower than expected ($0.2 billion), while recoveries under Alternative Payments for Standing Programs, which reduce major transfers to other levels of government, were $0.3 billion higher than expected at the time of Budget 2007. Direct program expenses, which include subsidies and other transfers, spending by Crown corporations, and operating expenses of departments and agencies, including National Defence, were $0.1 billion lower than forecast in Budget 2007. Within direct program expenses, bad debt expenses were $1.2 billion higher than forecast in Budget 2007. This increase was more than offset by lower-than-forecast departmental spending, reflecting in part a higher-than-forecast lapse in departmental spending authorities.

Public debt charges were 0.5 per cent, or $0.2 billion, lower than estimated.

Table 7
Comparison of Actual Outcomes to March 2007 Budget


Actual

           2007
budget1

    Difference


($ billions)

Budgetary revenues

  Personal income tax

110.5

111.6

-1.2

  Corporate income tax

37.7

35.0

2.7

  Other income tax

4.9

5.4

-0.5

  Excise taxes and duties

45.3

44.4

0.9

  Employment Insurance premium revenues

16.8

16.1

0.7

  Other revenues

20.8

19.7

1.1


  Total

236.0

232.3

3.7

Program expenses

  Major transfers to persons

    Elderly benefits

30.3

30.5

-0.2

    Employment Insurance benefits

14.1

14.2

-0.1

    Children’s benefits

11.2

11.1

0.1


    Total

55.6

55.8

-0.2

  Major transfers to other levels of government

    Federal transfers in support of health
     and other programs

28.6

28.6

0.0

    Fiscal arrangements and other transfers

13.1

13.1

0.0

    Canada’s cities and communities

0.6

0.6

0.0

      Early learning and child care

0.7

0.7

0.0

    Clean Air and Climate Change Trust Fund

1.5

1.5

0.0

    Patient Wait Times Guarantee Trust

0.6

0.6

0.0

    Transition Trust

0.6

0.6

0.0

    Alternative Payments for Standing Programs

-3.2

-2.9

-0.3


    Total

42.5

42.9

-0.4

  Direct program expenses

    Subsidies and other transfers

26.8

29.0

-2.1

    Crown corporations

7.2

7.0

0.2

    Departmental operating expenses

56.1

54.3

1.8


    Total

90.2

90.3

-0.1

  Total program expenses

188.3

189.0

-0.7

Public debt charges

33.9

34.1

-0.2

Budgetary outcome/estimate

13.8

9.2

4.6


Note: Numbers may not add due to rounding.
1 Comparative figures from Budget 2007 have been reclassified to conform to the presentation in the Condensed Statement of Operations and Accumulated Deficit.

 


Note:

1 Based on final results for Nova Scotia, Ontario, Manitoba, Saskatchewan, Alberta and British Columbia and 2007 budget estimates for the remaining jurisdictions. [Return]

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