Archived - Annual Financial Report of the Government of Canada
Fiscal Year 2007–2008 : 1

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- Table of Contents -

Note to Readers

The financial results in this report are based on the audited financial statements of the Government of Canada for the fiscal year ended March 31, 2008, the condensed form of which is included in this report. The Government has received an unqualified audit opinion from the Auditor General of Canada on the financial statements. The complete financial statements will be set out in the Public Accounts of Canada 2008 when tabled in Parliament.

The Fiscal Reference Tables have been updated to incorporate the results for 2007–08 as well as historical revisions to the National Economic and Financial Accounts published by Statistics Canada. 


Report Highlights

The Budgetary Balance

A budgetary surplus of $9.6 billion was recorded in 2007–08. Budgetary revenues increased by 2.7 per cent over the prior year. This gain was due to growth in income tax revenues and a significant increase in other program revenues, partially offset by a decline in goods and services tax (GST) revenues. The decline in GST revenues was due to the impact of the July 1, 2006, and January 1, 2008, GST rate reductions. Program expenses rose by 6.0 per cent as a result of higher transfers to both persons and other levels of government, as well as higher operating expenses. Public debt charges fell by $0.6 billion, or 1.8 per cent, due to a lower stock of market debt and slightly lower effective interest rates.

Budgetary Balance

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. The budgetary surplus was 0.6 per cent of GDP in 2007–08, down from 0.9 per cent in 2006–07. According to OECD estimates for the total government sector,[1] Canada was the only G7 country to record a surplus in calendar year 2007. Canada’s surplus for 2007 is estimated at 1.0 per cent of GDP, compared to an average deficit of 2.4 per cent in the G7 countries.

Total Government financial Balances (2007)

In 2007–08, the provinces and territories maintained a strong fiscal position due to ongoing revenue growth driven by higher corporate income taxes and federal cash transfers. The aggregate provincial-territorial surplus is currently estimated at $10.8 billion[2] for 2007–08, down from the surplus of $16.6 billion posted in 2006–07. The aggregate provincial-territorial surplus has exceeded the federal surplus for four consecutive years.

Federal and Provincial-Territorial Debt

As a result of improving budgetary balances and economic growth in recent years, both the federal and provincial-territorial debts have declined as a share of GDP, with the federal debt ratio falling more rapidly. However, federal debt as a share of GDP still exceeds that of most provinces and remains significantly higher than the provincial average. Lower debt-to-GDP ratios, combined with lower interest rates and improved credit ratings, have enabled both orders of government to allocate a smaller portion of revenues to debt interest payments and a greater portion to tax reductions, program expenditures and debt repayment.

Federal Debt

The federal debt is the difference between the Government’s total liabilities and its assets. At the end of 2007–08, it stood at $457.6 billion, down $105.2 billion from its peak of $562.9 billion in 1996–97. As a share of GDP, the federal debt dropped to 29.8 per cent in 2007–08, down from the peak of 68.4 per cent in 1995–96, bringing it to its lowest level since 1980–81. The federal debt at the end of 2007–08 was $13,774 for each Canadian, down from $14,215 a year 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, there are several generally accepted definitions of government debt.

Net debt represents the total liabilities of the Government less its financial assets. Financial assets include cash, accounts receivable, 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. The annual change in the accumulated deficit is equal to the budgetary balance plus other comprehensive income. Other comprehensive income represents certain unrealized gains and losses on financial instruments reported by enterprise Crown corporations and other government business enterprises. In accordance with recommendations of the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants, other comprehensive income is not included in the Government’s annual budgetary balance, but is instead recorded directly to the Government’s Statement of Accumulated Deficit and Statement of Change in Net Debt. 

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


  2006–07 2007–08

 

($ billions)

Budgetary transactions    
  Revenues 236.0 242.4
  Expenses    
    Program expenses -188.3 -199.5
    Public debt charges -33.9 -33.3
 
    Total expenses -222.2 -232.8
Budgetary balance 13.8 9.6
Non-budgetary transactions -5.2 4.9
Financial source/requirement 8.5 14.5
Net change in financing activities -7.0 -23.5
 
Net change in cash balances 1.5 -9.0
Cash balance at end of period 22.7 13.7
Financial position    
  Total liabilities 705.8 692.3
  Total financial assets 181.9 176.0
 
  Net debt 523.9 516.3
  Non-financial assets 56.6 58.6
 
Federal debt (accumulated deficit) 467.3 457.6
Financial results (% of GDP)    
  Budgetary revenues 16.3 15.8
  Program expenses 13.0 13.0
  Public debt charges 2.3 2.2
  Budgetary balance 0.9 0.6
  Federal debt (accumulated deficit) 32.2 29.8

Note: Numbers may not add due to rounding.

Table 2
Accumulated Deficit


  2006–07 2007–08 Net change

 

($ millions)

Accumulated deficit, beginning of year 481,499 467,268 -14,231
Annual surplus 13,752 9,597 -4,155
Other comprehensive income 479 34 -445
 
Accumulated deficit, end of year 467,268 457,637 -9,631

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 $14.5 billion in 2007–08, compared to a financial source of $8.5 billion in 2006–07.   

Budgetary balance and Financial Source/Requirement

Budgetary Revenues

Budgetary revenues totalled $242.4 billion in 2007–08, an increase of $6.5 billion, or 2.7 per cent, from 2006–07 (Table 3). Tax revenues rose by $5.2 billion, or 2.6 per cent, while Employment Insurance (EI) premium revenues fell by $0.2 billion, or 1.4 per cent. Other revenues increased by $1.5 billion, or 7.3 per cent. Total budgetary revenues were $2.1 billion, or 0.9 per cent, lower than estimated in the February 2008 budget.

The largest source of budgetary revenues in 2007–08 was personal income tax revenues, which stood at 46.6 per cent of budgetary revenues. The second largest source was corporate income tax revenues at 16.8 per cent. GST revenues were 12.3 per cent of budgetary revenues. EI premium revenues contributed 6.8 per cent of budgetary revenues.

Personal income tax revenues increased by $2.6 billion, or 2.3 per cent, in 2007–08. This reflected solid growth in wages and salaries combined with the progressive nature of the personal income tax system. These factors were partially offset by recent tax relief measures.

Corporate income tax revenues were up $2.9 billion, or 7.6 per cent, over 2006–07, in line with estimated ongoing growth in corporate taxable income.

Other income tax revenues—largely withholding taxes levied on non-residents—were $0.8 billion, or 16.7 per cent, higher in 2007–08 than in the previous year. Non‑resident withholding taxes can be affected by a number of factors, including growth in corporate profits and foreign direct investment in Canada.

Other taxes and duties decreased by $1.1 billion, or 2.4 per cent, in 2007–08, driven by a $1.4-billion drop in GST revenues, reflecting the impact of the July 1, 2006 and January 1, 2008 GST rate reductions. Customs import duties rose $0.2 billion, or 5.4 per cent.

EI premium revenues decreased by $0.2 billion, or 1.4 per cent, from the previous year, reflecting the reductions in premium rates on January 1, 2007 and January 1, 2008, which more than offset growth in employment and wages and salaries during the year.

Other revenues consist of net profits from enterprise Crown corporations, such as the Bank of Canada, Export Development Canada and Canada Mortgage and Housing Corporation, and revenues of consolidated Crown corporations; foreign exchange net revenues; and other program revenues, which include items such as licence fees, royalties and interest and penalties. Other revenues were up $1.5 billion, or 7.3 per cent, in 2007–08. This increase primarily reflects strong growth in receipts under the Atlantic Offshore Revenue Accounts, resulting from strong growth in offshore production and oil prices. This revenue is transferred to Newfoundland and Labrador and Nova Scotia under the Atlantic Offshore Accords, such that there is no net impact on the budgetary balance. These gains were partially offset by a decline in Crown corporation revenues, which was largely due to lower operating profits of Export Development Canada.

Budgetary balance and Financial Source/Requirement

Table 3
Revenues


  2006–07 2007–08 Net change

 

($ millions)

(%)
Tax revenues        
  Income tax        
    Personal income tax 110,477 113,063 2,586 2.3
    Corporate income tax 37,745 40,628 2,883 7.6
    Other income tax 4,877 5,693 816 16.7
 
    Total 153,099 159,384 6,285 4.1
Other taxes and duties        
    Goods and services tax 31,296 29,920 -1,376 -4.4
    Energy taxes 5,128 5,139 11 0.2
    Customs import duties 3,704 3,903 199 5.4
    Air Travellers Security Charge 357 386 29 8.1
    Other excise taxes and duties 4,832 4,859 27 0.6
 
    Total 45,317 44,207 -1,110 -2.4
Total tax revenues 198,416 203,591 5,175 2.6
Employment Insurance premium revenues 16,789 16,558 -231 -1.4
Other revenues        
  Crown corporation revenues 7,503 6,504 -999 -13.3
  Foreign exchange net revenues 1,714 1,872 158 9.2
  Other program revenues 11,544 13,895 2,351 20.4
 
  Total 20,761 22,271 1,510 7.3
Total revenues 235,966 242,420 6,454 2.7

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 15.8 per cent in 2007–08, down from 16.3 per cent in 2006–07, reflecting the impact of tax reduction measures. The revenue ratio is now at its lowest level since 1979–80.

Revenue Ratio

Total Expenses

Total expenses consist of program expenses and public debt charges. In 2007–08 total expenses amounted to $232.8 billion, up 4.8 per cent from 2006–07.

Major transfers to persons (elderly, EI 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) are the two largest components of federal expenses, representing 25.0 per cent and 19.8 per cent of total expenses, respectively, in 2007–08. Other transfers made by various federal departments to individuals, businesses and other organizations and groups made up 11.6 per cent of total expenses. 

After transfers, the next largest component of federal spending was operating costs of government departments and agencies, excluding National Defence, at 18.7 per cent. Operating costs include items such as salaries and benefits, facilities and equipment, and supplies and travel.

Public debt charges amounted to 14.3 per cent of total expenses in 2007–08. 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 15.5 percentage points from a high of 29.8 per cent in 1996–97.

Composition of Expenses for 2007-08

Program expenses amounted to $199.5 billion in 2007–08, an increase of $11.2 billion, or 6.0 per cent, from 2006–07 (Table 4). Within program expenses, transfers increased by $6.4 billion and operating expenses of departments and agencies increased by $3.1 billion. Operating expenses of National Defence grew by $1.6 billion while Crown corporation expenses grew by $0.1 billion.

Public debt charges fell by $0.6 billion, or 1.8 per cent, reflecting a lower stock of interest-bearing debt and slightly lower interest rates on that stock.

Table 4
Total Expenses


  2006–07 2007–08 Net change

  ($ millions) (%)
Major transfers to persons        
  Elderly benefits 30,284 31,955 1,671 5.5
  Employment Insurance benefits 14,084 14,298 214 1.5
  Children’s benefits 11,214 11,894 680 6.1
 
  Total 55,582 58,147 2,565 4.6
Major transfers to other levels of government        
  Support for health and other programs 28,640 31,346 2,706 9.4
  Fiscal arrangements and other transfers 13,066 14,603 1,537 11.8
  Canada’s cities and communities 590 778 188 31.9
  Other major transfers 3,395 2,145 -1,250 -36.8
  Alternative Payments for Standing Programs -3,177 -2,720 457 -14.4
 
  Total 42,514 46,152 3,638 8.6
Direct program expenses        
  Subsidies and other transfers 26,844 27,032 188 0.7
  Other program expenses        
    Crown corporations        
      Canada Mortgage and Housing Corporation 2,102 2,155 53 2.5
      Canadian Broadcasting Corporation 1,666 1,664 -2 -0.1
      Canadian Air Transport Security Authority 438 441 3 0.7
      Other 3,005 3,080 75 2.5
 
      Total 7,211 7,340 129 1.8
    National Defence 15,732 17,331 1,599 10.2
    All other departments and agencies        
      Bad debt expense 4,179 4,335 156 3.7
      Other operating expenses 36,207 39,161 2,954 8.2
 
      Total 40,386 43,496 3,110 7.7
    Total other program expenses 63,329 68,167 4,838 7.6
  Total direct program expenses 90,173 95,199 5,026 5.6
Total program expenses 188,269 199,498 11,229 6.0
Public debt charges 33,945 33,325 -620 -1.8
Total expenses 222,214 232,823 10,609 4.8

Note: Numbers may not add due to rounding.

Major transfers to persons increased by $2.6 billion, or 4.6 per cent.

Major transfers to other levels of government include the Canada Health Transfer (CHT), the Canada Social Transfer (CST), fiscal arrangements and other transfers (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. Transfers increased by $3.6 billion, or 8.6 per cent, over 2006–07.

Subsidies and other transfers increased by $0.2 billion, or 0.7 per cent, in 2007–08. This growth largely reflects increased transfers to Newfoundland and Labrador and Nova Scotia under the Offshore Accords, increased payments related to investments in infrastructure, and improvements to veterans’ benefits. These increases were partially offset by the impact of certain one-time transfers recorded in 2006–07, including $0.5 billion in transfers to U.S. interests under the Canada‑U.S. Softwood Lumber Agreement and a $0.4‑billion transfer to agricultural producers in support of the Cost of Production Benefit. 

Other program expenses—total program expenses less transfers—consist of the operating costs of government: the more than 130 departments, agencies, Crown corporations and other federal bodies that deliver programs and services to Canadians. These expenses amounted to $68.2 billion in 2007–08, up $4.8 billion, or 7.6 per cent, from 2006–07. Within this component:

Public debt charges decreased by $0.6 billion, or 1.8 per cent, to $33.3 billion in 2007–08, due to a decline in the stock of market debt and slightly lower average effective interest rates on that stock.

Public debt charges as a percentage of budgetary revenues declined from 14.4 per cent in 2006–07 to 13.7 per cent in 2007–08. This ratio means that, in 2007–08, the Government spent close to 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.

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. Non‑budgetary transactions also include adjustments for the effects of non-cash items included in the surplus and for any accruals of past or future cash receipts or payments. Examples of non-cash items include amortization of tangible capital assets, pension expenses not funded in the period, and the recognition of previously deferred revenue.

Non-budgetary transactions in 2007–08 resulted in a net source of funds amounting to $4.9 billion, compared to a net requirement of $5.2 billion in 2006–07. The non-budgetary source of funds in 2007–08 was largely attributable to a source of funds resulting from accrual to cash adjustments related to public sector pensions and other employee and veteran future benefits, the accrual of taxes payable, and foreign exchange activities. These were partly offset by a requirement for funds related to loans, investments and advances, reflecting in part the issuance of loans to enterprise Crown corporations under the consolidated borrowing framework announced in Budget 2007, and the acquisition of tangible capital assets.

With a budgetary surplus of $9.6 billion and a net source from non-budgetary transactions of $4.9 billion, there was a financial source of $14.5  billion in 2007–08, up $6.0 billion from the $8.5-billion source posted in 2006–07 (Table 5).

With this financial source and a $9.0-billion reduction in its cash balances, the Government retired $23.5 billion of its unmatured debt in 2007–08. Cash balances at March 31, 2008, stood at $13.7 billion, down from $22.7 billion a year earlier. The decrease in cash balances reflects amendments made to the Financial Administration Act in 2007 regarding the Government’s borrowing authority, which provide increased flexibility to meet financial requirements, along with the more frequent use of short-dated borrowing instruments, which facilitate carrying lower cash balances at fiscal year-end.

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


  2006–07 2007–08

 

($ billions)

Surplus for the year 13.8 9.6
Non-budgetary transactions    
  Pension and other accounts    
    Public sector pensions 3.7 2.6
    Other employee and veteran future benefits 1.8 2.8
    Other -0.3 0.7
 
    Total 5.1 6.1
  Non-financial assets -1.2 -2.0
  Loans, investments and advances -2.7 -5.7
  Other transactions  
    Accounts payable, receivable, accruals and     allowances -3.1 4.7
    Foreign exchange activities -3.4 1.9
 
    Total other activities -6.5 6.6
  Total non-budgetary transactions -5.2 4.9
Financial source/requirement 8.5 14.5
Net change in financing activities    
  Marketable bonds -3.7 -3.9
  Treasury bills 2.5 -17.1
  Retail debt -2.2 -2.1
  Other -3.6 -0.3
 
  Total -7.0 -23.5
Change in cash balances 1.5 -9.0
Cash at end of year 22.7 13.7

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, 2008, interest-bearing debt amounted to $581.9 billion, down $17.4 billion from a year earlier (Table 6). Within interest-bearing debt, unmatured debt decreased by $23.5 billion while liabilities for pension and other accounts increased by $6.1 billion. Accounts payable and accrued liabilities amounted to $110.5 billion, up $4.0 billion from 2006–07. As a result, total liabilities at March 31, 2008 stood at $692.3 billion, down $13.4 billion from the previous year.

Financial assets consist of cash and other accounts receivable (including tax receivables), foreign exchange accounts, and loans, investments and advances. Financial assets totalled $176.0 billion at March 31, 2008, down $5.8 billion from March 31, 2007. Decreases were recorded in cash and other accounts receivable (down $9.1 billion), in tax receivables (down $0.6 billion), and in foreign exchange accounts (down $1.9 billion). Loans, investments and advances increased by $5.8 billion. As a result, net debt stood at $516.3  billion at March 31, 2008, down $7.6 billion from March 31, 2007, and $92.7 billion below the peak of $609 billion at March  31, 1997. As a per cent of GDP, net debt dropped to 33.6 per cent in 2007–08, down 40.2 percentage points from its peak of 73.9 per cent in 1995–96. This is the 12th 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 $58.6 billion at March 31, 2008, up $2.0 billion from March 31, 2007.

With total liabilities of $692.3 billion, financial assets of $176.0 billion and non-financial assets of $58.6 billion, the federal debt (accumulated deficit) stood at $457.6 billion at March 31, 2008, down a total of $9.6 billion from 2006–07 and $105.2 billion from its peak in 1996–97. The decline in the federal debt between 2006–07 and 2007–08 was largely attributable to a decrease in unmatured debt.

Table 6
Outstanding Debt at Year-End


  2006–07 2007–08

  ($ billions)
Liabilities    
  Accounts payable and accrued liabilities 106.5 110.5
  Interest-bearing debt    
    Unmatured debt 414.2 390.7
    Pension and other liabilities 185.1 191.2
 
    Total 599.3 581.9
  Total liabilities 705.8 692.3
Financial assets    
  Cash and other accounts receivable 26.1 17.0
  Tax receivables 66.5 65.9
  Foreign exchange accounts 44.2 42.3
  Loans, investments and advances 45.1 50.9
 
  Total financial assets 181.9 176.0
Net debt 523.9 516.3
Non-financial assets    
  Tangible capital assets 49.0 51.2
  Inventories 6.0 6.2
  Prepaid expenses 1.6 1.2
 
  Total non-financial assets 56.6 58.6
Federal debt (accumulated deficit) 467.3 457.6

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 2007–08 to the estimates presented in the February 2008 budget. The Government estimated a surplus of $10.2 billion for 2007–08 in the February 2008 budget. The final audited budgetary surplus for 2007–08 was $9.6 billion.

Total revenues were $2.1 billion lower than projected in the budget. Corporate income tax revenues were $1.8  billion lower than projected, as growth in corporate profits was weaker than projected. GST revenues were $0.8 billion lower than projected, as collections growth was particularly strong through December 2007, at the time the budget forecast was prepared, whereas revenue growth for the year as a whole was somewhat weaker. These shortfalls were partially offset by higher-than-expected personal income tax revenues and other excise taxes and duties.

Program expenses were also $1.7 billion lower than forecast in the 2008 budget, due largely to lower-than-forecast direct program expenses. Direct program expenses, which include subsidies and other transfers, spending by Crown corporations, and operating expenses of departments and agencies, including National Defence, were $2.0 billion lower than forecast in the 2008 budget, largely reflecting a higher-than-forecast lapse in departmental spending.

Public debt charges were $0.2 billion higher than estimated due to a slightly higher-than-anticipated average effective interest rate on the stock of interest-bearing debt.

Table 7
Comparison of Actual Outcomes to February 2008 Budget


  Actual 2008
budget1
Difference

 

($ billions)

Budgetary revenues      
  Personal income tax 113.1 112.5 0.5
  Corporate income tax 40.6 42.4 -1.8
  Other income tax 5.7 5.9 -0.2
  Excise taxes and duties 44.2 44.7 -0.5
  Employment Insurance premium revenues 16.6 16.5 0.0
  Other revenues 22.3 22.4 -0.2
 
  Total 242.4 244.5 -2.1
Program expenses      
  Major transfers to persons      
    Elderly benefits 32.0 31.8 0.1
    Employment Insurance benefits 14.3 14.4 -0.1
    Children’s benefits 11.9 11.9 0.0
 
    Total 58.1 58.2 -0.1
  Major transfers to other levels of government      
    Federal transfers in support of health
     and other programs
31.3 31.3 0.0
    Fiscal arrangements and other transfers 14.6 14.5 0.1
    Canada’s cities and communities 0.8 0.8 0.0
    Other major transfers 2.1 2.1 0.0
    Alternative Payments for Standing Programs -2.7 -3.1 0.3
 
    Total 46.2 45.8 0.4
  Direct program expenses 95.2 97.2 -2.0
  Total program expenses 199.5 201.2 -1.7
Public debt charges 33.3 33.1 0.2
Budgetary outcome/estimate 9.6 10.2 -0.6

Note: Numbers may not add due to rounding.
1
 Comparative figures from the 2008 budget have been reclassified to conform to the presentation in the Condensed Statement of Operations and Accumulated Deficit.

 


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

To the Minister of Finance

The accompanying condensed financial 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, 2008, and for the year then ended on which I expressed an opinion without reservation in my Report to the House of Commons dated September 17, 2008.

For more complete information, readers should refer to my Report, which will be included in Volume I of the Public Accounts of Canada 2008 .

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.

These condensed financial statements do not contain all the disclosures required by Canadian generally accepted accounting principles. Readers are cautioned that these statements may not be appropriate for their purposes. For more information on the Government’s results of operations and accumulated deficit, financial position, change in net debt and cash flow, reference should be made to the related complete financial statements, which will also be included in Volume I of the Public Accounts of Canada 2008 .

Sheila Fraser, FCA
Auditor General of Canada

Ottawa, Canada
September 17, 2008


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 Public Accounts of Canada 2008 , 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 8
Government of Canada
Condensed Statement of Operations and Accumulated Deficit
for the Year Ended March 31, 2008


  2008 2007
 

  Budget1 Actual Actual

  ($ millions)
Revenues      
  Income tax revenues 156,165   159,384   153,099
  Other taxes and duties 44,165 44,207 45,317
  Employment insurance premiums 16,150 16,558 16,789
  Other revenues 20,210 22,271 20,761
 
Total revenues 236,690 242,420 235,966
Expenses      
  Transfer payments      
    Old age security benefits and related payments 31,960 31,955 30,284
    Other levels of government 43,510 46,152 42,514
    Employment insurance benefits 14,840 14,298 14,084
    Children’s benefits 11,740 11,894 11,214
    Other transfer payments 31,105 27,032 26,844
 
    Total transfer payments 133,155 131,331 124,940
  Other program expenses 66,465 68,167 63,329
 
Total program expenses 199,620 199,498 188,269
  Public debt charges 33,807 33,325 33,945
 
Total expenses 233,427 232,823 222,214
 
Annual surplus 3,263 9,597 13,752
Accumulated deficit at beginning of year 467,2682 467,268 481,499
Other comprehensive income   34 479
 
Accumulated deficit at end of year 464,005 457,637 467,268

The accompanying notes are an integral part of these statements.
1
Derived from Budget 2007.
2 Adjusted to the actual closing amount of previous year.

Table 9
Government of Canada
Condensed Statement of Financial Position
as at March 31, 2008


  2008 2007

  ($ millions)
Liabilities    
  Accounts payable and accrued liabilities 110,463 106,511
  Interest-bearing debt    
    Unmatured debt 390,697 414,192
    Pension and other liabilities 191,167 185,060
 
  Total interest-bearing debt 581,864 599,252
 
Total liabilities 692,327 705,763
Financial assets    
  Cash and accounts receivable 82,878 92,586
  Foreign exchange accounts 42,299 44,178
  Loans, investments and advances 50,869 45,094
 
Total financial assets 176,046 181,858
 
Net debt 516,281 523,905
Non-financial assets    
  Tangible capital assets 51,175 49,036
  Other 7,469 7,601
 
Total non-financial assets 58,644 56,637
 
Accumulated deficit 457,637 467,268

The accompanying notes are an integral part of these statements.

Table 10
Government of Canada
Condensed Statement of Change in Net Debt
for the Year Ended March 31, 2008


  2008 2007
 

  Budget1 Actual Actual

  ($ millions)
Net debt at beginning of year 523,9052   523,905   536,946
Change in net debt during the year      
  Annual surplus -3,263 -9,597 -13,752
  Acquisition of tangible capital assets 5,515 5,957 4,789
  Amortization of tangible capital assets -4,240 -3,954 -3,807
  Other -150 4 208
 
Net decrease in net debt due to operations -2,138 -7,590 -12,562
Other comprehensive income   -34 -479
 
Net decrease in net debt -2,138 -7,624 -13,041
 
Net debt at end of year 521,767 516,281 523,905

The accompanying notes are an integral part of these statements.
1
Derived from Budget 2007.
2 Adjusted to the actual closing amount of previous year.

Table 11
Government of Canada
Condensed Statement of Cash Flow
for the Year Ended March 31, 2008


  2008 2007

 

($ millions)

Cash provided by operating activities  
  Annual surplus 9,597 13,752
  Items not affecting cash 12,434 -1,662
 
  22,031 12,090
Cash used by capital investment activities -5,517 -4,587
Cash used (-) or provided by investing activities -1,869 2,289
 
Total cash generated before financing activities 14,645 9,792
Cash used by financing activities -23,612 -8,245
 
Net decrease (-) or increase in cash -8,967 1,547
Cash at beginning of year 22,696 21,149
 
Cash at end of year 13,729 22,696

Supplementary information    
Cash used for interest 19,357 20,026

The accompanying notes are an integral part of these statements.

Notes to the Condensed Financial Statements
of the Government of Canada

1. Summary of Significant Accounting Policies

The reporting entity of the Government of Canada includes all departments, agencies, corporations, organizations and funds, which are controlled by the Government. The financial activities of all of these entities are consolidated in these financial 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 because changes to the Plan require the agreement of two thirds of participating provinces and it is therefore not controlled by the Government.

The Government accounts for transactions on an accrual basis, using the Government’s accounting policies that are described in Note 1 to its audited financial statements, which are based on Canadian generally accepted accounting principles for the public sector. The use of these stated accounting policies does not result in any significant differences from Canadian generally accepted accounting principles.

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. Within pension and other liabilities, obligations for pension and other employee and veteran future benefits are determined on an actuarial basis. Allowances for valuation are established for loans, investments and advances, as well as for loan guarantees 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. The effect of changes to such estimates and assumptions in future periods could be significant to the financial statements. Some of the more significant estimates used in these financial statements affect the accrual of tax revenues and obligations for pension and other employee and veteran future benefits.

2. Contractual Obligations

Contractual obligations that will materially affect the level of future expenditures include transfer payment agreements, acquisitions of property and equipment, and goods and services, operating leases and funding of international organizations. At March 31, 2008, contractual obligations amount to $67,282 million ($67,954 million in 2007), of which $15,095 million pertains to fiscal year 2008-2009.

3. Contingent Liabilities

Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown. The Government’s contingent liabilities include guarantees by the Government, callable share capital in international organizations, contaminated sites, claims and pending and threatened litigation, and insurance programs.

i.   Guarantees by the Government include guarantees of the borrowings of, and certain loans made by, Crown corporations and other government business enterprises; guarantees of loans of certain individuals and businesses obtained from the private sector; and guarantees of Government insurance programs. At March 31, 2008, these guarantees amount to $181,253 million ($151,446 million in 2007) for which an allowance of $602 million ($815 million in 2007) has been recorded.

ii.   The Government has callable share capital in certain international organizations that could require payments to those agencies. At March 31, 2008, callable share capital amounts to $13,236 million ($14,690 million in 2007).

iii.  Liabilities are accrued to record the estimated costs related to the management and remediation of contaminated sites and unexploded explosive ordnance affected sites where the Government is obligated or likely obligated to incur such costs. At March 31, 2008, the Government has recorded an environmental liability of $6,669 million ($6,062 million in 2007). The Government has estimated additional clean-up costs for which it may be potentially liable of $2,203 million ($3,243 million in 2007). These costs are not accrued as they are not considered likely to be incurred. 

iv.  There are thousands of claims and pending and threatened litigation cases outstanding against the Government; the total amount claimed in these instances is significant but the final outcome is not determinable. The Government has recorded an allowance for claims and litigation where it is likely that there will be a future payment and a reasonable estimate of the loss can be made. Certain large and significant claims relate to comprehensive land claims, assessed taxes under objection or appeal, and public sector pension litigation.

v.  At March 31, 2008, insurance in force relating to self-sustaining insurance programs operated by three agent enterprise Crown corporations amounts to $1,021,569 million ($897,490 million in 2007). The Government expects that all three corporations will cover the cost of both current claims and possible future claims.

Other Sources of Information

Public Accounts of Canada

The Public Accounts of Canada , as required under section 64(1) of the Financial Administration Act, are tabled in the House of Commons by the President of the Treasury Board. This report is presented in three volumes:

  • Volume I contains the Government’s audited financial statements and supporting schedules and information.
  • Volume II contains details of financial operations by ministry.
  • Volume III contains additional information and analyses.

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.

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 consist 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.

 


1 Includes federal, provincial-territorial and local governments as well as the Canada Pension Plan and Québec Pension Plan.  [Return]

2 Based on final results for Nova Scotia, Ontario, Saskatchewan, Alberta and British Columbia and 2008 budget estimates for the remaining jurisdictions.[Return]

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