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Annex 1
Canada's Total Government
Fiscal Performance

Summary

This annex takes a broad look at Canada's fiscal performance, presenting an analysis for both the federal and provincial-territorial orders of government as well as international comparisons.

Fiscal Performance of Canada's Federal and Provincial-Territorial Governments

The fiscal situation of the federal and provincial-territorial governments has improved markedly over the past decade.

• The federal government posted a surplus of $9.6 billion in 2007–08, its 11th consecutive surplus, and is projecting a surplus of $0.8 billion in 2008–09.
• Provincial-territorial governments posted an aggregate surplus of $11.2 billion in 2007–08, their seventh surplus in the past nine years. For 2008–09, the provincial-territorial sector is forecasting a surplus of $5.8 billion, with 10 of the 13 provinces and territories projecting balanced budgets or better.
• Ongoing surpluses have enabled a significant reduction in the debt burdens of the federal and provincial-territorial governments, and along with it, a sharp decline in the fiscal resources needed to service public debt.
  • The federal debt-to-GDP (gross domestic product) ratio is expected to fall to 28.5 per cent in 2008–09, a decline of 40 percentage points from its peak in 1995–96. Meanwhile, the provincial-territorial debt-to-GDP ratio is expected to fall to 17.4 per cent in 2008–09, a decline of 11.8 percentage points from its peak in 1999–2000.
  • For 2008–09, it is projected that just 13.2 cents of each federal revenue dollar will be required to service the debt, a decline of more than 24 cents from the peak in 1990–91. For provincial-territorial governments, the ratio has declined to just 7.5 cents per revenue dollar, down almost 7 cents from the most recent peak in 1998–99.
• The improved fiscal position of the federal government has allowed it to significantly increase cash transfers to the provinces and territories.
  • Federal cash transfers to the provinces and territories have been the fastest-growing component of federal spending over the past nine years, increasing at an average annual rate of 8 per cent. As a result, these transfers have risen to more than 19 per cent of federal spending in 2008–09, their highest level in more than 30 years.

Canada's Fiscal Performance in an International Context

To enable international comparisons, the Organisation for Economic
Co-operation and Development (OECD) publishes National Accounts data for the total government sector. For Canada, the figures include the federal, provincial-territorial and local government sectors, as well as the Canada Pension Plan and the Québec Pension Plan. Based on OECD data, Canada's fiscal position remains strong relative to the other Group of Seven (G7) countries (United States, United Kingdom, France, Germany, Japan and Italy).

• In 2007 Canada recorded a total government surplus of 1.4 per cent of GDP, and the OECD estimates that Canada will be the only G7 country in surplus in 2008.
• A small budgetary deficit is forecast for 2009 on a total government basis due to the impact of slower economic growth on government revenues and expenditures.
• Canada has posted the strongest record on debt reduction in the G7, with the total government net debt-to-GDP ratio falling almost 50 percentage points since 1995.

The federal and provincial-territorial governments have posted a strong fiscal performance over the past decade

• Both the federal and provincial-territorial governments have posted a strong fiscal track record over the past decade. In 2007–08, the federal government posted a $9.6-billion surplus, its 11th consecutive surplus, while provincial-territorial governments posted an $11.2-billion surplus, their seventh aggregate surplus in the past nine years.
• For 2008–09, despite the emerging economic weakness, the federal government is projecting a surplus of $0.8 billion, while the provincial-territorial sector is forecasting an aggregate surplus of $5.8 billion, or 0.4 per cent of GDP. This would mark the fifth consecutive year that the aggregate provincial-territorial surplus exceeds the federal surplus.

The federal government and almost all provincial-territorial governments recorded surpluses in 2007–08

• All but one jurisdiction recorded better-than-expected fiscal results in 2007–08 relative to the forecasts contained in their 2007 budgets, due in large part to higher-than-forecast revenues. The improvements are not limited to resource-rich provinces, as provinces with a large manufacturing base also posted better-than-expected results.
• When the budgetary surpluses are expressed as a share of GDP, which enables country-wide comparisons that take into account the varying sizes of jurisdictions, more than half of the provinces and territories recorded budgetary surpluses of 1.0 per cent of GDP or more in 2007–08.
• Ten of the 13 provinces and territories expect at least balanced budgets in 2008–09.

Federal and provincial-territorial debt burdens have declined substantially…

• The federal and provincial-territorial governments have made significant progress in reducing their debt burdens.
• The provincial-territorial debt-to-GDP ratio is expected to fall to 17.4 per cent in 2008–09, down from its peak of 29.2 per cent in 1999–2000.
• The federal debt-to-GDP ratio is expected to fall to 28.5 per cent in 2008–09. Although it is significantly lower than its peak of 68.4 per cent in 1995–96, it remains higher than the provincial-territorial debt-to-GDP ratio.

…resulting in a continued decline in debt charges as a share of total revenues

• Sound fiscal and monetary policies have helped reduce and keep interest rates low in Canada.
• Together with a significant reduction in public debt, this means that the federal and provincial-territorial governments are spending less of their revenues on debt-servicing costs.
• At the peak in 1990–91, 37.6 cents of each federal revenue dollar went to service the federal debt. This ratio is expected to fall to 13.2 cents in 2008–09, the lowest level since the late 1970s.
• Provincial-territorial governments continue to face much lower debt charges than the federal government. In 2008–09 they are expected to spend 7.5 cents of each revenue dollar on debt-servicing costs, down almost 7 cents from the most recent peak in 1998–99.

Improved federal finances have enabled major investments in cash transfers to the provinces and territories

• The improvement in its finances has enabled the federal government to significantly increase cash transfers to the provinces and territories.
• Since 1999–2000, federal cash transfers to provincial and territorial governments have been the fastest-growing component of federal spending, growing at an average annual rate of 8 per cent.
• As a result, in 2008–09, cash transfers are at an all-time high and have risen to more than 19 per cent of federal spending, their highest level in more than 30 years.
• These transfers are expected to continue to increase as a share of federal spending in the coming years, reflecting the Government's policies that restored fiscal balance.

Canada's fiscal position remains strong relative to other G7 countries

• International comparisons rely on the standardized System of National Accounts estimates for the total government sector (i.e. the combined national and sub-national levels). The OECD produces a complete series of estimates based on this system. These figures facilitate international comparisons by taking into account two important factors: differences in accounting methods among countries, which affect the comparability of data, and differences in financial responsibilities among orders of government within countries.
• In 2007, Canada recorded a total government surplus of 1.4 per cent of GDP, which reflects surpluses at the federal and provincial-territorial-local levels, as well as in the Canada Pension Plan (CPP) and Québec Pension Plan (QPP).
• For 2008, the OECD estimates that Canada will be the only G7 country to record a total government surplus.
• Reflecting the deteriorating global economic outlook, budgetary balances in all G7 nations are expected to worsen in 2009. Canada is no exception in this regard, and is projected by the OECD to record a small total government deficit of 1.3 per cent of GDP in 2009. However, Canada's fiscal position remains strong relative to other G7 countries.
• The projected deficit for Canada in 2009 should not be confused with the surplus of $0.1 billion forecast for the federal government in 2009–10.
  • The OECD projections are presented on a National Accounts basis, which is different from the projections included in this Economic and Fiscal Statement, which are prepared on a Public Accounts basis.
  • The OECD projections are on a total government basis and therefore include the projected budgetary balances of provincial-territorial and local governments, as well as the CPP and QPP.

Canada's debt reduction has been remarkable by international standards

• In 1995, Canada's total government net debt stood at almost 71 per cent of GDP, the second highest in the G7. Since 2004, Canada has had the lowest ratio of total government net debt to GDP in the G7.
• The OECD estimates that Canada's ratio will decrease further to 22.3 per cent in 2008, a decline of almost 50 percentage points from its peak in 1995 and less than half of the average for all G7 countries.

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