- Fiscal Monitor 2002 -

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Highlights of financial results for March 2002

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March 2002: budgetary results

Budgetary revenues declined $1.3 billion, or 9.4 per cent, on a year-over-year basis. All major components recorded declines, with the exception of personal income tax revenues.

• Personal income tax revenues were $0.1 billion, or 1.8 per cent, higher, primarily reflecting ongoing strength in monthly deductions from employment income, offset in part by higher refunds pertaining to the 2001 taxation year and increased payments under the Canada Child Tax Benefit reflecting previous budget initiatives.
• Corporate income tax revenues were down $1.1 billion, or 45.8 per cent. Although February is the settlement period for corporations whose taxation year ends December 31, some payments slip into early March. In February and March revenues were down $2.3 billion compared to the same period last year, reflecting lower corporate profits in 2001 than in 2000.
• EI premium revenues declined 3.5 per cent, reflecting the impact of lower premium rates (the employee rate for 2002 is $2.20 per $100 of insurable earnings compared to $2.25 in 2001).
• Excise taxes and duties declined $0.1 billion, or 2.5 per cent. This primarily reflects the timing of receipts, as February 2002 revenues were up 17.2 per cent on a year-over-year basis. Declines were reported in all components, with the exception of sales and excise taxes. The increase in this component was attributable to higher federal taxes on tobacco products effective November 2, 2001.
• Non-tax revenues declined 7.1 per cent, again largely due to the timing of receipts, as February 2002 revenues were up 13.3 per cent on a year-over-year basis.

Program spending was up $1.9 billion, or 16.0 per cent, on a year-over-year basis.

• Transfers to persons increased by $0.5 billion, or 17.8 per cent. EI benefit payments increased 43.6 per cent, in part due to the timing of payments between February and March. In February 2002 benefits were up only 7.3 per cent – the first time the rate of increase had been below double-digit increases since May 2001.
• Transfers to other levels of government were up $0.1 billion, or 5.3 per cent. The increase in the Canada Health and Social Transfer (CHST) reflects the September 2000 agreement reached by first ministers to increase base funding from $13.5 billion in 2000-01 to $17.3 billion in 2001-02.
• Direct program spending, consisting of total program spending less transfers to persons and other levels of government, increased $1.3 billion, or 17.9 per cent. The increase primarily reflects the impact of the implementation of the Financial Information Strategy, with a larger portion of spending being recorded at the end of the fiscal year than in previous years.

Public debt charges, on a year-over year basis, were down $0.8 billion, or 22.6 per cent, primarily reflecting adjustments related to previous months.

Table 1
Summary statement of transactions

Table 2 
Budgetary revenues

April 2001 to March 2002: budgetary results

Over the April 2001 to March 2002 period the budgetary surplus was estimated at $9.8 billion, down $10.3 billion from the surplus of $20.1 billion reported in the same period of 2000-01. Program spending was up $10.1 billion while budgetary revenues were down $2.9 billion. Dampening the impact of these factors on the budgetary balance were lower public debt charges, down $2.7 billion.

Among the major components of budgetary revenues, on a year-over-year basis:

• Personal income tax collections were marginally higher, as higher final tax payments received in April and May 2001 with respect to the 2000 taxation year, prior-year adjustments affecting the October 2000 results, and an increase in assessed income subject to taxation due to higher employment and average wages in 2001 were largely offset by the impact of the tax reduction measures announced in the February 2000 budget, the October 2000 Economic Statement and Budget Update and previous budgets.
• Corporate income tax revenues declined $3.0 billion, or 10.8 per cent, reflecting the impact of both lower corporate profits and reductions in tax rates.
• EI premium revenues were down 4.1 per cent, as prior-year adjustments affecting the October 2000 results and the decline in premium rates more than offset the impact of the growth in the number of people employed and therefore paying premiums.
• Excise taxes and duties increased 3.0 per cent. Goods and services tax revenues were up 1.9 per cent, broadly in line with the increase in domestic demand, customs import duties were up 6.7 per cent and sales and excise taxes increased 5.1 per cent, the latter primarily reflecting the impact of higher tobacco excise taxes.
• Non-tax revenues were down 4.6 per cent, primarily reflecting the impact of lower interest rates.

Among the major components of program spending, on a year-over-year basis:

• Transfers to persons were up 6.9 per cent due to higher elderly and EI benefit payments. The increase in elderly benefit payments reflects an increase in the number of individuals eligible for benefits and higher average benefits, which are indexed to inflation. The increase in EI benefit payments primarily reflects the impact of program enhancements, as well as an increase in the number of beneficiaries. The net impact of these increases was dampened by the Relief for Heating Expenses paid in January 2001.
• Transfers to other levels of government were up 10.5 per cent, reflecting higher cash transfers under the CHST. The increase in the CHST reflects the September 2000 agreement reached by first ministers to increase base funding from $13.5 billion in 2000-01 to $17.3 billion in 2001-02. The overall growth in this component was dampened by the special payment of $1 billion to the Medical Equipment Fund in 2000-01 and by a decline in fiscal transfers due to the recording in 2000-01 of the liability for lifting the equalization ceiling in 1999-2000.
• Direct program spending increased 9.2 per cent. This reflects in large part the initiatives announced in the December 2001 budget, notably the measures to enhance personal and economic security.

The year-over-year decline in public debt charges of $2.7 billion reflects the impact of declines in both the stock of interest-bearing debt and the average effective interest rate on that debt.

Table 3
Budgetary expenditures

Financial source of $5.8 billion (excluding foreign exchange transactions) for April 2001 to March 2002

The budgetary balance is presented on a modified accrual basis of accounting, recording government liabilities when they are incurred, regardless of when the cash payment is made. In addition, the budgetary balance includes only those activities over which the Government has legislative control.

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

Non-budgetary transactions resulted in a net requirement of $4.0 billion in the April 2001 to March 2002 period, compared to a net requirement of $0.5 billion in the same period of 2000-01. The increase to date is largely attributable to transfers of applicable pension assets to those Crown corporations setting up their own pension plans.

As a result, with a budgetary surplus of $9.8 billion and a net requirement of $4.0 billion from non-budgetary transactions, there was a financial source (excluding foreign exchange transactions) of $5.8 billion in the April 2001 to March 2002 period, compared to a source of $19.6 billion in the same period of 2000-01.

Table 4
The budgetary balance and financial requirements/source

Table 5
Net financial balance and net borrowings

Table 6
Condensed statement of assets and liabilities

Net financial source of $4.0 billion for April 2001 to March 2002

Foreign exchange transactions represent all transactions in international reserves held in the Exchange Fund Account. The purpose of the Exchange Fund Account is to promote order and stability in the foreign exchange market. The buying of Canadian dollars represents a source of funds from exchange fund transactions, while the selling of Canadian dollars represents a requirement. Changes in foreign currency liabilities, which are undertaken to change the level of Canada’s foreign exchange reserves, also impact on foreign exchange transactions. Taking all of these factors into account, there was a net requirement of $1.8 billion in the April 2001 to March 2002 period, compared to a net requirement of $8.7 billion in the same period of 2000-01.

With a budgetary surplus of $9.8 billion, a net requirement of $4.0 billion from non-budgetary transactions and a net requirement of $1.8 billion from foreign exchange transactions, there was a net financial source of $4.0 billion in the April 2001 to March 2002 period, compared to a net source of $10.9 billion in the same period of 2000-01.

Net borrowings down $5.2 billion for April 2001 to March 2002

In 2001-02 the Government reduced its holding of market debt by $5.2 billion by applying the net financial source of $4.0 billion and drawing down its cash balances by $1.2 billion. The level of cash balances varies from month to month based on a number of factors including periodic large debt maturities, which can be quite volatile on a monthly basis. At the end of March 2002 they stood at $12.0 billion.