- Fiscal Monitor 2005 -

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Highlights of financial results for  January 2005

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January 2005: budgetary results

The January 2005 budgetary surplus was estimated at $2.4 billion, up from the surplus of $0.8 billion in January 2004.

Budgetary revenues totalled $18.8 billion in the month, up $3.3 billion or 21.4 per cent from January 2004. This rise is due to significantly higher personal income tax receipts as well as increases in GST and corporate tax receipts.

• Personal income tax revenues increased $1.5 billion or 20.5 per cent. However, this extraordinary gain reflects timing factors—there were more processing cycles for monthly withholdings in January 2005 compared to the same month last year—rather than underlying increases in income or employment. These factors will reverse in February 2005.
• Corporate income tax revenues were up $0.5 billion or 23.6 per cent, reflecting the year-over-year growth in corporate profits.
• Excise taxes and duties were up $0.7 billion due to higher GST receipts, which were up $0.7 billion or 29.3 per cent. The sharp rise in GST receipts reflects strong gross receipts in January, but also a continuing weakness in GST refunds, which have been very low year-to-date relative to the level of gross GST receipts. Customs import duties fell $12 million, while together, sales and excise taxes and receipts from the Air Travellers Security Charge rose $40 million.
• Employment insurance (EI) premiums were up 34.1 per cent, reflecting adjustments for under-reporting in previous months.
• Other revenues, which consist of revenues from Crown corporations, sales of goods and services and foreign exchange revenues, were up 2.9  per cent. This revenue component is volatile on a monthly basis.

Program expenses totalled $13.6 billion in January 2005, up $1.8 billion or 15.5 per cent from January 2004 due to increases in transfer payments and other program expenses.

Total transfer payments were up $0.8 billion or 9.7 per cent in January 2005.

• Major transfers to persons, consisting of elderly and EI benefits, were 7.4 per cent higher on a year-over-year basis. Elderly benefits increased 4.3 per cent due to both higher average benefits and an increase in the number of individuals eligible for benefits. EI benefits were up 12.2 per cent due to an increase in regular benefits, reflecting the inclusion of an additional payment cycle in January 2005 compared to January 2004.
• Major transfers to other levels of government, consisting of federal transfers in support of health and other social programs (Canada Health Transfer, Canada Social Transfer and Health Reform Transfer), fiscal transfers and Alternative Payments for Standing Programs, were up 9.1  per cent. The increase in federal transfers in support of health and other social programs reflects increased funding under the February 2003 First Ministers’ Accord on Health Care Renewal. Fiscal transfers consist of equalization entitlements, payments to the territorial governments, statutory subsidies and recoveries under the Youth Allowance Recovery Program. In aggregate, these transfers were up 7.9  per cent from January 2004, primarily reflecting the impact of recoveries in the 2003–04 fiscal year of overpayments made in prior years.
• Subsidies and other transfers were up 15.7 per cent. This component is volatile on a monthly basis, largely reflecting the timing of payments.

Other program expenses consist of transfers to Crown corporations and operating expenses for departments and agencies, including defence. On a year-over-year basis, these expenses were up 26.8 per cent, due to both higher Crown corporation expenses and higher expenses related to defence and other departments and agencies. Defence expenses rose $0.1 billion or 15.1  per cent, while expenses for all other departments and agencies rose $0.8  billion or 30.7 per cent. This component is also quite volatile on a monthly basis, reflecting the timing of payments and the coming into force of measures from previous budgets.

Public debt charges were 3.6 per cent lower, reflecting the impact of a decline in the stock of interest-bearing debt, along with a decline in the average effective interest rate on that debt.

April 2004 to January 2005: budgetary results

In the first 10 months of 2004–05, there was a budgetary surplus of $13.4 billion, up $5.3 billion from the $8.1-billion surplus reported in the same period of 2003–04.

Budgetary revenues increased $10.6 billion, or 7.1 per cent, to total $159.2 billion. This increase reflects gains in tax revenues and other revenues, including $2.6 billion from the sale of the Government’s remaining shares in Petro-Canada, offset somewhat by lower EI premiums.

• Personal income tax revenues increased $5.0 billion or 7.3 per cent. The year-over-year increase was higher than it otherwise would have been due to the extra processing cycle that boosted personal income tax receipts in January 2005, as discussed above. The increase also reflects higher employment and wages and salaries through the year.
• Corporate income tax revenues were up $0.8 billion or 3.9 per cent. The year-to-date gain in corporate receipts reflects the impacts of large tax settlement payments received from the financial sector in December 2003 related to the revaluation of their U.S.-dollar-denominated liabilities in 2003. Absent this factor, underlying corporate receipts are up about 20 per cent year-to-date, in line with the growth in corporate profits.
• Excise taxes and duties increased $2.9 billion or 8.2 per cent. Virtually all of this increase is attributable to growth in GST revenues, which were up 11.8 per cent. The continued strong growth in GST receipts reflects ongoing weakness in GST refunds (up 3 per cent year-to-date). Over the balance of the year, it is expected that the growth in GST refunds will pick up to more closely reflect the increase in gross revenues, which were up 7.2 per cent year-to-date. Customs import duties were also up (3.5 per cent), while there were declines in both sales and excise taxes (down 0.4 per cent) and the Air Travellers Security Charge (down 3.0 per cent).
• EI premiums fell $0.4 billion or 2.6 per cent, reflecting the reduction in premium rates from $2.10 in 2003 to $1.98 in 2004 and the further reduction to $1.95 in 2005.
• Other revenues increased $2.0 billion or 19.4 per cent. This increase reflects the sale of the Government’s remaining shares in Petro-Canada. In the absence of this transaction, other revenues would have declined on a year-over-year basis.

On a year-over-year basis, program expenses in the April 2004 to January 2005 period were up 5.8 per cent to $117.1 billion. Program expenses are expected to increase significantly over the balance of the year as the two proposed First Ministers’ agreements on health care and equalization/TFF, and the measures proposed in the 2005 budget, receive Royal Assent. Public debt charges were $1.1 billion lower, reflecting the impact of a decline in the stock of interest-bearing debt, along with a decline in the average effective interest rate on that debt.

Transfer payments, which account for about two-thirds of total program expenses, increased by $3.9 billion or 5.5 per cent.

• Transfers to persons advanced by $0.7 billion or 2.2 per cent. Elderly benefits were up 3.6 per cent, while EI benefits were down 0.5 per cent. The decrease in EI benefits reflects a decline in regular benefits, which is in line with improvements in the labour market.
• Transfers to other levels of government were up $2.0 billion or 8.7 per cent, reflecting higher transfers in support of health and other social programs, resulting from the February 2003 First Ministers’ Accord on Health Care Renewal, and increased fiscal transfers. Fiscal transfers were up 8.3 per cent, primarily reflecting the impact on the 2003–04 results of recoveries related to overpayments in previous years under the equalization program. These results do not reflect the impacts of the 2004 First Ministers’ agreements on health care and equalization/TFF. These will be included in the fiscal results once the legislation receives Royal Assent.
• Subsidies and other transfers increased by $1.1 billion or 9.0 per cent, primarily reflecting the impact of previous budget measures.

Other program expenses increased by $2.5 billion or 6.2 per cent, as lower expenses related to Crown corporations were more than offset by higher expenses related to defence and other departments and agencies. Defence expenses were up $1.0 billion or 11.0 per cent, while expenses for all other departments and agencies were up $1.6 billion or 6.1 per cent.

Financial source of $7.9 billion for April 2004 to January 2005

The budgetary balance is presented on a full accrual basis of accounting, recording government assets and liabilities when they are receivable or incurred, regardless of when the cash is received or paid. In contrast, the financial source/requirement measures the difference between cash coming in to the Government and cash going out. This measure is affected not only by changes in the budgetary balance but also by the cash source/requirement resulting from the Government’s investing activities (through its acquisition of capital assets and its loans, financial investments and advances), pensions and other accounts, as well as other activities, including payment of accounts payable and collection of accounts receivable, foreign exchange activities, and the amortization of its tangible capital assets. The difference between the budgetary balance and financial source/requirement is recorded in non-budgetary transactions.

Non-budgetary transactions resulted in a net requirement of $5.5 billion in the April 2004 to January 2005 period, an improvement of $5.2 billion from the requirement in the same period of 2003–04. The improvement is primarily attributable to the unusually large cash requirements in the April 2003 to January 2004 period related to transfers to trust funds established in the 2003 budget for the Canada Health and Social Transfer cash supplement ($2.5 billion), the Diagnostic/Medical Equipment Fund ($1.5 billion), Canada Health Infoway ($600 million), and the Canada Foundation for Innovation ($500 million). Dampening the improvement somewhat was an increase in financial requirements for pension and other accounts, reflecting payments to the Canada Pension Plan Investment Board.

With a budgetary surplus of $13.4 billion and a net requirement of $5.5 billion from non-budgetary transactions, there was a financial source of $7.9 billion in the first 10 months of 2004–05, compared to a requirement of $2.5 billion in the same period of 2003–04.

Net financing activities down $21.7 billion

The Government used this financial source of $7.9 billion and a reduction in its cash balances of $13.8 billion to reduce its market debt by $21.7 billion by the end of January 2005, largely through a reduction of marketable bonds and foreign currency borrowings. The monthly level of cash balances varies as a result of a number of factors including periodic large debt maturities, which can be quite volatile on a monthly basis. Cash balances at the end of January stood at $3.5 billion.

Table 1
Summary statement of transactions

Table 2
Budgetary revenues

Table 3
Budgetary expenses

Table 4
Budgetary balance and financial source/requirement

Table 5
Financial source/requirement and net financing activities

Table 6
Condensed statement of assets and liabilities