- Fiscal Monitor 2005 -

Archived - The Fiscal Monitor

Highlights of financial results for  February 2005

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February 2005: budgetary results

The February 2005 budgetary surplus was estimated at $5.8 billion, up from the surplus of $3.8 billion in February 2004.

Budgetary revenues totalled $19.8 billion in the month, up $1.5 billion or 8.3 per cent from February 2004. This increase is due to significantly higher corporate income tax and GST revenues, which more than offset lower personal income tax revenues.

• Personal income tax revenues fell $0.7 billion or 8.1 per cent on a year-over-year basis. As discussed in the January Fiscal Monitor, this decline reflects the fact that there was an extra processing cycle in January 2005, which boosted receipts in that month.
• Corporate income tax revenues were up $1.3 billion or 28.9 per cent on a year-over-year basis. This gain in corporate receipts reflects year-end corporate settlement payments, some of which last year were received in both February and March.
• Excise taxes and duties were up $0.6 billion in February 2005 compared to February 2004. This increase is almost entirely due to higher GST receipts, which were up $0.6 billion or 29.3 per cent. Although the year-over-year gain in gross GST receipts was roughly in line with the growth in the applicable tax base, the growth in refunds, which should match the growth in gross receipts over time, was considerably weaker. Customs import duties rose $38 million, while together, sales and excise taxes and receipts from the Air Travellers Security Charge declined $21 million.
• Employment insurance (EI) premiums were up 3.1 per cent, reflecting increases in employment and wages and salaries, which more than offset the decline in premium rates.
• Other revenues, which consist of revenues from Crown corporations, sales of goods and services and foreign exchange revenues, were up 12.5 per cent. This revenue component is volatile on a monthly basis.

Program expenses in February 2005 totalled $11.3 billion, down $0.2 billion or 2.0 per cent from February 2004 due to lower transfer payments.

Transfer payments were down $0.8 billion or 10.6 per cent in February 2005.

• Transfers to persons, consisting of elderly and EI benefits, were 3.6 per cent lower on a year-over-year basis. Elderly benefits increased 4.1 per cent due to both higher average benefits and an increase in the number of individuals eligible for benefits. EI benefits were down 14.1 per cent due to a decrease in regular benefits. This reflects the inclusion of an additional payment cycle in January 2005, which boosted expenses in that month and subsequently lowered them in February.
• 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 down 3.8 per cent.
• Subsidies and other transfers were down 37.6 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 16.6 per cent due to higher expenses related to other departments and agencies. Defence expenses fell slightly by $10 million or 1.0 per cent in February, while expenses for all other departments and agencies rose by $0.6 billion or 26.9 per cent. This component is also quite volatile on a monthly basis, reflecting the timing of payments and the coming into force of previous budget measures.

Public debt charges were 7.6 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 February 2005: budgetary results

Through the first 11 months of 2004–05, there was a budgetary surplus of $19.2 billion, up $7.2 billion from the $12-billion surplus reported in the same period of 2003–04.

Budgetary revenues increased $12.1 billion, or 7.3 per cent, to total $179.1 billion. This increase reflects strong gains in corporate income tax and GST revenues, as well as the $2.6-billion net gain from the sale of the Government’s remaining shares in Petro-Canada.

• Personal income tax revenues increased $4.3 billion or 5.7 per cent through February. This year-over-year increase is consistent with higher employment and wages and salaries through the year.
• Corporate income tax revenues were up $2.1 billion or 8.7 per cent. This year-over-year gain was dampened by the inclusion in the 2003–04 results of unusually large gains recorded by the financial sector related to the revaluation of U.S.-dollar-denominated liabilities in 2003. Absent this factor, underlying corporate receipts are up about 22 per cent year to date, somewhat higher than the estimated growth in corporate profits in 2004.
• Excise taxes and duties increased $3.5 billion or 9.1 per cent. Virtually all of this increase is attributable to growth in GST revenues, which were $3.4 billion or 13.1 per cent higher than the previous year. The continued strong growth in GST receipts reflects ongoing weakness in GST refunds (up 2.6 per cent year to date) compared to gross receipts (up 7.6 per cent). On balance, the growth in refunds should correspond closely to the growth in gross receipts. It is expected that in March 2005 and the year-end supplementary period, refunds will pick up, bringing net GST revenues more in line with the growth in the applicable tax base. Customs import duties were up $0.1 billion, while sales and excise taxes and the Air Travellers Security Charge were down a combined $0.1 billion.
• EI premiums declined $0.3 billion or 1.9 per cent, reflecting the reduction in premium rates (the employee rate declined from $2.10 in 2003 to $1.98 in 2004 and to $1.95 in 2005 per $100 of insurable earnings), which more than offset the impact of increases in employment and earnings.
• Other revenues increased $2.1 billion or 18.8 per cent due to the sale of the Government’s remaining shares of Petro-Canada. In the absence of this transaction, other revenues (which include net gains from the Exchange Fund Account, interest and net gains from enterprise Crown corporations) declined on a year-over-year basis, primarily due to lower gains in the Exchange Fund Account.

On a year-over-year basis, program expenses in the April 2004 to February 2005 period were up 5.0 per cent to $128.4 billion. However, program expenses will increase significantly in March 2005, when the fiscal impacts of the federal-provincial-territorial agreements on health care and equalization/TFF and the recently announced agricultural assistance package are included. In addition, the final results will incorporate the fiscal impact of measures proposed in the 2005 budget, once the applicable legislation receives Royal Assent. Public debt charges were $1.3 billion lower than in the first 11 months of 2003–04, 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 $3.1 billion, or 3.9 per cent.

• Transfers to persons advanced by $0.6 billion or 1.6 per cent. Elderly benefits were up 3.6 per cent while EI benefits were down 2.1 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 $1.9 billion, or 7.5 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 5.1 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 federal-provincial-territorial agreements on health care and equalization/TFF. These will be included in the March fiscal results.
• Subsidies and other transfers increased by $0.5 billion, or 3.7 per cent, primarily reflecting the impact of previous budget measures.

Other program expenses increased by $3.1 billion, or 7.1 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 9.9 per cent, while expenses for all other departments and agencies were up $2.2 billion or 7.8 per cent.

Financial source of $8.5 billion for April 2004 to February 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 $10.8 billion in the April 2004 to February 2005 period, up $1.1 billion from a requirement of $9.7 billion in the same period of 2003–04. The higher requirement primarily reflects the transfer of the Government’s holdings in the Canada Pension Plan to the Canada Pension Plan Investment Board.

With a budgetary surplus of $19.2 billion and a net requirement of $10.8 billion from non-budgetary transactions, there was a financial source of $8.5 billion in the first 11 months of 2004–05, compared to a source of $2.3 billion in the same period of 2003–04.

Net financing activities down $18.4 billion

The Government used this financial source of $8.5 billion and a reduction in its cash balances of $10.0 billion to reduce its market debt by $18.4 billion by the end of February 2005, largely by reducing its holdings 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 February stood at $7.3 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