- Fiscal Monitor 2005 -

Archived - The Fiscal Monitor

Highlights of financial results for  April and May 2005

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April and May 2005 budgetary results

Through the first two months of the 2005–06 fiscal year, there was a budgetary surplus of $3.1 billion, up $1.3 billion from the $1.8-billion surplus reported during the same period of 2004–05.

On a year-over-year basis, budgetary revenues increased $3.4 billion, or 11.2 per cent, to total $33.8 billion. This increase primarily reflects strong gains in personal and corporate income tax revenues.

• Personal income tax revenues increased $1.1 billion, or 7.7 per cent, through April and May, reflecting strong source deductions, consistent with the increase in employment and wages and salaries over this period.
• Corporate income tax revenues were up $1.3 billion. The monthly results through May in large part reflect remittance procedures, under which corporations are required to remit monthly instalments through the year based on their previous year’s actual tax liabilities or their current year’s estimated liabilities. Any underpayment of a corporation’s current-year tax liability is made within 60 days of the close of its taxation year by means of a year-end settlement payment. Given that settlement payments were up during the last three months of 2004–05 (the year-end settlement period for those corporations with a December 31, 2004, taxation year), monthly corporate remittances during the April to December period of 2004–05 were understated. As a result, the growth rate of corporate remittances in April and May 2005, which now reflect the higher 2004 tax year liability, is higher than it would have been if monthly remittances last year had been consistent with the tax liability for the year as a whole. Thus the increase in corporate tax receipts in April and May over the same period last year overstates the underlying growth in corporate income tax revenues.
• Excise taxes and duties increased $0.9 billion, or 12.6 per cent. Goods and services tax revenues rose $0.7 billion, or 13.5 per cent. Customs import duties and sales and excise taxes were each up $0.1 billion, while the Air Travellers Security Charge fell $3 million.
• Employment insurance (EI) premiums rose 2.8 per cent, as gains in employment and wages and salaries more than offset the impact of the decline in the premium rate from $1.98 per $100 of insurable earnings in 2004 (employee rate) to $1.95 in 2005.
• Other revenues increased $0.1 billion, or 4.6 per cent. This category tends to be volatile on a monthly basis.

On a year-over-year basis, program expenses in April and May were up $2.3 billion, or 10.0 per cent, to $25.0 billion. This increase is mainly due to increased transfers under the 2004 First Ministers’ agreements on health care and equalization/Territorial Formula Financing (TFF).

Transfer payments increased by $2.0 billion, or 13.6 per cent.

• Transfers to persons advanced by $155 million, or 2.2 per cent. Elderly benefits were up 5.1 per cent while EI benefits were down 2.9 per cent. The decrease in EI benefits reflects a decline in regular benefits, which is in line with the improvement in the labour market.
• Transfers to other levels of government were up $1.1 billion, or 22.3 per cent, reflecting higher transfers in support of health and other social programs and higher fiscal transfers, resulting from the 2004 First Ministers’ agreements on health care and equalization/TFF.
• Subsidies and other transfers increased by $719 million, or 28.3 per cent, primarily reflecting the timing of payments and the impact of previous budget measures. This component is volatile on a monthly basis.

Other program expenses increased by $261 million, or 3.3 per cent, as lower expenses related to Crown corporations and defence were more than offset by higher expenses related to other departments and agencies. Defence expenses were down $85 million, or 4.9 per cent, while program expenses for all other departments and agencies were up $351 million, or 6.8 per cent. Transfers to Crown corporations fell slightly by $5 million, or 0.5 per cent.

Public debt charges were $153 million lower, primarily reflecting the impact of a decline in the stock of interest-bearing debt.

Financial requirement of $1.8 billion for April and May 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 $5.0 billion in April and May 2005, an increase of $0.5 billion from the requirement of $4.5 billion in the same period of 2004–05. Traditionally, there are large requirements in the first half of the fiscal year, reflecting the payment of personal income tax refunds and certain liabilities, which were recognized in previous years’ budgetary results.

With a budgetary surplus of $3.1 billion and a net requirement of $5.0 billion from non-budgetary transactions, there was a financial requirement of $1.8 billion in the first two months of 2005–06, compared to a requirement of $2.7 billion in the same period of 2004–05.

Net financing activities down $4.4 billion

The Government reduced its net financing activities by $4.4 billion in April and May 2005 through a reduction of its cash balances. 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 May stood at $10.9 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