- Fiscal Monitor 2006 -

Archived - The Fiscal Monitor

Highlights of financial results for March 2006

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Highlights March 2006: budgetary deficit of $1.1 billion There was a budgetary deficit of $1.1 billion in March 2006, down from the $9.9-billion deficit recorded in March 2005. The improvement is almost entirely due to lower program expenses resulting from lower transfer payments, reflecting $7.2 billion in one-time transfers and adjustments recorded in March 2005 related to the federal-provincial-territorial agreements on health care and Equalization/Territorial Formula Financing (TFF). Program expenses were down $8.4 billion in March. Budgetary revenues were $0.8 billion higher, reflecting solid growth in personal income tax revenues and an increase in non-tax revenues, partially offset by declines in corporate income tax and goods and services tax (GST) revenues. Public debt charges were up $0.3 billion compared to the same month last year. April 2005 to March 2006: budgetary surplus of $8.4 billion, net of anticipated costs related to Bill C-48 For the April 2005 to March 2006 period, the budgetary surplus is estimated at $12.0 billion, up $3.3 billion from the $8.8-billion surplus reported in the same period of 2004–05. Budgetary revenues were up $7.2 billion, or 3.6 per cent. This gain is net of the $5.0-billion cost of the personal income tax reduction measures pertaining to the 2005 tax year and the first quarter of 2006. Program expenses were up $4.3 billion, or 2.8 per cent, primarily due to higher operating expenses for National Defence and other departments and agencies. Public debt charges were $0.4 billion lower. The April 2005 to March 2006 monthly results are not the final results for the year as a whole. They do not account for $3.6 billion in costs related to anticipated payments made under Bill C-48 for 2005–06. After adjusting for these payments, the April to March surplus is $8.4 billion. Nor do the results reflect the regular end-of-year accounting adjustments, which include final tax accrual adjustments as well as final estimates of the cost of liabilities incurred during the fiscal year. A discussion of the impact of the March results on the budget forecast for 2005–06 is provided later in this document. Note to Readers: Budget 2006 was presented on a gross reporting basis, whereas The Fiscal Monitor for March 2006 is presented on a net basis. Beginning with the April 2006 monthly financial results, The Fiscal Monitor will also report the monthly financial results on a gross basis. A reconciliation table is provided later in this document showing the monthly results for the April 2005 to March 2006 period on a gross reporting basis, consistent with the Budget 2006 presentation.

March 2006

There was a budgetary deficit of $1.1 billion in March 2006, down $8.9 billion from the $9.9-billion deficit recorded in March 2005.

Budgetary revenues rose $0.8 billion, or 4.3 per cent, to $18.6 billion.

• Personal income tax revenues were up $0.5 billion, or 6.3 per cent.
• Corporate income tax revenues were down $0.2 billion, or 4.6 per cent, reflecting weaker corporate year-end settlement payments from the refining and non-energy manufacturing sectors.
• Other income tax revenues—withholdings from non-residents—rose $34 million, or 10.8 per cent.
• Excise taxes and duties were down $0.1 billion, or 4.1 per cent, due to a $0.2-billion decline in GST revenues. Customs import duties were up $87 million, sales and excise taxes rose $35 million and revenues from the Air Travellers Security Charge were up $2 million.
• Employment insurance (EI) premiums declined by 6.3 per cent, reflecting the decline in the premium rate from $1.95 to $1.87 per $100 of insurable earnings, effective January 1, 2006.
• Other revenues consist of net profits from enterprise Crown corporations, sales of goods and services, returns on investments, foreign exchange revenues and miscellaneous revenues. Other revenues, which are volatile on a monthly basis, were up $0.6 billion.

Program expenses in March 2006 were $16.7 billion, down $8.4 billion, or 33.6 per cent, from March 2005, primarily reflecting lower transfer payments.

Transfer payments were down $8.3 billion, or 44.8 per cent.

• Transfers to persons, consisting of elderly and EI benefits, were up $103 million, or 2.8 per cent. Elderly benefits increased 6.2 per cent due to both higher average benefits, which are indexed to Consumer Price Index inflation, and an increase in the number of individuals eligible for benefits. EI benefit payments decreased 3.3 per cent, reflecting a decline in regular benefits.
• Transfers to other levels of government, consisting of federal transfers in support of health and other social programs (Canada Health Transfer and Canada Social Transfer), fiscal transfers, transfers to provinces on behalf of Canada’s cities and communities, and Alternative Payments for Standing Programs, were down $7.2 billion, or 70.2 per cent. The decrease in federal transfers in support of health and other social programs and lower fiscal transfers reflect one-time transfers and adjustments under the 2004 agreements on health care and Equalization/TFF recorded in March 2005.
• Subsidies and other transfers decreased by $1.3 billion, or 26.9 per cent. This component is volatile on a monthly basis.

Other program expenses consist of transfers to Crown corporations and operating expenses for departments and agencies, including National Defence, and also reflect the ongoing assessment of the Government’s liabilities. Consistent with the announcement in Budget 2006, this category now also includes the net expenses of foundations. On a year-over-year basis, other program expenses decreased $0.1 billion, or 1.3 per cent.

Public debt charges increased $0.3 billion, or 11.8 per cent, due to an increase in the average effective interest rate on the debt.

April 2005 to March 2006

For the April 2005 to March 2006 period, there was a budgetary surplus of $12.0 billion, $3.3 billion higher than the $8.8-billion surplus reported in the same period of 2004–05.

Budgetary revenues rose $7.2 billion, or 3.6 per cent, to $204.1 billion.

• Personal income tax revenues rose $3.9 billion, or 4.4 per cent. This gain is net of the $5.0-billion cost of the personal income tax reduction measures pertaining to the 2005 tax year and the first quarter of 2006.
• Corporate income tax revenues were up $2.0 billion, or 6.6 per cent, reflecting gains in corporate profitability in 2005.
• Other income tax revenues increased by $1.1 billion, or 31.0 per cent, reflecting increased dividend payments to non-residents.
• Excise taxes and duties rose $2.0 billion, or 4.5 per cent. GST revenues increased $1.9 billion, or 6.0 per cent, broadly consistent with growth in retail sales of 6.7 per cent over the comparable period. Customs import duties were up 12.4 per cent. Sales and excise taxes were down 2.2 per cent, while the Air Travellers Security Charge was down 9.8 per cent, reflecting reductions in the charge, effective April 1, 2005.
• EI premiums were down 2.5 per cent, as the impact of the reductions in premium rates in January 2005 and January 2006 more than offset the impact of higher employment and wages and salaries.
• Other revenues were down $1.3 billion, or 10.0 per cent, reflecting the impact of the one-time gain ($2.6 billion) from the sale of the Government’s remaining shares in Petro-Canada in September 2004.

Program expenses in the April 2005 to March 2006 period were $158.3 billion, up $4.3 billion, or 2.8 per cent, over the same period of 2004–05. Public debt charges declined by $0.4 billion. Transfer payments, which account for over half of program expenses, increased by $1.7 billion, or 1.6 per cent.

• Transfers to persons advanced by 2.1 per cent. Elderly benefits were up 4.5 per cent while EI benefits were down 2.6 per cent. The year-to-date decline in EI benefits is mainly attributable to a decline in regular benefits, which is in turn due to improved labour market conditions compared to the same period in 2004–05.
• Transfers to other levels of government were down $0.5 billion, or 1.3 per cent.
• Subsidies and other transfers increased by 6.2 per cent, reflecting the impact of measures from recent budgets as well as transfers under the new Grains and Oilseeds Payment Program and the Energy Cost Benefit.

Other program expenses increased by 5.0 per cent due to higher operating expenses for National Defence and other departments and agencies.

Public debt charges were down 1.2 per cent due to a decline in the stock of interest-bearing debt and a decline in the average effective interest rate on that debt.

Financial source of $5.4 billion for April 2005 to March 2006

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, as well as from 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 $6.6 billion in the April 2005 to March 2006 period, up $2.5 billion from the requirement in the same period of 2004–05.

With a budgetary surplus of $12.0 billion and a net requirement of $6.6 billion from non-budgetary transactions, there was a financial source of $5.4 billion in the April 2005 to March 2006 period, compared to a financial source of $4.7 billion in the same period of 2004–05.

Net financing activities down $4.6 billion

The Government used this financial source of $5.4 billion to increase its cash balances by $0.8 billion and to reduce its market debt by $4.6 billion by the end of March 2006, largely through a reduction of marketable bonds. 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. Cash balances at the end of March stood at $17.9 billion.

Quarterly update of the fiscal outlook for 2005–06: estimated outcome for 2005–06 unchanged from budget, with a projected budgetary surplus of $8.0 billion The monthly results for the 12-month period ended March 2006 are consistent with the forecast presented in the 2006 budget, which was prepared based on monthly financial information through February 2006. However, March data show that both corporate income tax revenues and direct program expenses came in lower than expected. Corporate income tax revenues in March 2006 were weaker than expected due to lower than anticipated settlement payments from the energy sector. Corporations make monthly tax instalment payments based on either their previous year’s actual tax liability or their current year’s estimated liability, with any differences made up within 60 days of the close of their taxation year. As roughly three-quarters of Canadian corporations have corporate year-ends in September through December, most corporate settlement payments are received in January through March. As such, the magnitude of corporate receipts in March is very volatile. However, the final result for corporate income tax receipts for 2005–06 will likely be higher than reported in the April to March period. Positive year-end accrual adjustments are generally recorded in the corporate tax stream. This reflects the fact that no adjustments are made to the monthly corporate data for payables and receivables due to a lack of reliable information on which to base such adjustments. The shortfall in corporate income tax revenues was offset by lower than projected direct program expenses, as it appears that the dissolution of Parliament in November lowered program expenses by more than anticipated in the budget forecast. All told, the year-to-date results are consistent with the budget forecast of a surplus of $8.0 billion for 2005–06. The above results are not the final results for the year as a whole. The April 2005 to March 2006 monthly results do not account for $3.6 billion in costs related to anticipated payments made under  Bill C-48 for 2005–06, yielding a surplus estimate of $8.4 billion. Nor do the results reflect the regular end-of-year accounting adjustments, which include final tax accrual adjustments as well as final estimates of the cost of liabilities incurred during the fiscal year. While the monthly results include estimates of tax accruals, the final accruals can vary significantly from the monthly estimates due to factors such as the magnitude of registered retirement savings plan contributions and variations in capital gains and losses reported at tax filing. Final accrual estimates will be determined based on assessments of tax files as at May 31. Similarly, while the monthly results attempt to reflect the most up-to-date information on the Government’s legal and environmental liabilities, provisions for guarantees, and allowances for valuation of loans, investments and advances, these are ultimately determined when the books are closed for the year, generally in September.

 

Differences between net and gross reporting The revenues and expenses in Tables 1–6 are presented on a "net" basis, with certain expenses netted against budgetary revenues and certain revenues netted against expenses: the Canada Child Tax Benefit is netted against personal income tax revenues; departmental revenues that are levied for specific purposes, such as the contract costs of policing services in provinces, are netted against expenses; and revenues of consolidated Crown corporations and other entities are netted against their total expenses. This classification has the effect of reducing both revenues and expenses but has no impact on the budgetary balance. The following table shows the impact of "grossing up" budgetary revenues and expenses for these adjustments. Beginning with the April 2006 monthly financial results, The Fiscal Monitor will be presented on a gross basis, consistent with the presentation in Budget 2006. Differences between net and gross reporting   March April to March     2005 2006 2004–05 2005–06   ($ millions) Net revenues 17,844 18,607 196,889 204,061 Add: Adjustments           Canada Child Tax Benefit     (personal income tax) 752 809 8,745 9,278   Revenues netted against program expenses     (other revenues) 481 515 2,493 2,837   Revenues of consolidated Crown corporations     and foundations (other revenues) 386 361 1,761 1,718     Net adjustment 1,619 1,685 12,999 13,833 Gross revenues 19,463 20,292 209,888 217,894           Net program expenses 25,076 16,654 154,015 158,311 Add: Adjustments                     Canada Child Tax Benefit     (transfers to persons) 752 809 8,745 9,278   Revenues netted against program expenses     (other program expenses) 481 515 2,493 2,837   Revenues of consolidated Crown corporations     and foundations (other program expenses) 386 361 1,761 1,718     Net adjustment 1,619 1,685 12,999 13,833 Gross program expenses 26,695 18,339 167,014 172,144

Table 1
Summary statement of transactions

	March		April to March
	2005	2006	2004–05	2005–06
	($ millions)
Budgetary transactions
Revenues	17,844	18,607	196,889	204,061
Expenses
Program expenses	-25,076	-16,654	-154,015	-158,311
Public debt charges	-2,687	-3,004	-34,122	-33,722
Budgetary balance (deficit/surplus)	-9,919	-1,051	8,752	12,028
Non-budgetary transactions	6,120	1,046	-4,091	-6,593
Financial source/requirement	-3,799	-5	4,661	5,435
Net change in financing activities	13,647	13,886	-4,790	-4,626
Net change in cash balances	9,848	13,881	-129	809
Cash balance at end of period			17,122	17,931
Note: Positive numbers indicate net source of funds. Negative numbers indicate net requirement for funds.

Table 2
Budgetary revenues

	March			April to March
	2005	2006	Change	2004–05	2005–06	Change
	($ millions)		(%)	($ millions)		(%)
Tax revenues
Income taxes
Personal income tax	8,213	8,732	6.3	88,686	92,558	4.4
Corporate income tax	4,238	4,043	-4.6	29,872	31,842	6.6
Other income tax revenue	316	350	10.8	3,567	4,671	31.0
Total income tax	12,767	13,125	2.8	122,125	129,071	5.7
Excise taxes and duties
Goods and services tax	1,939	1,694	-12.6	31,161	33,027	6.0
Customs import duties	249	336	34.9	3,034	3,409	12.4
Sales and excise taxes	728	763	4.8	9,606	9,390	-2.2
Air Travellers Security Charge	33	35	6.1	389	351	-9.8
Total excise taxes and duties	2,949	2,828	-4.1	44,190	46,177	4.5
Total tax revenues	15,716	15,953	1.5	166,315	175,248	5.4
Employment insurance premiums	1,768	1,657	-6.3	17,169	16,748	-2.5
Other revenues	360	997	176.9	13,405	12,065	-10.0
Total budgetary revenues	17,844	18,607	4.3	196,889	204,061	3.6
Note: Totals may not sum due to rounding.

Table 3
Budgetary expenses

	March			April to March
	2005	2006	Change	2004–05	2005–06	Change
	($ millions)		(%)	($ millions)		(%)
Transfer payments
Transfers to persons
Elderly benefits	2,365	2,512	6.2	27,926	29,192	4.5
Employment insurance benefits	1,328	1,284	-3.3	14,734	14,352	-2.6
Total	3,693	3,796	2.8	42,660	43,544	2.1
Transfers to other levels of government
Support for health and other social programs
Canada Health Transfer	6,835	1,583	-76.8	18,431	19,000	3.1
Canada Social Transfer	727	685	-5.8	7,900	8,225	4.1
Health Reform Transfer	125	0	n/a	1,500	0	n/a
Total	7,687	2,268	-70.5	27,831	27,225	-2.2
Fiscal transfers	2,882	796	-72.4	12,902	12,437	-3.6
Canada’s cities and communities	0	0	n/a	0	580	n/a
Alternative Payments for Standing Programs	-333	-10	-97.0	-2,746	-2,732	-0.5
Total	10,236	3,054	-70.2	37,987	37,510	-1.3
Subsidies and other transfers
Agriculture	1,044	244	-76.6	2,650	2,658	0.3
Foreign Affairs	1,182	887	-25.0	3,391	3,058	-9.8
Health	246	287	16.7	1,864	1,920	3.0
Human Resources Development	49	148	202.0	1,203	1,416	17.7
Indian and Northern Development	452	544	20.4	4,354	4,807	10.4
Industry and Regional Development	207	205	-1.0	1,682	1,983	17.9
Other	1,497	1,102	-26.4	5,080	5,632	10.9
Total	4,677	3,417	-26.9	20,224	21,474	6.2
Total transfer payments	18,606	10,267	-44.8	100,871	102,528	1.6
Other program expenses
Crown corporation expenses
Canadian Broadcasting Corporation	0	0	n/a	1,037	1,098	5.9
Canada Mortgage and Housing Corporation	190	176	-7.4	2,045	2,033	-0.6
Other	697	874	25.4	2,535	2,571	1.4
Total	887	1,050	18.4	5,617	5,702	1.5
Defence	1,633	1,566	-4.1	13,562	14,736	8.7
All other departments and agencies	3,950	3,771	-4.5	33,965	35,345	4.1
Total other program expenses	6,470	6,387	-1.3	53,144	55,783	5.0
Total program expenses	25,076	16,654	-33.6	154,015	158,311	2.8
Public debt charges	2,687	3,004	11.8	34,122	33,722	-1.2
Total budgetary expenses	27,763	19,658	-29.2	188,137	192,033	2.1
Note: Totals may not sum due to rounding.

Table 4
Budgetary balance and financial source/requirement

	March		April to March
	2005	2006	2004–05	2005–06
	($ millions)
Budgetary balance (deficit/surplus)	-9,919	-1,051	8,752	12,028
Non-budgetary transactions
Capital investing activities	-862	-674	-2,264	-2,783
Other investing activities	-636	359	-2,651	-2,772
Pension and other accounts	278	515	-2,628	153
Other activities
Accounts payable, receivables,       accruals and allowances	5,321	2,192	-3,307	-5,205
Foreign exchange activities	1,517	-1,567	3,441	1,045
Amortization of tangible capital assets	502	221	3,318	2,969
Total other activities	7,340	846	3,452	-1,191
Total non-budgetary transactions	6,120	1,046	-4,091	-6,593
Net financial source/requirement	-3,799	-5	4,661	5,435
Note: Totals may not sum due to rounding.

Table 5
Financial source/requirement and net financing activities

	March		April to March
	2005	2006	2004–05	2005–06
	($ millions)
Net financial source/requirement	-3,799	-5	4,661	5,435
Net increase (+)/decrease   (-) in financing activities
Unmatured debt transactions
Canadian currency borrowings
Marketable bonds	1,348	674	-12,288	-4,852
Treasury bills	11,500	11,700	13,800	4,400
Canada Savings Bonds	-83	-124	-2,244	-1,732
Other	-6	-68	-35	-290
Total	12,759	12,182	-767	-2,474
Foreign currency borrowings	822	1,719	-4,254	-2,202
Total	13,581	13,901	-5,021	-4,676
Obligations related to capital leases	66	-15	231	50
Net change in financing activities	13,647	13,886	-4,790	-4,626
Change in cash balance	9,848	13,881	-129	809
Note: Totals may not sum due to rounding.

Table 6
Condensed statement of assets and liabilities

	March 31, 2005	March 31, 2006	Change
	($ millions)
Liabilities
Accounts payable, accruals and allowances	90,478	85,961	-4,517
Interest-bearing debt
Unmatured debt
Payable in Canadian dollars
Marketable bonds	266,570	261,718	-4,852
Treasury bills	127,199	131,599	4,400
Canada Savings Bonds	19,080	17,348	-1,732
Other	3,393	3,103	-290
Subtotal	416,242	413,768	-2,474
Payable in foreign currencies	16,286	14,084	-2,202
Obligations related to capital leases	2,932	2,982	50
Total unmatured debt	435,460	430,834	-4,626
Pension and other accounts
Public sector pensions	129,579	131,479	1,900
Other employee and veteran future benefits	41,549	43,112	1,563
Other pension and other accounts	8,680	5,370	-3,310
Total pension and other accounts	179,808	179,961	153
Total interest-bearing debt	615,268	610,795	-4,473
Total liabilities	705,746	696,756	-8,990
Financial assets
Cash and accounts receivable	76,349	77,846	1,497
Foreign exchange accounts	40,871	39,826	-1,045
Loans, investments and advances     (net of allowances)	39,249	42,021	2,772
Total financial assets	156,469	159,693	3,224
Net debt	549,277	537,063	-12,214
Non-financial assets	54,870	54,684	-186
Federal debt (accumulated deficit)	494,407	482,379	-12,028

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