- Fiscal Monitor 2008 -

Archived - The Fiscal Monitor

Highlights of financial results for October 2008

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Note: Unless otherwise noted, changes in financial results are presented on a year-over-year basis.

October 2008

There was a budgetary deficit of $0.6 billion in October 2008, compared to a deficit of $0.5 billion in October 2007.

Budgetary revenues increased by $0.7 billion, or 3.7 per cent, to $18.8 billion.

• Personal income tax revenues rose $0.9 billion, or 10.5 per cent.
• Corporate income tax revenues were down $0.6 billion, or 23.7 per cent. Corporate income tax receipts can be volatile, as large refunds or settlement payments may be recorded in any given month. In addition, assessments or reassessments, which can relate to activity that took place in prior years, can influence results in a given month.
• Other income tax revenues—withholdings from non-residents&#8212increased by $0.1 billion, or 23.4 per cent.
• Excise taxes and duties were down $0.6 billion, or 16.2 per cent, due to lower GST revenues. GST revenues declined by $0.5 billion, or 17.0 per cent, due in part to the 1-percentage-point reduction in the GST rate, effective January 1, 2008. Customs import duties were up $5 million, sales and excise taxes fell $0.2 billion, and revenues from the Air Travellers Security Charge were virtually unchanged.
• Employment Insurance (EI) premium revenues were unchanged, as gains in employment and wages and salaries offset the decline in the premium rate from $1.80 to $1.73 per $100 of insurable earnings, effective January 1, 2008.
• Other revenues, consisting of net profits from enterprise Crown corporations, revenues of consolidated Crown corporations, proceeds from the sale of goods and services, returns on investments, foreign exchange revenues and miscellaneous revenues, were up $0.9 billion, or 67.3 per cent. Other revenues were boosted in October 2008 by the inclusion of criminal fines and settlement amounts, consistent with the civil settlement agreement with tobacco companies announced on July 31, 2008. Other revenues (and corresponding operating expenses) in October 2007 have been reduced by $1.0 billion to reflect certain internal government transactions in a manner consistent with that used in October 2008 and the 2008 Public Accounts of Canada. This adjustment has no net impact on the budgetary balance. In addition, other revenues for October 2007 have been restated in regard to the sale and leaseback of seven federal office properties such that the gain recorded reflects the accounting for this transaction in the Public Accounts.

Program expenses in October 2008 were $16.8 billion, up $0.9 billion, or 5.9 per cent, from October 2007, reflecting higher transfer payments.

In October 2008, transfer payments were up $1.1 billion, or 11.1 per cent, from October 2007.

• Major transfers to persons, consisting of elderly, EI and children’s benefits, increased by $0.1 billion, or 2.0 per cent. Elderly benefits increased by $0.1 billion while EI benefits decreased by $0.1 billion. Children’s benefits, which consist of the Canada Child Tax Benefit and the Universal Child Care Benefit, remained stable.
• Major 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 up $0.5 billion, or 13.4 per cent.
• Subsidies and other transfers increased by $0.6 billion, or 29.7 per cent, reflecting increases in transfers related to investments in infrastructure and higher transfers to Newfoundland and Labrador and Nova Scotia under the Atlantic Offshore Accords.

Other program expenses consist of operating expenses of Crown corporations, departments and agencies, including National Defence, and also reflect the ongoing assessment of the Government’s liabilities. These expenses fell by $0.2 billion, or 3.7 per cent, over the prior year.

Public debt charges declined by $0.2 billion compared to October 2007.

April to October 2008

Through the first seven months of the 2008-09 fiscal year, there was a budgetary surplus of $0.2 billion, down $5.9 billion from the $6.1-billion surplus reported during the same period of 2007-08.

Budgetary revenues increased by $1.2 billion, or 0.9 per cent, to $135.1 billion.

• Personal income tax revenues rose $3.7 billion, or 6.0 per cent.
• Corporate income tax revenues were down $2.6 billion, or 12.6 per cent. This decline reflects both weaker profits and the impact of the 1.5-percentage-point reduction in the general corporate income tax rate and the elimination of the corporate surtax in 2008.
• Other income tax revenues rose by $0.2 billion, or 5.4 per cent.
• Excise taxes and duties decreased by $1.8 billion, or 6.9 per cent. GST revenues were down $2.0 billion, or 11.0 per cent, reflecting the 1-percentage-point reduction in the GST rate, effective January 1, 2008. Customs import duties increased by $0.1 billion, sales and excise taxes by $28 million and revenues from the Air Travellers Security Charge by $4 million.
• EI premium revenues were down $21 million, or 0.2 per cent, as the decline in the premium rate from $1.80 to $1.73 per $100 of insurable earnings, effective January 1, 2008, was largely offset by gains in employment and wages and salaries.
• Other revenues rose by $1.8 billion, or 14.1 per cent. Roughly half of the net increase was due to strong growth in receipts under the Atlantic Offshore Revenue Accounts, resulting from growth in offshore production and oil prices. This revenue is transferred to Newfoundland and Labrador and Nova Scotia under the Atlantic Offshore Accords, such that there is no net impact on the budgetary balance.

Program expenses for April to October 2008 were $115.9 billion, up $7.8 billion, or 7.2 per cent, from the same period last year, reflecting higher transfer payments, Crown corporation expenses and operating expenses of departments and agencies.

Transfer payments for April to October 2008 were up $5.6 billion, or 8.0 per cent, from the same period last year.

• Major transfers to persons were up $1.0 billion, or 3.1 per cent. Elderly benefits increased by 3.7 per cent and EI benefits by 4.2 per cent. Children’s benefits remained stable compared to the same period last year.
• Major transfers to other levels of government were up $1.9 billion, or 7.6 per cent, reflecting legislated growth in the Canada Health Transfer, Canada Social Transfer and Equalization.
• Subsidies and other transfers were up $2.7 billion, or 22.3 per cent, mainly reflecting increases in payments related to infrastructure and higher transfers to Newfoundland and Labrador and Nova Scotia under the Atlantic Offshore Accords.

Other program expenses increased by $2.2 billion, or 5.7 per cent, from last year’s level.

Public debt charges decreased by $0.6 billion, or 3.1 per cent, reflecting lower interest rates.

Financial requirement of $33.8 billion for April to October 2008

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.

With a budgetary surplus of $0.2 billion and a requirement of $34.0 billion from non-budgetary transactions, there was a financial requirement of $33.8 billion in the April to October 2008 period, compared to a financial source of $15.6 billion in the same period last year. This difference reflects the Budget 2007 announcement that the Government would meet all of the borrowing needs of Canada Mortgage and Housing Corporation (CMHC), the Business Development Bank of Canada and Farm Credit Canada through direct lending in order to reduce overall borrowing costs and improve the liquidity of the government securities market. The financial requirement also reflects the initial purchases of up to $75 billion in insured mortgage pools through CMHC under the Insured Mortgage Purchase Program (IMPP) to support the availability of longer-term credit. The requirement for foreign exchange activities mainly reflects the impact of exchange rate movements on the Canadian-dollar value of foreign-denominated assets.

Net financing activities up $43.6 billion

The Government financed this financial requirement of $33.8 billion and increased its cash balances by $9.8 billion by increasing unmatured debt by $43.6 billion. The increase in debt was achieved largely through the issuance of treasury bills. Cash balances at the end of October 2008 stood at $21.0 billion, $15.1 billion above their level at the end of October 2007. The increase in cash balances mainly reflects increased balances at the Bank of Canada to support the Bank’s operations to provide liquidity to financial markets and to cover some of the Government’s own funding needs for the IMPP.