Where Your Tax Dollar Goes
For the fiscal year ending March 31st 2006, Canada's federal government collected $222.2 billion in taxes and other revenues. That represents a bit over 16 per cent of our country's nearly $1.4 trillion economy.
Here's a quick overview of where that money went-and how it was raised.
About These Numbers
The federal government calculates its finances over a 12-month "fiscal year" that ends every March 31. This presentation is based on the Annual Financial Report of the Government of Canada for the most recent completed fiscal year, 2005-06. Where Your Tax Dollar Goes is updated annually, after the Government's final financial results become available. Please note that numbers may not total 100 per cent due to rounding
1. Interest Payments
The largest single federal spending item was interest payments on Canada's public debt (that is, money borrowed by the central government over the years, which has not yet been repaid to the lenders). These payments-to institutions and people who hold federal bonds, treasury bills and other forms of the debt-cost $33.8 billion. That's just over 15 cents of every tax dollar.
2. Transfer Payments
Cash payments that go directly to individuals, to provincial and territorial governments, and to other organizations are called "transfers." There are three major categories of transfers. Combined, they make up more than half of all federal spending-just over 53 cents of each tax dollar ($118.3 billion).
Transfers to Persons
The biggest transfer category was Major Transfers to Persons. These direct payments to people cost about 23Â½ cents of every tax dollar ($52.6 billion).
- This included payments to eligible elderly Canadians through Old Age Security payments, the Guaranteed Income Supplement and the Allowance for spouses. After interest on the federal debt, this support for seniors was the second largest spending item in the federal budget-13 cents of your tax dollar ($29.0 billion).
- The other major transfer to people was employment insurance (EI) benefits to eligible unemployed workers (including for periods of unemployment due to sickness, pregnancy, parental leave and caring for gravely ill or dying family members). And funding also went to programs that assist people to prepare for, find and maintain jobs. Altogether, EI payments cost about 6Â½ cents of every tax dollar
- The federal government also provided $9.2 billion in direct cash payments to eligible families to help with the cost of raising children under age 18 through the Canada Child Tax Benefit. These payments cost just over 4 cents of every tax dollar.
Support for Families and Children
The federal government also provides assistance to low- and modest-income families especially those with children-the goods and services tax (GST) credit ($3 billion). Since these payments are subtracted from ("netted against") GST revenues, they are not included in the spending calculations presented to Parliament in each year's federal budget.
Funding for Provinces
The federal government also funds several Major Transfers to Other Levels of Government. These payments-totalling almost $41 billion in 2005-06 -help provinces and territories pay for health care, post-secondary education and other social services.
Since 1996, much of this support came through a single program, the Canada Health and Social Transfer. However, to improve transparency and accountability, the federal, provincial and territorial First Ministers agreed to divide this funding into two separate programs starting in 2004.
- The Canada Health Transfer last year provided provinces and territories with cash support for health programs equal to more than 8Â½ cents of each tax dollar ($19.0 billion).
- The Canada Social Transfer-to support post-secondary education, social assistance and other social programs-gave provinces and territories cash funding representing over 3Â½ cents of each federal tax dollar ($8.2 billion).
Further major transfers included the equalization and Territorial Formula Financing programs, which together equal 5Â½ cents of every tax dollar
($12.4 billion). These are payments from Ottawa to less-affluent provinces, and to the three territories, to help them provide public services reasonably comparable to those that wealthier provinces can deliver.
There were also a variety of other federal transfers, such as $0.6 billion in gas tax transfers to cities and communities for purposes of environmentally sustainable municipal infrastructure, and $3.3 billion in transfers to provinces and territories under Bill C-48 for post-secondary education, public transit and affordable housing. Together, these helped boost transfer funding by almost
2 cents of each tax dollar ($3.9 billion).
Due to long-standing fiscal arrangements with the provinces, these transfer amounts exceed $41 billion.
Alternative Payments for Standing Programs and the Quebec Abatement
- During the 1960s, the Government of Canada offered provinces opting-out arrangements for certain federal-provincial programs, such as hospital care and social welfare. Only Quebec chose to use these arrangements.
- Under these arrangements, the Government of Canada reduced - or "abated" - personal income tax by 13.5 percentage points while Quebec increased its personal income taxes by an equivalent amount.
- Quebec continues to receive the value of these extra tax points through its own income tax system, in lieu of cash, while other provinces receive the corresponding amounts in cash.
- Transfers to Quebec for the CHT/CST and Equalization are shown in the budget on the same basis as transfers to other provinces. However, since part of the Quebec transfer is made through lower federal taxes, it is necessary to net this amount out of transfer program spending.
Support for Health Care
Federal support for health care goes beyond cash payments under the Canada Health Transfer, and the equalization program.
For example, in 1977 the federal government agreed to let the provinces take over a share of its taxes to supplement direct cash transfers. In 2006-07, these "tax points" added some $18.6 billion to provincial finances for programs such as health care.
There is also direct health-related spending by the federal government itself, which contributed some $6 billion this year. This included funding for First Nations health services; health care for veterans; and programs for health protection, disease prevention, health information and health-related research.
Other Grants and Contributions
Other transfer programs by various federal departments provide funds to individuals, governments and other organizations and groups for specific public policy purposes.
In 2005-06, spending on these federal grants, contributions and subsidies added up to $24.9 billion, or just over 11 cents of each tax dollar. This included:
- over $6.5 billion in transfers for First Nations and Aboriginal peoples (bringing total federal spending in this area to some $9 billion);
- about $2.6 billion in assistance to farmers and other food producers;
- over $4.0 billion in foreign aid and other international assistance; and
- over $5 billion in support for research and development, infrastructure, regional development and assistance to businesses.
Other funding went to student assistance programs, health research and promotion, the arts, amateur sports, and multiculturalism and bilingualism.
3. Other Program Expenses
After transfers, the bulk of federal tax dollars went to cover the operating costs of government itself: the more than 130 departments, agencies, Crown corporations and other federal bodies that provide programs and services for Canadians.
In 2005-06, these operating costs (such as salaries and benefits, facilities and equipment, and supplies and travel) made up roughly 25Â½ cents of each tax dollar ($56.9 billion).
But a large share of this spending-close to 11Â½ cents of each tax dollar-went to just three organizations.
First, spending in 2005-06 by the Department of National Defence on Canada's military forces made up almost 7 cents of each taxpayer dollar ($15.0 billion).
Next, operating costs of the Department of Public Safety and Emergency Preparedness were close to 3 cents of your tax dollar ($6.6 billion). This includes funding for the Royal Canadian Mounted Police, the federal prison system, and border traffic and security operations.
Canada Revenue Agency
And third, there was funding for the Canada Revenue Agency, which administers the federal tax system (and also collects personal income taxes for all provinces except Quebec). Its operations cost about 2 cents of each tax dollar ($4.0 billion).
A further $24 billion-just over 11 cents of each tax dollar-was spent on the operations of the other federal departments and agencies.
These included major departments such as; Environment; Fisheries and Oceans; Health; Human Resources and Social Development; Industry; Justice; Natural Resources; Public Works; Transport; and Veterans Affairs.
As well, funding went to federal agencies such as the Canadian Food Inspection Agency, Parks Canada and the Canadian International Development Agency.
Paying for Parliament
One of the smallest slices of federal operating spending goes to Parliament itself-the House of Commons, the Senate and the Library of Parliament.
In 2005-06, the combination of salaries and benefits for Members of Parliament, Senators and parliamentary staff, and spending on facilities and services, totalled about $495 million. That's less than one-quarter of a cent of every tax dollar.
The last portion of Other Program Expenses went to Crown corporations (organizations owned directly or indirectly by the Government). This cost
$7.2 billion, or a bit over 3 cents of your tax dollar. But the bulk of this funding went to just three organizations:
- the Canada Mortgage and Housing Corporation, which helps support home ownership and affordable housing, received $2.1 billion;
- the Canadian Broadcasting Corporation-our national television and radio networks-received $1.7 billion; and
- Atomic Energy of Canada Limited, which received $0.7 billion.
Funding was also provided to cultural organizations (including the National Gallery of Canada, the Canadian Museum of Civilization and the Canada Council for the Arts), to enterprises like VIA Rail, and to the Canadian Tourism Commission.
4. Budgetary Surplus
The remaining 6 cents of the tax dollar was the $13.2 billion budgetary surplus-how much money was left after paying for all federal programs, operations and interest on the debt.
This surplus was not money available for future spending. Government accounting principles mean that any surplus at year-end automatically reduces the federal debt.
That's our brief summary of the investments and operations where Canadians' federal tax dollars go. But before finishing, let's look at how these funds are raised.
Where the Money Comes From
The federal government's budgetary revenues came from a variety of taxes and other sources.
- Personal income tax is the biggest revenue source. In 2005-06, it provided $103.7 billion in federal funding. That's more than 46 per cent of all federal revenues.
- Revenues from the goods and services tax provided $33.0 billion, or 15 per cent of total federal funds.
- Corporate income tax raised about $32 billion, just over 14 per cent of federal finances.
- A number of other taxes-such as non-resident taxes, customs import duties, energy taxes and excise taxes on alcohol and tobacco-made up $17.7 billion, or nearly 8 per cent of revenues.
- As well, employment insurance premiums, which are treated as part of general revenues, contributed $16.5 billion to federal finances, or 7.4 per cent of the total.
- And other revenues-such as earnings by Crown corporations and the sale of goods and services-provided the remaining $19.6 billion, or 8.8 per cent of total revenues.
So that's the story of where your federal tax dollar goes, and how it was raised.
More information on Government of Canada finances is available from these sources:
- Annual Financial Report
The Annual Financial Report of the Government of Canada provides overall financial data on federal revenues and spending on a full accrual accounting basis for the most recent complete fiscal year. It is available through the Finance Canada website under Publications at http://www.fin.gc.ca/toce/2005/afr_e.html.
- Fiscal Reference Tables
Along with the Annual Financial Report, Finance Canada also publishes its annual Fiscal Reference Tables. Financial information on the provinces and territories is also included. The tables are available through the Finance Canada website under Publications at http://www.fin.gc.ca/toce/2005/frt_e.html.
- The Fiscal Monitor
roduced by Finance Canada, this monthly newsletter highlights the most recent financial results of the Government. It is available on the Finance Canada website under Publications at http://www.fin.gc.ca/serialse/2006/fiscmon-e.html.
- Public Accounts
The Public Accounts of Canada contain the Government's audited financial statements for the most recent fiscal year, and details of financial operations by each ministry. It is available through the Public Works and Government Services Canada website at http://www.pwgsc.gc.ca/recgen/text/pub-acc-e.html.
- Federal Budget
Usually introduced in February or March, the federal budget presents the Government's fiscal plan for the coming year, introducing new spending initiatives and any proposals for changes in taxation. Information on recent budgets is available from the Finance Canada website under Budget Info at http://www.fin.gc.ca/access/budinfoe.html.
The Government prepares Estimates-including individual departmental spending plans for the coming fiscal year-for presentation to Parliament in support of appropriation legislation. These are available on the Treasury Board of Canada Secretariat website at http://www.tbs-sct.gc.ca/est-pre/estime.asp.
- Debt Management Report
The annual Debt Management Report covers key elements of the federal debt strategy, and strategic and operational aspects of the Government's debt program and cash management activities over the past year. It is available on the Finance Canada website under Publications at http://www.fin.gc.ca/toce/2005/dmr05_e.html.
- Canada Revenue Agency
While the Department of Finance is responsible for setting federal tax policy, it is the Canada Revenue Agency (CRA) that manages the actual revenue collection for the federal government. A quick overview of CRA operations (and access to the agency's annual operating report and Internet home page) is available at http://www.cra-arc.gc.ca/agency/annual/2005-2006/performance-e/cvr_fld2-e.html
How Can I Get More Information?
A multimedia version of this documentâ€”which also includes direct links to other online material on federal financesâ€”is available on the Internet at www.fin.gc.ca.
General information on the Government of Canada and its operations is available by phoning:
1 800 O-Canada (1 800 622-6232)
1 800 926-9105
(TTY for the speech and hearing impaired)