- Fiscal Monitor 2004 -

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Highlights of financial results for March 2004

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Highlights

March 2004: budgetary deficit of $1.2 billion

There was a budgetary deficit of $1.2 billion in March 2004, a deterioration of $248 million from the restated deficit of $987 million in March 2003. On a year-over-year basis, budgetary revenues were up $2.7 billion, driven by strong increases in corporate income tax and goods and service tax (GST) revenues, while public debt charges were down $0.3 billion. These positive developments on the budgetary balance were more than offset by a $3.2-billion increase in program expenses, primarily due to the liabilities associated with the special $2-billion Canada Health and Social Transfer (CHST) cash supplement to the provinces and territories for health and the special $995 million in transitional assistance for Canadian farmers.

April 2003 to March 2004: budgetary surplus of $7.6 billion

The budgetary surplus is estimated at $7.6 billion for the April 2003 to March 2004 period, down $2.6 billion from the surplus of $10.2 billion reported in the same period of 2002–03. Budgetary revenues were up $5.5 billion, or 3.1 per cent, largely due to the strength of corporate income taxes (up $5.6 billion). The weakness in other revenue sources reflected the economic impacts of a number of domestic shocks that hit the Canadian economy in 2003. Program expenses were up $10.0 billion, or 7.8 per cent, primarily due to new spending initiatives announced in recent budgets. Public debt charges were down $1.9 billion, or 5.1 per cent, reflecting lower interest rates.

March 2004 budget estimated surplus for 2003–04 at $1.9 billion

These are not the final audited results for the 2003–04 fiscal year. Still to come are the regular end-of-year accounting adjustments, which incorporate the costs of liabilities incurred during the fiscal year for which no payments were made in 2003–04, reassessments of loan provisions and final tax accrual adjustments. In the past, these adjustments have reduced the April-to-March budgetary balance by $3 billion to $7 billion. Last year, the adjustments were at the lower end of the range, primarily reflecting a number of positive one-time adjustments to loan provisions, which are not expected to be repeated this year. Final results for 2003–04 will be released in the fall of 2004.

March 2004: budgetary results

The March 2004 budgetary deficit of $1.2 billion was $248 million higher than the deficit reported in March 2003.

On a year-over-year basis, budgetary revenues, at $17.8 billion, were up $2.7 billion, or 17.6 per cent.

  • Personal income tax revenues were up $0.4 billion, or 5.4 per cent, primarily reflecting growth in source deductions from employment income, due to gains in employment and hence personal income.
  • Corporate income tax revenues increased by $1.5 billion to almost double the level recorded last year. Part of the year-over-year increase was attributable to the timing of final settlement payments with respect to taxation year 2003. In addition, the improvement in corporate profits in 2003 has resulted in lower refunds and an increase in monthly installments. Corporations are required to file monthly installments based on either their previous year’s actual tax liability or their current year’s estimated tax liability. In calendar year 2003, monthly installments were largely based on the actual tax liability for taxation year 2002—a year of weak profits. With the strong rebound in profits in 2003, corporations are now making installment payments based on their 2003 tax liability.
  • Excise taxes and duties increased by $1.3 billion, or 63.1 per cent, solely due to a $1.4-billion increase in GST revenues. The higher GST revenues reflect both a strong increase in gross receipts from both domestic sales and imports, reflecting strong retail sales in February 2004, and a sharp decline in refunds. The year-over-year decline in refunds primarily reflects the timing of refunds claimed in 2002–03, which resulted in a large increase in refunds being paid in March 2003. The other components of excise taxes and duties recorded year-over-year declines. Customs import duties were down 16.2 per cent, primarily reflecting the impact of the appreciation of the Canadian dollar.
  • Employment insurance (EI) premiums were down 3.5 per cent, as the reduction in premium rates (the employee rate for 2004 is $1.98 per $100 of insurable earnings compared to $2.10 in 2003) more than offset the increase in employment and thus the number of people paying premiums.
  • Other revenues, consisting of revenues from Crown corporations, sales of goods and services and foreign exchange revenues, were down $0.5 billion. This component is extremely volatile on a monthly basis.

On a year-over-year basis, program expenses in March 2004 were $16.1 billion, up $3.2 billion, or 24.7 per cent, from March 2003, primarily due to higher transfer payments.

Transfer payments were $3.4 billion higher, primarily due to the $2-billion liability for the cash supplement under the CHST to the provinces and territories for health and the $995-million agricultural assistance package.

  • Major transfers to persons, consisting of elderly and EI benefits, were down 2.8 per cent on a year-over-year basis. Elderly benefits increased 4.2 per cent due to both higher average benefits, which have risen because of higher inflation in early 2003, and an increase in the number of individuals eligible for benefits. EI benefit payments were down 12.6 per cent, mainly because of one less payment cycle in March 2004 compared to last year. As noted in last month’s Fiscal Monitor, there was an extra cycle in February 2004.
  • Major transfers to other levels of government, consisting of the CHST, fiscal transfers and Alternative Payments for Standing Programs, more than doubled, reflecting the booking of the liability, with the passage of Bill C-18, for the $2-billion CHST cash supplement for health. Fiscal transfers consist of equalization, payments to the territorial governments, statutory subsidies and recoveries under the Youth Allowance Recovery Program. In February 2004, official estimates of 2003–04 equalization entitlements, the largest component of fiscal transfers, were revised downward, as tax data for 2002 received in late January 2004 indicated that income growth in Ontario had been significantly lower than previously estimated. This reduced the fiscal disparities among the provinces, thereby resulting in lower equalization entitlements. The net impact of these revisions is being prorated among the remaining periods of 2003–04.
  • Subsidies and other transfers increased by $1.6 billion, or 64 per cent, primarily due to the $995 million in transitional assistance for Canadian farmers announced on March 22, 2004. The funding was provided to help the agricultural sector, which has been affected by a number of shocks and unforeseen events in the past year. In addition, health transfers were up due to liabilities to the province of Ontario for expenses related to the fight against severe acute respiratory syndrome.

Other program expenses consist of transfers to Crown corporations and operating expenses for departments and agencies, including defence. Transfers to Crown corporations were virtually unchanged. Defence expenses declined marginally, while expenses in all other departments and agencies were down 8.0 per cent. Monthly changes are largely affected by the timing of payments.

Public debt charges were down 8.4 per cent, primarily reflecting a decline in the average effective interest rate on interest-bearing debt, as the stock of interest-bearing debt was largely unchanged.

April 2003 to March 2004: budgetary results

In the April to March period of fiscal year 2003–04, there was a budgetary surplus of $7.6 billion—a year-over-year deterioration of $2.6 billion from the surplus of $10.2 billion reported in the same period of 2002–03. The lower surplus reflects the impact on revenues of the weakness in economic activity due to a series of shocks that have hit the Canadian economy and the impact of spending initiatives and tax reduction measures announced in previous budgets.

Revenues and Expenses

On a year-over-year basis, budgetary revenues, at $181.9 billion, were up $5.5 billion, or 3.1 per cent, as higher corporate and personal income tax revenues, up $5.6 billion and $2.0 billion respectively, were partially offset by declines in the other major revenue components.

  • Personal income tax revenues were up $2.0 billion, or 2.4 per cent, due to higher tax remittances from employment income, as employment, and therefore the number of Canadians paying taxes, was up over last year. The net impact of this increase in taxes from employment income was dampened by the impact of tax reduction measures announced in previous budgets.
  • Corporate income taxes increased $5.6 billion, or 26.9 per cent, reflecting the strong rebound in corporate profits in 2003, as well as lower refunds pertaining to prior-year assessments.
  • Excise taxes and duties were down $0.5 billion as a result of year-over-year declines in both GST revenues and customs import duties, partially offset by increases in sales and excise taxes. Within GST revenues, gross receipts from imports have declined sharply, while gross receipts from domestic sales are virtually unchanged from the same period last year. As expected, the timing factors that contributed to weak growth in refunds in the first half of 2003–04 have been unwound, leaving current refunds below last year’s levels and in line with the decline in gross collections. Rebates, however, are up strongly, reflecting strong growth in spending in the housing and municipal, university, school and hospital sectors. Customs import duties were down 10.4 per cent, reflecting the impact of the appreciation in the value of the Canadian dollar. Sales and excise taxes were up 2.8 per cent.

Budgetary balance

  • EI premiums were down 4.3 per cent, as the reduction in premium rates more than offset the impact of the increase in the number of people employed.
  • Other revenues were down 6.7 per cent.

On a year-over-year basis, program expenses in the April 2003 to March 2004 period, at $138.8 billion, were up $10 billion, or 7.8 per cent, over the same period of 2002–03, with increases in all major components.

Transfer payments increased by $7.8 billion, or 9.4 per cent.

  • Major transfers to persons, consisting of elderly and EI benefits, were up $1.7 billion, or 4.2 per cent. Elderly benefits increased 4.7 per cent, while EI benefits were up 3.3 per cent due to a rise in the number of beneficiaries and an increase in average weekly benefits.
  • Major transfers to other levels of government increased by $3.2 billion, or 12.2 per cent, primarily reflecting higher entitlements under the CHST program and the liability associated with the $2-billion CHST cash supplement.
  • Subsidies and other transfers increased by $2.8 billion, or 18.1 per cent, primarily reflecting the impact of previous budget measures, including the $995-million agricultural assistance package.

Federal debt (accumulated deficit)

Other program expenses increased by $2.3 billion, or 4.9 per cent, with all components higher. The increases in Crown corporation expenses, defence and all other departmental and agency program expenses are primarily due to the impact of increased operating costs as well as policy initiatives announced in previous budgets.

Public debt charges were down 5.1 per cent, primarily reflecting a decline in the average effective interest rate on interest-bearing debt.

Financial source of $3.1 billion for April 2003 to March 2004

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 $4.4 billion in 2003–04, down $0.8 billion from the requirement in the same period of 2002–03, primarily reflecting a higher net source of funds from foreign exchange activities.

With a budgetary surplus of $7.6 billion and a net requirement of $4.4 billion from non-budgetary transactions, there was a financial source of $3.1 billion in the April 2003 to March 2004 period. This is down from the financial source of $5.0 billion recorded in the same period last year, primarily reflecting the deterioration in the year-over-year budgetary surplus.

Net financing activities down $0.6 billion

With this financial source of $3.1 billion, the Government reduced its net financing activities by $0.6 billion and increased its cash balances by $2.6 billion. 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 $17.3 billion.

Note to readers

Beginning with the April 2003 Fiscal Monitor, the financial results are presented on a full accrual basis of accounting. This has necessitated a recasting of the previously published monthly financial results for 2002–03. It has also resulted in a number of classification and terminology changes.

In the 2003 budget the Government implemented its commitment to present its financial statements on a full accrual accounting basis. Previously the Government’s financial statements were prepared under modified accrual accounting. Full accrual accounting provides a more comprehensive reporting of assets and liabilities and a more transparent picture of the Government’s financial position. Under full accrual, the budgetary balance is now more reflective of current economic developments, rather than being influenced by prior-year developments. It is the accounting standard recommended for senior levels of government in Canada by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants and has been strongly recommended by the Auditor General of Canada and the House of Commons Standing Committee on Public Accounts.

The shift to full accrual accounting primarily affects tax revenues and non-financial, or capital, assets. Tax revenues are now accounted for in the period to which they relate, not when they are received, as was the case under modified accrual. Under full accrual, the costs of capital assets are now being spread over the useful lives of these assets. Under modified accrual, such costs were recognized in the year of purchase.

For more information on the implementation and effects of full accrual accounting, please refer to Annex 6 of The Budget Plan 2003, which is available at www.fin.gc.ca.

Table 1
Summary statement of transactions


  March April to March
 

  2003 2004 2002–03 2003–04

  ($ millions)
Budgetary transactions        
Revenues 15,177 17,842 176,407 181,892
Expenses        
  Program expenses -12,912 -16,099 -128,785 -138,807
  Public debt charges -3,252 -2,978 -37,426 -35,522
  Budgetary balance (deficit/surplus)1 -987 -1,235 10,196 7,563
 

Non-budgetary transactions 1,762 3,301 -5,246 -4,433
Financial source/requirement 775 2,066 4,950 3,130
Net change in financing activities 8,027 9,003 -2,157 -579
Net change in cash balances 8,802 11,069 2,793 2,551
Cash balance at end of period     14,740 17,250

Note: Positive numbers indicate net source of funds. Negative numbers indicate net requirement for funds.

1 Under modified accrual, a deficit of $4.4 billion was recorded for March 2003.

Table 2
Budgetary revenues


  March   April to March  
 
 
 
  2003 2004 Change 2002–03 2003–04 Change

  ($ millions) (%) ($ millions) (%)
Tax revenues            
Income taxes            
 Personal income tax 7,718 8,135 5.4 81,157 83,144 2.4
 Corporate income tax 1,868 3,389 81.4 20,772 26,355 26.9
 Other income tax revenue 226 195 -13.7 2,956 2,912 -1.5
 

 Total income tax 9,812 11,719 19.4 104,885 112,411 7.2
Excise taxes and duties            
 Goods and services tax 1,038 2,446 135.6 28,680 28,262 -1.5
 Customs import duties 272 228 -16.2 3,203 2,870 -10.4
 Sales and excise taxes 758 730 -3.7 9,397 9,660 2.8
 Air Travellers Security Charge 47 45 -4.3 407 414 1.7
 

 Total excise taxes and duties 2,115 3,449 63.1 41,687 41,206 -1.2
 

Total tax revenues 11,927 15,168 27.2 146,572 153,617 4.8
Employment insurance premiums 1,775 1,713 -3.5 18,203 17,419 -4.3
Other revenues 1,475 961 -34.8 11,632 10,856 -6.7
Total budgetary revenues 15,177 17,842 17.6 176,407 181,892 3.1

Table 3
Budgetary expenses


  March   April to March  
 
 
 
  2003 2004 Change 2002–03 2003–04 Change

  ($ millions) (%) ($ millions) (%)
Transfer payments            
 Transfers to persons            
  Elderly benefits 2,186 2,277 4.2 25,720 26,939 4.7
  Employment insurance benefits 1,576 1,378 -12.6 14,594 15,076 3.3
  Total 3,762 3,655 -2.8 40,314 42,015 4.2
  Transfers to other levels 
  of government
           
    Canada Health and 
    Social Transfer
1,550 3,691 138.1 18,600 22,300 19.9
    Fiscal transfers 369 216 -41.5 10,453 10,081 -3.6
    Alternative Payments for 
    Standing Programs
-210 -285 35.7 -2,522 -2,615 3.7
    Total 1,709 3,622 111.9 26,531 29,766 12.2
  Subsidies and other transfers            
    Agriculture 193 1,235 539.9 1,393 2,358 69.3
    Foreign Affairs 742 674 -9.2 2,256 2,519 11.7
    Health 163 508 211.7 1,511 2,059 36.3
    Human Resources Development 138 169 22.5 1,451 1,614 11.2
    Indian and Northern Development 454 481 5.9 4,151 4,268 2.8
    Industry and Regional Development 370 479 29.5 1,959 2,435 24.3
    Other 501 655 30.7 2,899 3,192 10.1
 

    Total 2,561 4,201 64.0 15,620 18,445 18.1
 

Total transfer payments 8,032 11,478 42.9 82,465 90,226 9.4
Other program expenses            
 Crown corporation expenses            
   Canadian Broadcasting Corporation 57 20 -64.9 1,051 1,074 2.2
   Canada Mortgage and 
   Housing Corporation
165 205 24.2 1,913 2,065 7.9
   Other 167 166 -0.6 2,045 2,125 3.9
 

   Total 389 391 0.5 5,009 5,264 5.1
 Defence 1,393 1,381 -0.9 11,328 11,933 5.3
 All other departments and agencies 3,098 2,849 -8.0 29,983 31,384 4.7
 

Total other program expenses 4,880 4,621 -5.3 46,320 48,581 4.9
Total program expenses 12,912 16,099 24.7 128,785 138,807 7.8
Public debt charges 3,252 2,978 -8.4 37,426 35,522 -5.1
Total budgetary expenses 16,164 19,077 18.0 166,211 174,329 4.9

Table 4
Budgetary balance and financial source/requirement


  March April to March
 

  2003 2004 2002–03 2003–04

  ($ millions)
Budgetary balance (deficit/surplus) -987 -1,235 10,196 7,563
Non-budgetary transactions        
Capital investing activities -696 -724 -2,685 -2,259
Other investing activities -55 792 -779 -260
Other activities        
 Accounts payable, receivables, accruals and allowances 2,840 1,144 -7,664 -9,152
 Foreign exchange activities -552 1,793 3,058 4,219
 Amortization of tangible capital assets 225 295 2,824 3,018
 

 Total other activities 2,513 3,232 -1,782 -1,915
Total non-budgetary transactions 1,762 3,301 -5,246 -4,433
Net financial source/requirement 775 2,066 4,950 3,130

Table 5
Financial source/requirement and net financing activities


  March April to March
 

  2003 2004 2002–03 2003–04

  ($ millions)
Net financial source/requirement 775 2,066 4,950 3,130
Net increase (+)/decrease (-) in financing activities        
  Unmatured debt transactions        
   Canadian currency borrowings        
     Marketable bonds 2,456 1,921 -5,671 -9,307
     Treasury bills 4,650 6,700 10,400 8,800
     Canada Savings Bonds -135 -15 -1,932 -1,680
     Other -1 -34 -19 57
 

     Total 6,970 8,572 2,778 -2,130
   Foreign currency borrowings -364 -564 -5,897 -597
 

   Total 6,606 8,008 -3,119 -2,727
  Pension and other accounts 1,421 995 962 2,148
  Net change in financing activities 8,027 9,003 -2,157 -579
Change in cash balance 8,802 11,069 2,793 2,551

Table 6
Condensed statement of assets and liabilities


  March 31, 2003 March 31, 2004 Change

  ($ millions)
Liabilities      
 Accounts payable, accruals 
 and allowances
79,384 75,937 -3,447
 Interest-bearing debt      
  Unmatured debt      
    Payable in Canadian dollars      
    Marketable bonds 288,245 278,939 -9,306
    Treasury bills 104,411 113,211 8,800
    Canada Savings Bonds 22,584 20,904 -1,680
    Other 3,371 3,427 56
 
    Subtotal 418,611 416,481 -2,130
   Payable in foreign currencies 21,141 20,544 -597
   Total unmatured debt 439,752 437,025 -2,727
  Pension and other accounts      
    Public sector pensions 125,708 127,790 2,082
    Other employee and veteran 
    future benefits
38,844 38,845 1
    Canada Pension Plan 
    (net of securities)
7,093 7,480 387
    Other pension and other accounts 9,359 9,038 -321
 
    Total pension and other accounts 181,004 183,152 2,148
   Total interest-bearing debt 620,756 620,177 -579
 Total liabilities 700,140 696,114 -4,026
Financial assets      
  Cash and accounts receivable 62,626 69,979 7,353
  Foreign exchange accounts 48,950 44,731 -4,219
  Loans, investments and advances 
  (net of allowances)
23,748 25,031 1,283
 
  Total financial assets 135,324 139,741 4,417
 
Net debt 564,816 556,373 -8,443
Non-financial assets 54,240 53,360 -880
Federal debt (accumulated deficit) 510,576 503,013 -7,563