- Fiscal Monitor 2004 -

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Highlights of financial results for July 2004

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Highlights

July 2004: budgetary surplus of $1.4 billion

There was a budgetary surplus of $1.4 billion in July 2004, compared to a surplus of $12 million in July 2003. This year-over-year improvement in the budgetary surplus is attributable to strong growth in budgetary revenues, up $1.5 billion or 10.3 per cent, primarily reflecting higher corporate income taxes and excise taxes and duties. Total budgetary expenses were up $0.1 billion, as slightly higher program expenses offset a decline in public debt charges.

April to July 2004: budgetary surplus of $4.4 billion

For the first four months of the 2004–05 fiscal year (April to July), the budgetary surplus is estimated at $4.4 billion, up $0.7 billion from the surplus reported in the same period last year. Budgetary revenues were up $2.0 billion or 3.3 per cent, reflecting gains in most major components. The strength in budgetary revenues reflects the strong growth in the economy witnessed during the first half of 2004. Statistics Canada reported that nominal income, the applicable tax base for federal revenues, increased by 6.7 per cent in the seond quarter of 2004 compared to the same period last year. Program expenses were up $1.5 billion, or 3.4 per cent, primarily due to higher transfer payments, reflecting the impact of previous budget measures. Public debt charges were $0.2 billion lower.

July 2004: budgetary results

The July 2004 budgetary surplus is estimated at $1.4 billion, compared to a surplus of $12 million in July 2003.

On a year-over-year basis, budgetary revenues, at $16.1 billion, were up $1.5 billion, or 10.3 per cent. This increase is primarily attributable to a $0.7-billion increase in corporate income tax revenues and a $0.8-billion increase in excise taxes and duties.

  • Personal income tax revenues were up $0.1 billion, or 1.5 per cent, primarily reflecting higher deductions from employment income.
  • Corporate income tax revenues increased by $0.7 billion, or 62.4 per cent, reflecting both strong growth in gross receipts and lower refunds related to reassessments of tax liabilities in previous years.
  • Excise taxes and duties increased $0.8 billion, or 25.9 per cent, with all components higher. Goods and services tax (GST) revenues were up $0.5 billion, or 20.9 per cent, due to higher GST levied at customs and lower refunds. Customs import duties advanced by $0.1 billion, while sales and excise taxes increased by $0.2 billion.
  • Employment insurance (EI) premiums were down 11.3 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 up 7.9 per cent. This component is extremely volatile on a monthly basis.

Program expenses in July 2004 were $11.6 billion, up $0.2 billion, or 1.4 per cent, from July 2003. Both transfer payments and other program expenses were marginally higher.

Transfer payments were up $0.1 billion, or 1.8 per cent.

  • Major transfers to persons, consisting of elderly and EI benefits, were up marginally on a year-over-year basis, as higher elderly benefits were virtually offset by lower EI benefits. Elderly benefits increased 2.7 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 declined 5.3 per cent, reflecting lower regular benefit payments, attributable to the improved labour market situation.
  • Major transfers to other levels of government, consisting of federal transfers in support of health and other social programs (Canada Health Transfer, Canada Social Transfer and Health Reform Transfer), fiscal transfers and Alternative Payments for Standing Programs, were up $0.2 billion, or 8.1 per cent. The increase in federal transfers in support of health and other social programs reflects increased funding under the February 2003 First Ministers’ Accord on Health Care Renewal. Fiscal transfers consist of equalization, payments to the territorial governments, statutory subsidies and recoveries under the Youth Allowance Recovery Program. In aggregate, these transfers were up 7.3 per cent from July 2003.
  • Subsidies and other transfers declined by 5.8 per cent. This component is extremely volatile on a monthly basis, reflecting the timing of payments.

Other program expenses consist of transfers to Crown corporations and operating expenses for departments and agencies, including defence. On a year-over-year basis, these expenses were up 0.9 per cent, as a decline in Crown corporation expenses was more than offset by higher defence and all other departmental and agency expenses. This component is also quite volatile on a monthly basis, reflecting the timing of payments and the coming into force of budget measures.

Public debt charges were down 2.5 per cent, as a lower stock of interest-bearing debt more than offset an increase in the average effective interest rate on that debt.

April to July 2004: budgetary results

In the first four months of the fiscal year, there was a budgetary surplus of $4.4 billion, up $0.7 billion from the surplus of $3.7 billion reported in the same period of 2003–04.

Budgetary revenues, at $61.6 billion, were up $2.0 billion, or 3.3 per cent, reflecting strong gains in most components of tax revenues (up 6 per cent), dampened slightly by lower EI premiums and other revenues.

  • Personal income tax revenues increased by $1.2 billion, or 4.5 per cent. The year-over-year increase is primarily attributable to the strong growth in source deductions from employment income, reflecting, in part, gains in employment over the past 12 months.
  • Corporate income tax revenues were up $0.6 billion, or 8.6 per cent, reflecting strong gains in monthly installments due to higher corporate profits.
  • Excise taxes and duties increased by $1.0 billion, or 7.2 per cent. GST revenues increased by $0.7 billion, or 7.3 per cent, due to higher gross receipts from domestic sales and at customs as well as lower refunds. Customs import duties advanced by 13.2 per cent, reflecting strong growth in dutiable imports. Sales and excise taxes increased by 5.8 per cent due to higher excise revenues on tobacco and alcohol products, as energy tax revenues were lower.
  • EI premiums were down 6.6 per cent, reflecting the reduction in premium rates.
  • Other revenues declined by 11.2 per cent.

On a year-over-year basis, program expenses in the April to July 2004 period, at $45.6 billion, were up $1.5 billion, or 3.4 per cent, over the same period of 2003–04, with most of the increase attributable to higher transfer payments. Public debt charges declined by $0.2 billion.

Transfer payments, which accounted for nearly two-thirds of total program expenses, increased by $1.4 billion, or 5.0 per cent.

  • Transfers to persons advanced by $0.3 billion, or 2.0 per cent. Elderly benefits were up 3.2 per cent while EI benefits were marginally lower. Within EI benefits, regular benefit payments were lower, reflecting the improved labour market situation, while special benefits, such as sickness, maternity and paternal benefits, were higher.
  • Transfers to other levels of government were up $0.6 billion, or 6.5 per cent, reflecting higher transfers in support of health and other social programs, due to recent budget measures, and increased fiscal transfers. The latter primarily reflects the impact of recoveries in 2003–04 related to overpayments in previous years under the equalization program, which depressed spending last year. Misclassifications between fiscal transfers and subsidies and other transfers resulted in an overstatement of fiscal transfers in the April to June 2004 period of $374 million and an understatement of subsidies and other transfers of a comparable amount. This was corrected in July.
  • Subsidies and other transfers increased by $0.5 billion, or 10.9 per cent, primarily reflecting the impact of previous budget measures.

Other program expenses increased by $0.1 billion, or 0.7 per cent, as slightly lower year-over-year Crown corporation and defence expenses were offset by an increase in all other departmental and agency expenses.

Public debt charges were down 1.8 per cent, as a decline in the stock of interest-bearing debt more than offset an increase in the average effective interest rate on that debt.

Revenues and expenses

Financial requirement of $5.9 billion for April to July 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 $10.2 billion in the April to July period, down $5.2 billion from the requirement in the same period of 2003–04. The decline is primarily attributable to the cash transfers in the April to July 2003 period to trust funds established in the 2003 budget for the Canada Health and Social Transfer cash supplement ($2.5 billion), the Diagnostic/Medical Equipment Fund ($1.5 billion), Canada Health Infoway Corporation ($600 million) and the Canada Foundation for Innovation ($500 million).

With a budgetary surplus of $4.4 billion and a net requirement of $10.2 billion from non-budgetary transactions, there was a financial requirement of $5.9 billion in the first four months of 2004–05, down $5.9 billion from the same period last year.

Net financing activities down $7.0 billion

The Government lowered its holdings of market debt by $7.0 billion by the end of July 2004, primarily by reducing its holdings of marketable bonds. As a result, to finance the financial requirement of $5.9 billion, it?lowered its cash balances. 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 July stood at $4.4 billion.

Budgetary balance

Federal debt (accumulated deficit)

Table 1
Summary statement of transactions


  July April to July
 

  2003 2004 2003–04 2004–05

  ($ millions)
Budgetary transactions        
 Revenues 14,561 16,063 59,636 61,600
 Expenses        
  Program expenses -11,441 -11,604 -44,055 -45,553
  Public debt charges -3,108 -3,031 -11,914 -11,696
 

 Budgetary balance (deficit/surplus) 12 1,439 3,667 4,351
Non-budgetary transactions -2,218 -88 -15,427 -10,209
Financial source/requirement -2,206 1,340 -11,760 -5,858
Net change in financing activities 988 821 458 -6,967
Net change in cash balances -1,218 2,161 -11,302 -12,825
Cash balance at end of period     3,395 4,425

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

Table 2
Budgetary revenues


July April to July


2003 2004 Change 2003–04 2004–05 Change

($ millions) (%) ($ millions) (%)
Tax revenue
 Income taxes
  Personal income tax 7,345 7,453 1.5 27,045 28,265 4.5
  Corporate income tax 1,169 1,899 62.4 7,000 7,600 8.6
  Other income tax revenue 317 266 -16.1 982 1,101 12.1


  Total income tax 8,831 9,618 8.9 35,027 36,966 5.5
 Excise taxes and duties
  Goods and services tax 2,257 2,728 20.9 9,330 10,013 7.3
  Customs import duties 210 317 51.0 879 995 13.2
  Sales and excise taxes 726 960 32.2 3,072 3,250 5.8
  Air Travellers Security Charge 15 35 133.3 147 131 -10.9


  Total excise taxes and duties 3,208 4,040 25.9 13,428 14,389 7.2


 Total tax revenues 12,039 13,658 13.4 48,455 51,355 6.0
Employment insurance premiums 1,652 1,466 -11.3 6,893 6,438 -6.6
Other revenues 870 939 7.9 4,288 3,807 -11.2
Total budgetary revenues 14,561 16,063 10.3 59,636 61,600 3.3

Table 3
Budgetary expenses


July April to July


2003 2004 Change 2003–04 2004–05 Change

($ millions) (%) ($ millions) (%)
Transfer payments
 Transfers to persons
  Elderly benefits 2,214 2,273 2.7 8,847 9,127 3.2
  Employment insurance benefits 1,036 981 -5.3 4,607 4,597 -0.2


  Total 3,250 3,254 0.1 13,454 13,724 2.0
 Transfers to other levels 
  of government
  Support for health and other 
   social programs
   Canada Health Transfer 1,054 4,217
   Canada Social Transfer 652 2,608
   Health Reform Transfer 125 500
   Canada Health and Social Transfer 1,691 6,766 25


   Total 1,691 1,831 8.3 6,766 7,350 8.6
  Fiscal transfers 879 943 7.3 3,555 3,790 6.6
  Alternative Payments for 
   Standing Programs
-211 -225 6.6 -784 -984 25.5


  Total 2,359 2,549 8.1 9,537 10,156 6.5
 Subsidies and other transfers
  Agriculture 27 29 7.4 46 153 232.6
  Foreign Affairs 159 151 -5.0 593 727 22.6
  Health 191 233 22.0 517 608 17.6
  Human Resources Development 85 88 3.5 427 492 15.2
  Indian and Northern Development 312 340 9.0 1,564 1,552 -0.8
  Industry and Regional Development 128 110 -14.1 457 494 8.1
  Other 362 240 -33.7 1,004 1,084 8.0


  Total 1,264 1,191 -5.8 4,608 5,110 10.9


 Total transfer payments 6,873 6,994 1.8 27,599 28,990 5.0
Other program expenses
 Crown corporation expenses
  Canadian Broadcasting Corporation 51 94 84.3 417 466 11.8
  Canada Mortgage and Housing 
   Corporation
166 170 2.4 737 725 -1.6
  Other 192 122 -36.5 737 695 -5.7


  Total 409 386 -5.6 1,891 1,886 -0.3
 Defence 1,021 1,070 4.8 3,576 3,568 -0.2
 All other departments and agencies 3,138 3,154 0.5 10,989 11,109 1.1
 Total other program expenses 4,568 4,610 0.9 16,456 16,563 0.7


Total program expenses 11,441 11,604 1.4 44,055 45,553 3.4
Public debt charges 3,108 3,031 -2.5 11,914 11,696 -1.8
Total budgetary expenses 14,549 14,635 0.6 55,969 57,249 2.3

Table 4
Budgetary balance and financial source/requirement


July April to July


2003 2004 2003–04 2004–05

($ millions)
Budgetary balance (deficit/surplus) 12 1,428 3,667 4,351
Non-budgetary transactions
 Capital investing activities -216 -6 -636 -379
 Other investing activities 44 -309 -400 -431
 Pension and other accounts -709 -721 81 -617
 Other activities
  Accounts payable, receivables, 
   accruals and allowances
-1,775 586 -15,884 -10,067
  Foreign exchange activities 205 104 412 279
  Amortization of tangible capital assets 233 258 1,000 1,006
 

  Total other activities -1,337 948 -14,472 -8,766
 Total non-budgetary transactions -2,218 -88 -15,427 -10,209
Net financial source/requirement -2,206 1,340 -11,760 -5,858

Table 5
Financial source/requirement and net financing activities


July April to July
 

2003 2004 2003–04 2004–05

($ millions)
Net financial source/requirement -2,206 1,340 -11,760 -5,858
Net increase (+)/decrease (-) in financing activities
 Unmatured debt transactions
  Canadian currency borrowings
   Marketable bonds -1,729 278 -4,794 -7,432
   Treasury bills 2,900 1,000 5,800 1,800
   Canada Savings Bonds -99 -61 -489 -183
   Other -2 -5 176 -19
 

   Total 1,070 1,212 693 -5,834
  Foreign currency borrowings -82 -391 -235 -1,133
 

 Net change in financing activities 988 821 458 -6,967
Change in cash balance -1,218 2,161 -11,302 -12,825