- Fiscal Monitor 2004 -

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Highlights of financial results for September 2004

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Highlights

September 2004: budgetary surplus of $3.3 billion

There was a budgetary surplus of $3.3 billion in September 2004, up significantly from a deficit of $728 million recorded in September 2003. This year-over-year higher surplus primarily reflects the net gain from the sale of the federal government’s remaining shares in Petro-Canada. In addition, the labour disruptions in September at the Canada Revenue Agency resulted in delays in the processing of refunds, thereby resulting in a temporary increase in revenues. Revenues were up $3.5 billion compared to September 2003, while program expenses were down $0.4 billion. Public debt charges were $0.1 billion lower than during the same month last year.

April to September 2004: budgetary surplus of $7.9 billion

For the first six months of the 2004-05 fiscal year (April to September), the budgetary surplus is estimated at $7.9 billion, up $4.9 billion from the surplus reported in the same period last year. Budgetary revenues were up $6.1 billion, or 7.1 per cent. This reflects the inclusion of the net proceeds from the sale of the Government’s remaining shares in Petro-Canada as well as increases in most revenue components, consistent with the strong growth in the economy in the first half of 2004. Program expenses were up $1.77 billion, or 2.6 per cent, primarily due to higher transfer payments, reflecting the impact of previous budget measures. Public debt charges were $0.4 billion lower.

 

Note to Readers: Caution should be exercised in interpreting the year-to-date fiscal results. The revenue data reported for September and the fiscal year to date were affected by the recent federal public service labour disruption. Revenues are in some instances overstated due to fewer refunds having been processed. The labour disruption will also affect the October 2004 results, but the impact should unwind over the coming months as the Canada Revenue Agency catches up with the processing of refunds. In addition, a number of proposed policy initiatives, including the recent federal-provincial/territorial agreements on health care, equalization and Territorial Formula Financing, will only be reflected in the monthly fiscal results once enabling legislation receives Royal Assent.

September 2004: budgetary results

The September 2004 budgetary surplus was estimated at $3.3 billion, up from a deficit of $728 million in September 2003.

On a year-over-year basis, budgetary revenues, at $16.9 billion, were up $3.5 billion, or 26.2 per cent. This increase is mostly attributable to the net proceeds from the sale of the federal government’s remaining shares in Petro-Canada. There were also increases in personal income tax ($0.77 billion) and corporate income tax ($0.5 billion) revenues, offset somewhat by a decline in employment insurance (EI) premium revenues ($0.2 billion). Excise taxes and duties remained flat on a year-over-year basis.

  • Personal income tax revenues increased by $0.7 billion, or 10.7 per cent. The year-over-year increase is primarily attributable to growth in source deductions and higher instalment payments.
  • Corporate income tax revenues were up $0.5 billion, or 46.9 per cent, reflecting fewer refunds processed during the month of September due to the public service labour disruption. For example, gross receipts in September were up about 12 per cent, but a 27-per-cent fall-off in refunds lifted net receipts by 46.9 per cent. Some of these higher net receipts will be reversed in the coming months.
  • Excise taxes and duties were flat, as a decline in customs import duties was almost fully offset by increases in other excise taxes and duties. Goods and services tax (GST) revenues remained flat on a year-over-year basis, although GST refunds were down significantly due to the public service labour disruption.
  • EI premiums were down 12.0 per cent, reflecting the impact of the lower premium rate (the employee rate for 2004 is $1.98 per $100 of insurable earnings compared to $2.10 in 2003), which more than offset the increase in employment and thus the number of people paying premiums.
  • Other revenues, which consist of revenues from Crown corporations, sales of goods and services and foreign exchange revenues, were up $2.57 billion due to the sale of the federal government’s remaining shares in Petro-Canada. Without this sale, other revenues would have declined in September.

Program expenses in September 2004 were $10.8 billion, down $0.4 billion, or 3.4 per cent, from September 2003. Lower EI benefits (down $0.3 billion) and other program expenses (down $0.4 billion) more than offset increases in transfers to other levels of government and subsidies and other transfers (up $0.3 billion).

Total transfer payments were up $0.1 billion, or 0.8 per cent, in September 2004.

  • Major transfers to persons, consisting of elderly and EI benefits, were down $0.3 billion on a year-over-year basis. Elderly benefits increased 3.2 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 benefits fell by 25.27 per cent, largely due to the timing of payments in September 2004 compared to the same month in 2003, and partly due to a decline in the number of unemployed persons.
  • 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 8.37 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 entitlements, payments to the territorial governments, statutory subsidies and recoveries under the Youth Allowance Recovery Program. In aggregate, these transfers were up 8.07 per cent from September 2003, primarily reflecting the impact of recoveries in 2003-04 for overpayments in previous years under the equalization program.
  • Subsidies and other transfers were up 12.6 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 down 10.4 per cent. Other program expenses were affected by the federal public service labour disruption in September, which reduced operating costs. 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 3.5 per cent, as a decline in the stock of interest-bearing debt more than offset the impact of an increase in the average effective interest rate on that debt.

Revenues and expenses

April to September 2004: budgetary results

In the first six months of the fiscal year, there was a budgetary surplus of $7.9 billion, up $4.9 billion from the surplus of $3.0 billion reported in the same period of 2003-04. Over half of the increase in the surplus relates to one-time factors.

Budgetary revenues, at $93.1 billion, were up $6.1 billion or 7.1 per cent. This increase reflects gains in tax revenues and higher other revenues, including the sale of the federal government’s remaining shares in Petro-Canada, offset somewhat by lower EI premiums. Tax revenues were up $5.2 billion, or 7.3 per cent. However, as noted above, the labour disruption in the federal public service in September has raised both September and year-to-date tax revenues due to a lower volume of refunds processed. This impact should largely unwind in the coming months.

  • Personal income tax revenues increased by $2.5 billion, or 6.4 per cent. The year-over-year increase is primarily attributable to the strong growth in source deductions from employment income, partly reflecting gains in employment.
  • Corporate income tax revenues were up $1.2 billion, or 12.8 per cent, reflecting in part the lower volume of refunds processed in September 2004. In addition, the monthly results are affected by remittance procedures. Corporations are required to remit monthly instalments based on their previous year’s actual tax liabilities or their current year’s estimated liabilities, with settlement payments made within 60 days of the close of their taxation year. Given the large increase in settlement payments in 2003-04, reflecting the increase in corporate profits in 2003, the current monthly instalments are more reflective of the increase in the tax liability last year than an increase in the current year.
  • Excise taxes and duties increased by $1.3 billion, or 6.4 per cent, primarily due to growth in GST revenues, which were up 9.3 per cent. Customs import duties were up slightly, while there was a slight decline in the Air Travellers Security Charge.
  • EI premiums were down $0.8 billion, or 8.0 per cent.
  • Other revenues increased $1.8 billion, or 27.2 per cent, reflecting the sale of the Government’s remaining shares of Petro-Canada.

On a year-over-year basis, program expenses in the April to September 2004 period were up 2.6 per cent to $67.7 billion due to higher transfers. Public debt charges were $0.4 billion lower than in the first six months of 2003-04.

Transfer payments, which accounted for nearly two-thirds of total program expenses, increased by $1.9 billion, or 4.6 per cent.

  • Transfers to persons advanced by $0.3 billion, or 1.6 per cent. Elderly benefits were up 3.2 per cent while EI benefits were down 1.47 per cent. Within EI benefits, an increase in special benefits, such as sickness, maternity and parental benefits, was offset by a decline in regular benefits, reflecting the improvement in the labour market.
  • Transfers to other levels of government were up $1.1 billion, or 7.67 per7 cent, reflecting higher transfers in support of health and other social programs resulting from the February 2003 First Ministers’ Accord on Health Care Renewal, as well as increased fiscal transfers. Fiscal transfers were up 8.5 per cent, primarily reflecting the impact on the 2003-04 results of recoveries related to overpayments in previous years under the equalization program.
  • Subsidies and other transfers increased by $0.5 billion, or 7.4 per cent, primarily reflecting the impact of previous budget measures.

Other program expenses fell by $0.2 billion, or 0.8 per cent, due to lower expenses related to Crown corporations and all departments and agencies except defence, reflecting lower operating costs related to the federal public service labour disruption.

Public debt charges were down $0.4 billion, as a decline in the stock of interest-bearing debt more than offset the impact of an increase in the average effective interest rate on that debt.

Budgetary balance

Federal debt (accumulated deficit)

Financial requirement of $1.0 billion for April to September 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), pensions and other accounts, as well as 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 $8.9 billion in the April to September period, down $4.7 billion from the requirement in the same period of 2003-04. The decline is primarily attributable to the cash transfers in the April to September 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 ($1.57 billion), Canada Health Infoway ($600 million) and the Canada Foundation for Innovation ($500 million).

With a budgetary surplus of $7.9 billion and a net requirement of $8.97 billion from non-budgetary transactions, there was a financial requirement of $1.0 billion in the first six months of 2004-05, down $9.6 billion from the same period last year.

Net financing activities down $10.6 billion

The Government reduced market debt by $10.6 billion by the end of September 2004, largely by reducing its holdings of marketable bonds. Given the reduction in market debt and the financial requirement of $1.0 billion, the Government lowered its cash balances by $11.5 billion. The monthly level of cash balances varies as a result of a number of factors including periodic large debt maturities, which can be quite volatile on a monthly basis. Cash balances at the end of September stood at $5.7 billion.

Table 1
Summary statement of transactions


  September April to September
 

  2003 2004 2003-04 2004-05

  ($ millions)
Budgetary transactions        
Revenues 13,370 16,873 86,940 93,086
Expenses        
   Program expenses -11,128 -10,753 -65,982 -67,702
   Public debt charges -2,970 -2,866 -17,916 -17,476
 

Budgetary balance (deficit/surplus) -728 3,254 3,042 7,908
Non-budgetary transactions 2,075 -111 -13,629 -8,881
Financial source/requirement 1,347 3,143 -10,587 -973
Net change in financing activities -5,708 -6,431 -140 -10,576
Net change in cash balances -4,361 -3,288 -10,727 -11,549
Cash balance at end of period     3,973 5,701

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

Table 2
Budgetary revenues


  September   April to September  
 
 
 
  2003 2004 Change 2003-04 2004-05 Change

  ($ millions) (%) ($ millions) (%)
Tax revenues            
Income taxes            
   Personal income tax 6,307 6,979 10.7 39,780 42,319 6.4
   Corporate income tax 1,122 1,648 46.9 9,058 10,220 12.8
   Other income tax revenue 171 181 5.8 1,350 1,500 11.1
 

   Total income tax 7,600 8,808 15.9 50,188 54,039 7.7
Excise taxes and duties            
   Goods and services tax 2,368 2,369 0.0 13,988 15,288 9.3
   Customs import duties 317 277 -12.6 1,545 1,581 2.3
   Sales and excise taxes 790 824 4.3 4,870 4,871 0.0
   Air Travellers Security Charge 33 35 6.1 212 194 -8.5
 

   Total excise taxes and duties 3,508 3,505 -0.1 20,615 21,934 6.4
 

Total tax revenues 11,108 12,313 10.8 70,803 75,973 7.3
Employment insurance premiums 1,322 1,163 -12.0 9,689 8,910 -8.0
Other revenues 940 3,397 261.4 6,448 8,203 27.2
Total budgetary revenues 13,370 16,873 26.2 86,940 93,086 7.1

Table 3
Budgetary expenses


  September   April to September  
 
 
 
  2003 2004 Change 2003-04 2004-05 Change

  ($ millions) (%) ($ millions) (%)
Transfer payments            
Transfers to persons            
   Elderly benefits 2,244 2,315 3.2 13,324 13,752 3.2
   Employment insurance benefits 1,352 1,011 -25.2 7,035 6,935 -1.4
 

   Total 3,596 3,326 -7.5 20,359 20,687 1.6
Transfers to other levels of government            
   Support for health and other
    social programs
           
      Canada Health Transfer   1,054     6,325  
      Canada Social Transfer   652     3,912  
      Health Reform Transfer   125     750  
      Canada Health and
       Social Transfer
1,692     10,150 25 -99.8
   Fiscal transfers 858 927 8.0 5,202 5,645 8.5
   Alternative Payments for
    Standing Programs
-211 -225 6.6 -1,205 -1,433 18.9
 

   Total 2,339 2,533 8.3 14,147 15,224 7.6
Subsidies and other transfers            
   Agriculture 112 88 -21.4 369 232 -37.1
   Foreign Affairs 133 129 -3.0 830 1,023 23.3
   Health 92 179 94.6 708 874 23.4
   Human Resources Development 126 102 -19.0 633 499 -21.2
   Indian and Northern Development 281 302 7.5 2,158 2,192 1.6
   Industry and Regional Development 69 122 76.8 712 827 16.2
   Other 237 260 9.7 1,358 1,625 19.7
 

   Total 1,050 1,182 12.6 6,768 7,272 7.4
 

Total transfer payments 6,985 7,041 0.8 41,274 43,183 4.6
Other program expenses            
Crown corporation expenses            
   Canadian Broadcasting Corporation 92 109 18.5 583 660 13.2
   Canada Mortgage and
    Housing Corporation
166 170 2.4 1,074 1,035 -3.6
   Other 157 116 -26.1 1,073 988 -7.9
 

   Total 415 395 -4.8 2,730 2,683 -1.7
Defence 876 1,040 18.7 5,567 5,655 1.6
All other departments and agencies 2,852 2,277 -20.2 16,411 16,181 -1.4
 

Total other program expenses 4,143 3,712 -10.4 24,708 24,519 -0.8
Total program expenses 11,128 10,753 -3.4 65,982 67,702 2.6
Public debt charges 2,970 2,866 -3.5 17,916 17,476 -2.5
Total budgetary expenses 14,098 13,619 -3.4 83,898 85,178 1.5

Table 4
Budgetary balance and financial source/requirement


  September April to September
 

  2003 2004 2003-04 2004-05

  ($ millions)
Budgetary balance (deficit/surplus) -728 3,254 3,042 7,908
Non-budgetary transactions        
Capital investing activities -175 -180 -1,151 -471
Other investing activities -832 -378 -1,361 -1,082
Pension and other accounts 371 -504 824 -640
Other activities        
   Accounts payable, receivables,
    accruals and allowances
3,026 923 -13,535 -7,725
   Foreign exchange activities -219 -161 168 -309
   Amortization of tangible
    capital assets
-96 189 1,426 1,346
 

   Total other activities 2,711 951 -11,941 -6,688
Total non-budgetary transactions 2,075 -111 -13,629 -8,881
Net financial source/requirement 1,347 3,143 -10,587 -973

Table 5
Financial source/requirement and net financing activities


  September April to September
 

  2003 2004 2003-04 2004-05

  ($ millions)
Net financial source/requirement 1,347 3,143 -10,587 -973
Net increase (+)/decrease (-) in financing activities        
   Unmatured debt transactions        
      Canadian currency borrowings        
         Marketable bonds -3,758 -4,813 -7,101 -9,478
         Treasury bills -2,200 -1,500 7,500 400
         Canada Savings Bonds -74 -30 -652 -268
         Other -1 -1 173 -25
 

         Total -6,033 -6,344 -80 -9,371
      Foreign currency borrowings 325 -83 -48 -1,167
 

         Total -5,708 -6,427 -128 -10,538
      Obligations related to capital        leases 0 -4 -12 -38
   Net change in financing activities -5,708 -6,431 -140 -10,576
Change in cash balance -4,361 -3,288 -10,727 -11,549

Table 6
Condensed statement of assets and liabilities


  March 31, 2004 September 30, 2004 Change

  ($ millions)
Liabilities      
Accounts payable, accruals and allowances 79,964 68,154 -11,810
Interest-bearing debt      
   Unmatured debt      
      Payable in Canadian dollars      
         Marketable bonds 278,780 269,302 -9,478
         Treasury bills 113,378 113,778 400
         Canada Savings Bonds 21,330 21,062 -268
         Other 3,427 3,402 -25
 
         Subtotal 416,915 407,544 -9,371
      Payable in foreign currencies 20,542 19,375 -1,167
      Obligations related to
       capital leases
2,774 2,736 -38
      Total unmatured debt 440,231 429,655 -10,576
   Pension and other accounts      
      Public sector pensions 127,560 129,598 2,038
      Other employee and veteran
       future benefits
39,367 39,518 151
      Canada Pension Plan
       (net of securities)
7,483 5,085 -2,398
      Other pension and
       other accounts
6,488 6,057 -431
 
      Total pension and other accounts 180,898 180,258 -640
   Total interest-bearing debt 621,129 609,913 -11,216
Total liabilities 701,093 678,067 -23,026
Financial assets      
Cash and accounts receivable 70,921 55,288 -15,633
Foreign exchange accounts 44,313 44,622 309
Loans, investments and advances (net of allowances) 29,548 30,630 1,082
 
Total financial assets 144,782 130,540 -14,242
 
Net debt 556,311 547,527 -8,784
Non-financial assets 54,818 53,942 -876
Federal debt (accumulated deficit) 501,493 493,585 -7,908