- Fiscal Monitor 2004 -

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Highlights of financial results for  
October 2004

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Highlights

October 2004: budgetary surplus of $1.1 billion

There was a budgetary surplus of $1.1 billion in October 2004, up from a surplus of $159 million in October 2003. Revenues were up $1.3 billion compared to October 2003, primarily due to higher corporate income tax revenues, largely reflecting the impact of delays in the processing of refunds due to labour disputes at the Canada Revenue Agency. This should be reversed in coming months. Program expenses were up $0.8 billion while public debt charges were $0.4 billion lower.

April to October 2004: budgetary surplus of $9.0 billion

For the first seven months of the 2004–05 fiscal year (April to October), the budgetary surplus is estimated at $9.0 billion, up $5.8 billion from the surplus reported in the same period last year. Budgetary revenues were up $7.4 billion, or 7.3 per cent. This reflects the inclusion of the net proceeds of $2.6 billion from the sale of the Government’s remaining shares in Petro-Canada in September as well as increases in most revenue components, consistent with the growth in the economy in 2004. Program expenses were up $2.5 billion, or 3.3 per cent, due to higher transfer payments, primarily reflecting the impact of previous budget measures related to transfers to other levels of government. Public debt charges were $0.9 billion lower.

 

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

October 2004: budgetary results

The October 2004 budgetary surplus was estimated at $1.1 billion, up from a surplus of $159 million in October 2003.

On a year-over-year basis, budgetary revenues totalled $15.5 billion, up $1.3 billion, or 9.1 per cent. This increase is almost entirely attributable to sharply higher net corporate income tax receipts, which rose $1.2 billion, or 91.8 per cent, above their level of one year ago. Corporate income tax receipts continue to be affected by the recent public sector labour disruption. There were also increases in personal income tax revenues ($0.4 billion) and other revenues ($0.1 billion), offset somewhat by declines in employment insurance (EI) premium revenues ($0.1 billion) and excise taxes and duties ($0.3 billion).

  • Personal income tax revenues increased $0.4 billion, or 5.8 per cent, primarily due to growth in source deductions, consistent with higher employment.
  • Corporate income tax revenues jumped $1.2 billion, or 91.8 per cent, partly reflecting the impact of the public service labour disruption. For example, gross receipts in October were up 33.5 per cent while refunds dropped 44.2 per cent, resulting in a 91.8-per-cent gain in net receipts. Some of these higher net receipts will be reversed in the coming months as the backlog of refunds is processed.
  • Excise taxes and duties were down $0.3 billion. This decline is largely due to lower goods and service tax (GST) receipts, which fell $0.3 billion, or 11.1 per cent, primarily due to the timing of receipts. Among other excise taxes and duties, customs import duties rose 1.7 per cent while sales and excise taxes fell 1.3 per cent.
  • EI premiums were down 11.7 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 $0.1 billion.

On a year-over-year basis, program expenses in October 2004 were $11.6 billion, up $0.8 billion or 7.3 per cent from October 2003. Higher transfer payments accounted for most of this increase.

Total transfer payments were up $0.7 billion, or 9.8 per cent, in October 2004.

  • Major transfers to persons, consisting of elderly and EI benefits, were up $0.2 billion on a year-over-year basis. Elderly benefits increased 3.9 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 climbed by 10.3 per cent, reflecting the timing of payments in October 2004 compared to the same month last year.
  • 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 13.7 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 8.1 per cent from October 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 13.1 per cent. This component is extremely volatile on a monthly basis, largely reflecting the timing of payments. The October estimate of transfers from Human Resources Development is unusually low as it includes corrections to prior months.

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 3.1 per cent, as a decline in Crown corporation and defence-related expenses was more than offset by higher expenses in all other departments and agencies. 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 12.6 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 October 2004: budgetary results

In the first seven months of the fiscal year, there was a budgetary surplus of $9.0 billion, up $5.8 billion from the $3.2-billion surplus reported in the same period of 2003–04. However, almost half of the increase in the surplus relates to one-time factors.

Budgetary revenues, at $108.6 billion, were up $7.4 billion or 7.3 per cent. This increase reflects gains in tax revenues and other revenues, including the sale of the Government’s remaining shares in Petro-Canada, offset somewhat by lower EI premiums. Tax revenues were up $6.5 billion, or 7.8 per cent. However, as noted above, the recent labour disruption in the federal public service has raised year-to-date tax revenues due to a lower volume of refunds processed. This impact should largely unwind in the coming months.

Budgetary balance

  • Personal income tax revenues increased $2.9 billion, or 6.3 per cent. This increase is primarily due to strong growth in source deductions from employment income, reflecting in part gains in employment.
  • Corporate income tax revenues were up $2.4 billion, or 22.8 per cent, reflecting in part the lower volume of refunds processed in both September and October 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 tax liabilities last year than an increase in the current year.
  • Excise taxes and duties increased $1.0 billion, or 4.0 per cent, primarily due to growth in GST revenues, which were 5.6 per cent higher than last year. Customs import duties were also up (2.2 per cent), while there were declines in both sales and excise taxes (down 0.2 per cent) and the Air Travellers Security Charge (down 1.2 per cent).
  • EI premiums were down $0.9 billion, or 8.4 per cent.
  • Other revenues increased $1.9 billion, or 25.9 per cent, due to the sale of the Government’s remaining shares in Petro-Canada. In the absence of this transaction, other revenues would have declined on a year-over-year basis.

On a year-over-year basis, program expenses in the April to October 2004 period were up 3.3 per cent to $79.3 billion due to higher transfers. Public debt charges were $0.9 billion lower than in the first seven months of 2003–04.

Transfer payments, which accounted for nearly two-thirds of total program expenses, increased by $2.6 billion, or 5.4 per cent.

  • Transfers to persons advanced by $0.5 billion, or 2.2 per cent. Elderly benefits were up 3.3 per cent while EI benefits were virtually unchanged. Within EI benefits, an increase in special benefits, such as sickness, maternity and parental benefits, and employment benefit and support measures, was offset by a decline in regular benefits, reflecting the improvement in the labour market.
  • Transfers to other levels of government were up $1.4 billion, or 8.5 per cent, reflecting higher transfers in support of health and other social programs, resulting from the February 2003 First Ministers’ Accord on Health Care Renewal, and 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. These results do not reflect the impacts of the 2004 First Ministers’ agreements on health care, equalization and Territorial Formula Financing. These will be included in the monthly fiscal results once the legislation has received Royal Assent.
  • Subsidies and other transfers increased by $0.7 billion, or 8.4 per cent, primarily reflecting the impact of previous budget measures.

Other program expenses fell by $0.1 billion, or 0.2 per cent, as lower expenses related to Crown corporations more than offset marginally higher defence expenses. These expenses do not incorporate the impact of recent wage settlements in the federal public sector.

Public debt charges were down $0.9 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.

Federal Debt (accumulated deficit)

Financial source of $1.2 billion for April to October 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 $7.7 billion in the April to October period, down $5.7 billion from the requirement in the same period of 2003–04. The decline is primarily attributable to the cash transfers in the April to October 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 ($600 million) and the Canada Foundation for Innovation ($500 million).

With a budgetary surplus of $9.0 billion and a net requirement of $7.7 billion from non-budgetary transactions, there was a financial source of $1.2 billion in the first seven months of 2004–05, compared to a net requirement of $10.2 billion in the same period last year.

Net financing activities down $9.0 billion

The Government reduced market debt by $9.0 billion by the end of October 2004, largely through a reduction of marketable bonds. Given the reduction in market debt and the financial source of $1.2 billion, the Government lowered its cash balances by $7.7 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 October stood at $9.5 billion.

Table 1
Summary statement of transactions


  October April to October
 

  2003 2004 2003-04 2004-05

  ($ millions)
Budgetary transactions        
Revenues

14,190

15,476

101,131

108,563

Expenses        
   Program expenses

-10,788

-11,578

-76,771

-79,280

   Public debt charges

-3,243

-2,834

-21,160

-20,309

 

Budgetary balance (deficit/surplus)

159

1,064

3,200

8,974

Non-budgetary transactions

200

1,145

-13,429

-7,738

Financial source/requirement

359

2,209

-10,229

1,236

Net change in financing activities

-114

1,610

-255

-8,967

Net change in cash balances

245

3,819

-10,484

-7,731

Cash balance at end of period    

4,217

9,521


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

Table 2
Budgetary revenues


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

  ($ millions) (%) ($ millions) (%)
Tax revenues            
Income taxes            
   Personal income tax

6,533

6,910

5.8

46,313

49,229

6.3

   Corporate income tax

1,308

2,509

91.8

10,366

12,729

22.8

   Other income tax revenue

220

269

22.3

1,570

1,769

12.7

 

   Total income tax

8,061

9,688

20.2

58,249

63,727

9.4

Excise taxes and duties            
   Goods and services tax

3,066

2,726

-11.1

17,055

18,015

5.6

   Customs import duties

233

237

1.7

1,778

1,818

2.2

   Sales and excise taxes

815

804

-1.3

5,685

5,675

-0.2

   Air Travellers Security Charge

33

48

45.5

245

242

-1.2

 

   Total excise taxes and duties

4,147

3,815

-8.0

24,763

25,750

4.0

 

Total tax revenues

12,208

13,503

10.6

83,012

89,477

7.8

Employment insurance premiums

1,167

1,031

-11.7

10,857

9,940

-8.4

Other revenues

815

942

15.6

7,262

9,146

25.9

Total budgetary revenues

14,190

15,476

9.1

101,131

108,563

7.3


Table 3
Budgetary expenses


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

  ($ millions) (%) ($ millions) (%)
Transfer payments            
Transfers to persons            
   Elderly benefits

2,271

2,359

3.9

15,595

16,111

3.3

   Employment insurance benefits

1,012

1,116

10.3

8,047

8,051

0.0

 

   Total

3,283

3,475

5.8

23,642

24,162

2.2

Transfers to other levels of government            
   Support for health and other
    social programs
           
      Canada Health Transfer  

1,054

   

7,379

 
      Canada Social Transfer  

652

   

4,565

 
      Health Reform Transfer  

125

   

875

 
      Canada Health and
       Social Transfer

1,692

-25

  11,842

 

 
   Fiscal transfers

857

926

8.1

6,059

6,571

8.5

   Alternative Payments for
    Standing Programs

-269

-139

-48.3

-1,475

-1,573

6.6

 

   Total

2,280

2,593

13.7

16,426

17,817

8.5

Subsidies and other transfers            
   Agriculture

41

89

117.1

410

321

-21.7

   Foreign Affairs

137

203

48.2

967

1,225

26.7

   Health

270

105

-61.1

978

979

0.1

   Human Resources Development

133

7

-94.7

766

506

-33.9

   Indian and Northern Development

387

348

-10.1

2,544

2,539

-0.2

   Industry and Regional Development

162

208

28.4

875

1,035

18.3

   Other

115

448

289.6

1,470

2,074

41.1

 

   Total

1,245

1,408

13.1

8,010

8,679

8.4

 

Total transfer payments

6,808

7,476

9.8

48,078

50,658

5.4

Other program expenses            
Crown corporation expenses            
   Canadian Broadcasting Corporation

96

65

-32.3

679

725

6.8

   Canada Mortgage and
    Housing Corporation

149

165

10.7

1,223

1,200

-1.9

   Other

188

136

-27.7

1,262

1,121

-11.2

 

   Total

433

366

-15.5

3,164

3,046

-3.7

Defence

1,059

1,025

-3.2

6,629

6,680

0.8

All other departments and agencies

2,488

2,711

9.0

18,900

18,896

0.0

 

Total other program expenses

3,980

4,102

3.1

28,693

28,622

-0.2

Total program expenses

10,788

11,578

7.3

76,771

79,280

3.3

Public debt charges

3,243

2,834

-12.6

21,160

20,309

-4.0

Total budgetary expenses

14,031

14,412

2.7

97,931

99,589

1.7


Table 4
Budgetary balance and financial source/requirement


  October April to October
 

  2003 2004 2003-04 2004-05

  ($ millions)
Budgetary balance (deficit/surplus) 159 1,064 3,200 8,974
Non-budgetary transactions        
Capital investing activities 52 -185 -1,099 -654
Other investing activities 68 -508 -1,293 -1,590
Pension and other accounts 37 -1,358 862 -2,000
Other activities        
   Accounts payable, receivables,
    accruals and allowances
-811 2,462 -14,347 -5,266
   Foreign exchange activities 548 487 716 178
   Amortization of tangible
    capital assets
306 247 1,732 1,594
 

   Total other activities 43 3,196 -11,899 -3,494
Total non-budgetary transactions 200 1,145 -13,429 -7,738
Net financial source/requirement 359 2,209 -10,229 1,236

Table 5
Financial source/requirement and net financing activities


  October April to October
 

  2003 2004 2003-04 2004-05

  ($ millions)
Net financial source/requirement

359

2,209

-10,229

1,236

Net increase (+)/decrease (-) in financing activities        
   Unmatured debt transactions        
      Canadian currency borrowings        
         Marketable bonds

578

552

-6,524

-8,926

         Treasury bills

-400

1,400

7,100

1,800

         Canada Savings Bonds

-86

-79

-738

-347

         Other

-1

-1

172

-26

 

         Total

91

1,872

10

-7,499

      Foreign currency borrowings

-207

-260

-255

-1,428

 

         Total

-116

1,612

-245

-8,927

      Obligations related to capital leases

2

-2

-10

-40

   Net change in financing activities

-114

1,610

-255

-8,967

Change in cash balance

245

3,819

-10,484

-7,731


Table 6
Condensed statement of assets and liabilities


  March 31, 2004 October 31, 2004 Change

  ($ millions)
Liabilities      
Accounts payable, accruals and allowances

79,964

71,443

-8,521

Interest-bearing debt      
   Unmatured debt      
      Payable in Canadian dollars      
         Marketable bonds

278,780

269,854

-8,926

         Treasury bills

113,378

115,178

1,800

         Canada Savings Bonds

21,330

20,983

-347

         Other

3,427

3,401

-26

 
         Subtotal

416,915

409,416

-7,499

      Payable in foreign currencies

20,542

19,114

-1,428

      Obligations related to
       capital leases

2,774

2,734

-40

 
      Total unmatured debt

440,231

431,264

-8,967

   Pension and other accounts      
      Public sector pensions

127,560

128,785

1,225

      Other employee and veteran
       future benefits

39,367

39,543

176

      Canada Pension Plan
       (net of securities)

7,483

4,460

-3,023

      Other pension and
       other accounts

6,488

6,110

-378

 
      Total pension and other accounts

180,898

178,898

-2,000

   Total interest-bearing debt

621,129

610,162

-10,967

Total liabilities

701,093

681,605

-19,488

Financial assets      
Cash and accounts receivable

70,921

59,936

-10,985

Foreign exchange accounts

44,313

44,135

-178

Loans, investments and advances (net of allowances)

29,548

31,138

1,590

 
Total financial assets

144,782

135,209

-9,573

 
Net debt

556,311

546,396

-9,915

Non-financial assets

54,818

53,877

-941

Federal debt (accumulated deficit)

501,493

492,519

-8,974