- Fiscal Monitor 2004 -

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Highlights of financial results for November 2004

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Highlights

November 2004: budgetary surplus of $1.7 billion

There was a budgetary surplus of $1.7 billion in November 2004, up from a surplus of $0.9 billion in November 2003. Revenues were up $1.8 billion compared to November 2003, primarily due to higher goods and services tax (GST) and corporate income tax revenues. Program expenses were up $0.9 billion while public debt charges were $0.1 billion higher.

April to November 2004: budgetary surplus of $10.7 billion

For the first eight months of the 2004-05 fiscal year (April to November), the budgetary surplus is estimated at $10.7 billion, up $6.6 billion from the surplus reported in the same period last year. This improvement 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. In addition, the monthly results to date do not reflect the cost of a number of proposed policy initiatives totalling $3.9 billion, including the recent federal-provincial agreements on health care and equalization, which will only be reflected in the monthly fiscal results once enabling legislation receives Royal Assent. As well, the monthly estimates do not include the costs associated with the proposed wage settlements with federal government employees. These costs will be incorporated once the agreements have been signed.

 

November 2004: budgetary results

The November 2004 budgetary surplus was estimated at $1.7 billion, up from a surplus of $0.9 billion in November 2003.

Budgetary revenues totalled $16.3 billion in the month, up $1.8 billion or 12.5 per cent from November 2003. This increase is almost entirely attributable to sharply higher net GST receipts as well as strong growth in corporate income tax receipts.

  • Personal income tax revenues increased $0.1 billion, or 1.7 per cent, primarily due to growth in source deductions, consistent with higher employment.
  • Corporate income tax revenues were up $0.5 billion, or 27.6 per cent. The November 2004 monthly results reflect remittance procedures, under which 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 reflect the increase in corporate tax liabilities since 2002. The monthly increase in November is down from the extremely high monthly rates of growth reported in September and October, when the processing of refunds was affected by the labour disruption at the Canada Revenue Agency.
  • Excise taxes and duties were up $1.2 billion. This increase is almost entirely the result of higher GST receipts, which were up $1.2 billion, or 56.3 per cent, due to higher gross receipts. This partly reflects the timing of receipts compared to last year. Among other excise taxes and duties, customs import duties rose $47 million, while sales and excise taxes and receipts from the Air Travellers Security Charge were down.
  • Employment insurance (EI) premiums were down 10.9 per cent, reflecting the impact of a lower premium rate (the employee rate for 2004 was $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. The decline in EI premiums in November, as well as the year-to-date decline, also partly reflects timing factors with respect to prior-year adjustments that were made in December 2003. As a result, the monthly and year-to-date declines will unwind somewhat over the remainder of the fiscal year.
  • Other revenues, which consist of revenues from Crown corporations, sales of goods and services and foreign exchange revenues, were up $0.1 billion, or 13.2 per cent. This component is extremely volatile on a monthly basis.

Program expenses in November 2004 totalled $11.6 billion, up $0.9 billion or 8.3 per cent from November 2003. The increase was spread evenly between transfer payments and other program expenses.

Total transfer payments were up $0.4 billion or 6.1 per cent in November 2004.

  • Major transfers to persons, consisting of elderly and EI benefits, were down $0.1 billion on a year-over-year basis. Elderly benefits increased 4.1 per cent due to both higher average benefits, which have risen in line with inflation, and an increase in the number of individuals eligible for benefits. EI benefits were down 13.3 per cent, reflecting a difference in the timing of payments between October and November in 2004 compared to the same months 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 7.6 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 1.3 per cent from November 2003.
  • Subsidies and other transfers were up 28.0 per cent. This component is extremely volatile on a monthly basis, largely 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 12.6 per cent, as a decline in Crown corporation expenses was more than offset by higher expenses related to defence and 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 4.1 per cent higher, driven largely by higher interest payments on non-market debt.

Revenues and Expenses

April to November 2004: budgetary results

In the first eight months of the fiscal year, there was a budgetary surplus of $10.7 billion, up $6.6 billion from the $4.1-billion surplus reported in the same period of 2003-04.

Budgetary revenues, at $124.8 billion, were up $9.2 billion or 8.0 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.

  • Personal income tax revenues increased $3.0 billion or 5.7 per cent. The year-over-year increase is primarily attributable to the strong growth in source deductions from employment income, reflecting gains in employment and income.
  • Corporate income tax revenues were up $2.8 billion or 23.5 per cent, largely reflecting the impact of remittance procedures, as noted above. Over the remainder of the fiscal year, the growth in corporate income tax revenues should come down.
  • Excise taxes and duties increased $2.2 billion or 7.8 per cent. Virtually all of this increase is attributable to growth in GST revenues, which were 11.3 per cent higher, in part reflecting the timing of refunds. Over the balance of the year the growth in refunds should pick up, reflecting more closely the increase in gross revenues, which were up 6.7 per cent. Customs import duties were also up (4.4 per cent), while there were declines in both sales and excise taxes (down 0.8 per cent) and the Air Travellers Security Charge (down 2.2 per cent).
  • EI premiums were down $1.0 billion or 8.7 per cent. As noted above, the year-to-date decline is in part a function of timing factors with respect to prior-year adjustments. The decline should moderate in the remaining months of the fiscal year.
  • Other revenues increased $2.0 billion or 24.3 per cent. This increase reflects the sale of the Government’s remaining shares of Petro-Canada. In the absence of this transaction, other revenues would have declined on a year-over-year basis.

Budgetary Balance

On a year-over-year basis, program expenses in the April to November 2004 period were up 3.9 per cent to $90.9 billion, largely due to higher transfers. Public debt charges were $0.7 billion lower, reflecting the impact of a decline in the stock of interest-bearing debt, along with a decline in the average effective interest rate on that debt.

Transfer payments, which account for nearly two-thirds of total program expenses, increased by $3.0 billion, or 5.4 per cent.

  • Transfers to persons advanced by $0.4 billion, or 1.6 per cent. Elderly benefits were up 3.4 per cent while EI benefits were down 1.8 per cent. Within EI benefits, an increase in special benefits, such as sickness, maternity and parental benefits, and employment benefit and support measures, was more than offset by a decline in regular benefits, reflecting the improvement in the labour market.
  • Transfers to other levels of government were up $1.6 billion, or 8.4 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 7.6 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 $1.0 billion, or 10.8 per cent, primarily reflecting the impact of previous budget measures.

Other program expenses increased by $0.4 billion, or 1.2 per cent, as lower expenses related to Crown corporations were more than offset by higher expenses related to defence and other departments and agencies. These expenses do not incorporate the impact of proposed wage settlements in the federal public sector.

Federal debt (accumulated deficit)

Financial source of $7.1 billion for April to November 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 $3.6 billion in the April to November period, an improvement of $8.8 billion from the requirement in the same period of 2003-04. The improvement is primarily attributable to the unusually large cash requirements in the April to November 2003 period related to transfers 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). Dampening the improvement somewhat was an increase in financial requirements for pension and other accounts in the April to November period, reflecting payments to the Canada Pension Plan Investment Board.

With a budgetary surplus of $10.7 billion and a net requirement of $3.6 billion from non-budgetary transactions, there was a financial source of $7.1 billion in the first eight months of 2004-05, compared to a financial requirement of $8.3 billion in the same period last year.

Net financing activities down $8.1 billion

The Government used this financial source of $7.1 billion and a reduction in its cash balances of $1 billion to reduce its market debt by $8.1 billion by the end of November 2004, largely through a reduction of marketable bonds and lower foreign currency borrowings. 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 November stood at $16.3 billion.

Table 1
Summary statement of transactions


  November April to November
 

  2003 2004 2003-04 2004-05

  ($ millions)
Budgetary transactions        
Revenues

14,445

16,252

115,575

124,815

Expenses        
   Program expenses

-10,717

-11,606

-87,488

-90,884

   Public debt charges

-2,795

-2,909

-23,953

-23,219

 

Budgetary balance (deficit/surplus)

933

1,737

4,134

10,712

Non-budgetary transactions

989

4,099

-12,432

-3,640

Financial source/requirement

1,922

5,836

-8,298

7,072

Net change in financing activities

6,114

897

5,860

-8,068

Net change in cash balances

8,036

6,733

-2,438

-996

Cash balance at end of period     12,259

16,254


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

Table 2
Budgetary revenues


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

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

7,238

7,359

1.7

53,552

56,589

5.7

   Corporate income tax

1,636

2,087

27.6

12,002

14,817

23.5

   Other income tax revenue

228

238

4.4

1,798

2,008

11.7

 

   Total income tax 9,102 9,684 6.4 67,352 73,414 9.0
Excise taxes and duties            
   Goods and services tax 2,131 3,331 56.3 19,185 21,346 11.3
   Customs import duties 222 269 21.2 2,000 2,087 4.4
   Sales and excise taxes 885 845 -4.5 6,571 6,520 -0.8
   Air Travellers Security Charge 32 28 -12.5 276 270 -2.2
 

   Total excise taxes and duties 3,270 4,473 36.8 28,032 30,223 7.8
 

Total tax revenues 12,372 14,157 14.4 95,384 103,637 8.7
Employment insurance premiums 1,046 932 -10.9 11,903 10,872 -8.7
Other revenues 1,027 1,163 13.2 8,288 10,306 24.3
Total budgetary revenues 14,445 16,252 12.5 115,575 124,815 8.0

Table 3
Budgetary expenses


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

  ($ millions) (%) ($ millions) (%)
Transfer payments            
Transfers to persons            
   Elderly benefits 2,260 2,353 4.1 17,856 18,465 3.4
   Employment insurance benefits 1,287 1,116 -13.3 9,334 9,167 -1.8
 

   Total 3,547 3,469 -2.2 27,190 27,632 1.6
Transfers to other levels of government            
   Support for health and other
    social programs
           
      Canada Health Transfer   1,054     8,433  
      Canada Social Transfer   702     5,267  
      Health Reform Transfer   125     1,000  
      Canada Health and
       Social Transfer
1,691 -27   13,533 -27  
   Fiscal transfers 865 876 1.3 6,923 7,446 7.6
   Alternative Payments for
    Standing Programs
-214 -210 -1.9 -1,689 -1,783 5.6
 

   Total 2,342 2,520 7.6 18,767 20,336 8.4
Subsidies and other transfers            
   Agriculture 115 251 118.3 524 572 9.2
   Foreign Affairs 112 158 41.1 1,080 1,383 28.1
   Health 171 194 13.5 1,150 1,172 1.9
   Human Resources Development 129 216 67.4 895 722 -19.3
   Indian and Northern Development 302 352 16.6 2,846 2,891 1.6
   Industry and Regional Development 97 143 47.4 972 1,177 21.1
   Other 252 194 -23.0 1,724 2,268 31.6
 

   Total 1,178 1,508 28.0 9,191 10,185 10.8
 

Total transfer payments 7,067 7,497 6.1 55,148 58,153 5.4
Other program expenses            
Crown corporation expenses            
   Canadian Broadcasting Corporation 130 54 -58.5 809 779 -3.7
   Canada Mortgage and
    Housing Corporation
146 140 -4.1 1,370 1,340 -2.2
   Other 241 117 -51.5 1,503 1,238 -17.6
 

   Total 517 311 -39.8 3,682 3,357 -8.8
Defence 851 1,030 21.0 7,480 7,711 3.1
All other departments and agencies 2,282 2,768 21.3 21,178 21,663 2.3
 

Total other program expenses 3,650 4,109 12.6 32,340 32,731 1.2
Total program expenses 10,717 11,606 8.3 87,488 90,884 3.9
Public debt charges 2,795 2,909 4.1 23,953 23,219 -3.1
Total budgetary expenses 13,512 14,515 7.4 111,441 114,103 2.4

Table 4
Budgetary balance and financial source/requirement


  November April to November
 

  2003 2004 2003-04 2004-05

  ($ millions)
Budgetary balance (deficit/surplus) 933 1,737 4,134 10,712
Non-budgetary transactions        
Capital investing activities -154 -180 -1,253 -836
Other investing activities 78 -235 -1,215 -1,825
Pension and other accounts -766 -483 98 -2,486
Other activities        
   Accounts payable, receivables,
    accruals and allowances
1,452 907 -12,916 -4,356
   Foreign exchange activities 186 3,866 902 4,045
   Amortization of tangible
    capital assets
220 224 1,952 1,818
 

   Total other activities 1,831 4,997 -10,062 1,507
Total non-budgetary transactions 989 4,099 -12,432 -3,640
Net financial source/requirement 1,922 5,836 -8,298 7,072

Table 5
Financial source/requirement and net financing activities


  November April to November
 

  2003 2004 2003-04 2004-05

  ($ millions)
Net financial source/requirement 1,922 5,836 -8,298 7,072
Net increase (+)/decrease (-) in financing activities        
   Unmatured debt transactions        
      Canadian currency borrowings        
         Marketable bonds -494 1,005 -7,017 -7,921
         Treasury bills 7,750 5,050 14,850 6,850
         Canada Savings Bonds -841 -1,357 -1,578 -1,704
         Other -1 -1 171 -27
 

         Total 6,414 4,697 6,426 -2,802
      Foreign currency borrowings -317 -3,831 -573 -5,257
 

         Total 6,097 866 5,853 -8,059
      Obligations related to capital leases 17 31 7 -9
   Net change in financing activities 6,114 897 5,860 -8,068
Change in cash balance 8,036 6,733 -2,438 -996

Table 6
Condensed statement of assets and liabilities


  March 31, 2004 November 30, 2004 Change

  ($ millions)
Liabilities      
Accounts payable, accruals and allowances

79,964

73,578 -6,386
Interest-bearing debt      
   Unmatured debt      
      Payable in Canadian dollars      
         Marketable bonds

278,780

270,859 -7,921
         Treasury bills

113,378

120,228 6,850
         Canada Savings Bonds

21,330

19,626 -1,704
         Other

3,427

3,400 -27
 
         Subtotal

416,915

414,113 -2,802
      Payable in foreign currencies

20,542

15,285 -5,257
      Obligations related to
       capital leases

2,774

2,765 -9
 
      Total unmatured debt

440,231

432,163 -8,068
   Pension and other accounts      
      Public sector pensions

127,560

128,967 1,407
      Other employee and veteran
       future benefits

39,367

39,568 201
      Canada Pension Plan
       (net of securities)

7,483

3,783 -3,700
      Other pension and
       other accounts

6,488

6,096 -392
 
      Total pension and other accounts

180,898

178,412 -2,486
   Total interest-bearing debt

621,129

610,575 -10,554
Total liabilities

701,093

684,153 -16,940
Financial assets      
Cash and accounts receivable

70,921

67,897 -3,024
Foreign exchange accounts

44,312

40,268 -4,045
Loans, investments and advances (net of allowances)

29,548

31,373 1,825
 
Total financial assets

144,782

139,537 -5,244
 
Net debt

556,311

544,616 -11,695
Non-financial assets

54,817

53,834 -983
Federal debt (accumulated deficit)

501,494

490,782 -10,712