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Highlights of financial results for March 2006

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Highlights

March 2006: budgetary deficit of $1.1 billion

There was a budgetary deficit of $1.1 billion in March 2006, down from the $9.9-billion deficit recorded in March 2005. The improvement is almost entirely due to lower program expenses resulting from lower transfer payments, reflecting $7.2 billion in one-time transfers and adjustments recorded in March 2005 related to the federal-provincial-territorial agreements on health care and Equalization/Territorial Formula Financing (TFF). Program expenses were down $8.4 billion in March. Budgetary revenues were $0.8 billion higher, reflecting solid growth in personal income tax revenues and an increase in non-tax revenues, partially offset by declines in corporate income tax and goods and services tax (GST) revenues. Public debt charges were up $0.3 billion compared to the same month last year.

April 2005 to March 2006: budgetary surplus of $8.4 billion, net of anticipated costs related to Bill C-48

For the April 2005 to March 2006 period, the budgetary surplus is estimated at $12.0 billion, up $3.3 billion from the $8.8-billion surplus reported in the same period of 2004–05. Budgetary revenues were up $7.2 billion, or 3.6 per cent. This gain is net of the $5.0-billion cost of the personal income tax reduction measures pertaining to the 2005 tax year and the first quarter of 2006. Program expenses were up $4.3 billion, or 2.8 per cent, primarily due to higher operating expenses for National Defence and other departments and agencies. Public debt charges were $0.4 billion lower.

The April 2005 to March 2006 monthly results are not the final results for the year as a whole. They do not account for $3.6 billion in costs related to anticipated payments made under Bill C-48 for 2005–06. After adjusting for these payments, the April to March surplus is $8.4 billion. Nor do the results reflect the regular end-of-year accounting adjustments, which include final tax accrual adjustments as well as final estimates of the cost of liabilities incurred during the fiscal year.

A discussion of the impact of the March results on the budget forecast for 2005–06 is provided later in this document.

Note to Readers:

Budget 2006 was presented on a gross reporting basis, whereas The Fiscal Monitor for March 2006 is presented on a net basis. Beginning with the April 2006 monthly financial results, The Fiscal Monitor will also report the monthly financial results on a gross basis. A reconciliation table is provided later in this document showing the monthly results for the April 2005 to March 2006 period on a gross reporting basis, consistent with the Budget 2006 presentation.

March 2006

There was a budgetary deficit of $1.1 billion in March 2006, down $8.9 billion from the $9.9-billion deficit recorded in March 2005.

Budgetary revenues rose $0.8 billion, or 4.3 per cent, to $18.6 billion.

  • Personal income tax revenues were up $0.5 billion, or 6.3 per cent.
  • Corporate income tax revenues were down $0.2 billion, or 4.6 per cent, reflecting weaker corporate year-end settlement payments from the refining and non-energy manufacturing sectors.
  • Other income tax revenues—withholdings from non-residents—rose $34 million, or 10.8 per cent.
  • Excise taxes and duties were down $0.1 billion, or 4.1 per cent, due to a $0.2-billion decline in GST revenues. Customs import duties were up $87 million, sales and excise taxes rose $35 million and revenues from the Air Travellers Security Charge were up $2 million.
  • Employment insurance (EI) premiums declined by 6.3 per cent, reflecting the decline in the premium rate from $1.95 to $1.87 per $100 of insurable earnings, effective January 1, 2006.
  • Other revenues consist of net profits from enterprise Crown corporations, sales of goods and services, returns on investments, foreign exchange revenues and miscellaneous revenues. Other revenues, which are volatile on a monthly basis, were up $0.6 billion.

Program expenses in March 2006 were $16.7 billion, down $8.4 billion, or 33.6 per cent, from March 2005, primarily reflecting lower transfer payments.

Transfer payments were down $8.3 billion, or 44.8 per cent.

  • Transfers to persons, consisting of elderly and EI benefits, were up $103 million, or 2.8 per cent. Elderly benefits increased 6.2 per cent due to both higher average benefits, which are indexed to Consumer Price Index inflation, and an increase in the number of individuals eligible for benefits. EI benefit payments decreased 3.3 per cent, reflecting a decline in regular benefits.
  • Transfers to other levels of government, consisting of federal transfers in support of health and other social programs (Canada Health Transfer and Canada Social Transfer), fiscal transfers, transfers to provinces on behalf of Canada’s cities and communities, and Alternative Payments for Standing Programs, were down $7.2 billion, or 70.2 per cent. The decrease in federal transfers in support of health and other social programs and lower fiscal transfers reflect one-time transfers and adjustments under the 2004 agreements on health care and Equalization/TFF recorded in March 2005.
  • Subsidies and other transfers decreased by $1.3 billion, or 26.9 per cent. This component is volatile on a monthly basis.

Revenues and expenses (April 2005-March 2006)

Other program expenses consist of transfers to Crown corporations and operating expenses for departments and agencies, including National Defence, and also reflect the ongoing assessment of the Government’s liabilities. Consistent with the announcement in Budget 2006, this category now also includes the net expenses of foundations. On a year-over-year basis, other program expenses decreased $0.1 billion, or 1.3 per cent.

Public debt charges increased $0.3 billion, or 11.8 per cent, due to an increase in the average effective interest rate on the debt.

April 2005 to March 2006

For the April 2005 to March 2006 period, there was a budgetary surplus of $12.0 billion, $3.3 billion higher than the $8.8-billion surplus reported in the same period of 2004–05.

Budgetary revenues rose $7.2 billion, or 3.6 per cent, to $204.1 billion.

  • Personal income tax revenues rose $3.9 billion, or 4.4 per cent. This gain is net of the $5.0-billion cost of the personal income tax reduction measures pertaining to the 2005 tax year and the first quarter of 2006.
  • Corporate income tax revenues were up $2.0 billion, or 6.6 per cent, reflecting gains in corporate profitability in 2005.
  • Other income tax revenues increased by $1.1 billion, or 31.0 per cent, reflecting increased dividend payments to non-residents.
  • Excise taxes and duties rose $2.0 billion, or 4.5 per cent. GST revenues increased $1.9 billion, or 6.0 per cent, broadly consistent with growth in retail sales of 6.7 per cent over the comparable period. Customs import duties were up 12.4 per cent. Sales and excise taxes were down 2.2 per cent, while the Air Travellers Security Charge was down 9.8 per cent, reflecting reductions in the charge, effective April 1, 2005.
  • EI premiums were down 2.5 per cent, as the impact of the reductions in premium rates in January 2005 and January 2006 more than offset the impact of higher employment and wages and salaries.
  • Other revenues were down $1.3 billion, or 10.0 per cent, reflecting the impact of the one-time gain ($2.6 billion) from the sale of the Government’s remaining shares in Petro-Canada in September 2004.

Program expenses in the April 2005 to March 2006 period were $158.3 billion, up $4.3 billion, or 2.8 per cent, over the same period of 2004–05. Public debt charges declined by $0.4 billion. Transfer payments, which account for over half of program expenses, increased by $1.7 billion, or 1.6 per cent.

  • Transfers to persons advanced by 2.1 per cent. Elderly benefits were up 4.5 per cent while EI benefits were down 2.6 per cent. The year-to-date decline in EI benefits is mainly attributable to a decline in regular benefits, which is in turn due to improved labour market conditions compared to the same period in 2004–05.
  • Transfers to other levels of government were down $0.5 billion, or 1.3 per cent.
  • Subsidies and other transfers increased by 6.2 per cent, reflecting the impact of measures from recent budgets as well as transfers under the new Grains and Oilseeds Payment Program and the Energy Cost Benefit.

Budgetary Balance

Other program expenses increased by 5.0 per cent due to higher operating expenses for National Defence and other departments and agencies.

Public debt charges were down 1.2 per cent due to a decline in the stock of interest-bearing debt and a decline in the average effective interest rate on that debt.

Federal debt (accumulated deficit)

Financial source of $5.4 billion for April 2005 to March 2006

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 $6.6 billion in the April 2005 to March 2006 period, up $2.5 billion from the requirement in the same period of 2004–05.

With a budgetary surplus of $12.0 billion and a net requirement of $6.6 billion from non-budgetary transactions, there was a financial source of $5.4 billion in the April 2005 to March 2006 period, compared to a financial source of $4.7 billion in the same period of 2004–05.

Net financing activities down $4.6 billion

The Government used this financial source of $5.4 billion to increase its cash balances by $0.8 billion and to reduce its market debt by $4.6 billion by the end of March 2006, largely through a reduction of marketable bonds. 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 $17.9 billion.

Quarterly update of the fiscal outlook for 2005–06: estimated outcome for 2005–06 unchanged from budget, with a projected budgetary surplus of $8.0 billion

The monthly results for the 12-month period ended March 2006 are consistent with the forecast presented in the 2006 budget, which was prepared based on monthly financial information through February 2006. However, March data show that both corporate income tax revenues and direct program expenses came in lower than expected.

Corporate income tax revenues in March 2006 were weaker than expected due to lower than anticipated settlement payments from the energy sector. Corporations make monthly tax instalment payments based on either their previous year’s actual tax liability or their current year’s estimated liability, with any differences made up within 60 days of the close of their taxation year. As roughly three-quarters of Canadian corporations have corporate year-ends in September through December, most corporate settlement payments are received in January through March. As such, the magnitude of corporate receipts in March is very volatile. However, the final result for corporate income tax receipts for 2005–06 will likely be higher than reported in the April to March period. Positive year-end accrual adjustments are generally recorded in the corporate tax stream. This reflects the fact that no adjustments are made to the monthly corporate data for payables and receivables due to a lack of reliable information on which to base such adjustments.

The shortfall in corporate income tax revenues was offset by lower than projected direct program expenses, as it appears that the dissolution of Parliament in November lowered program expenses by more than anticipated in the budget forecast.

All told, the year-to-date results are consistent with the budget forecast of a surplus of $8.0 billion for 2005–06.

The above results are not the final results for the year as a whole.

  • The April 2005 to March 2006 monthly results do not account for $3.6 billion in costs related to anticipated payments made under 
    Bill C-48 for 2005–06, yielding a surplus estimate of $8.4 billion.
  • Nor do the results reflect the regular end-of-year accounting adjustments, which include final tax accrual adjustments as well as final estimates of the cost of liabilities incurred during the fiscal year.
  • While the monthly results include estimates of tax accruals, the final accruals can vary significantly from the monthly estimates due to factors such as the magnitude of registered retirement savings plan contributions and variations in capital gains and losses reported at tax filing. Final accrual estimates will be determined based on assessments of tax files as at May 31.
  • Similarly, while the monthly results attempt to reflect the most
    up-to-date information on the Government’s legal and environmental liabilities, provisions for guarantees, and allowances for valuation of loans, investments and advances, these are ultimately determined when the books are closed for the year, generally in September.

 

Differences between net and gross reporting

The revenues and expenses in Tables 1–6 are presented on a "net" basis, with certain expenses netted against budgetary revenues and certain revenues netted against expenses: the Canada Child Tax Benefit is netted against personal income tax revenues; departmental revenues that are levied for specific purposes, such as the contract costs of policing services in provinces, are netted against expenses; and revenues of consolidated Crown corporations and other entities are netted against their total expenses. This classification has the effect of reducing both revenues and expenses but has no impact on the budgetary balance. The following table shows the impact of "grossing up" budgetary revenues and expenses for these adjustments. Beginning with the April 2006 monthly financial results, The Fiscal Monitor will be presented on a gross basis, consistent with the presentation in Budget 2006.

Differences between net and gross reporting

  March April to March
 

  2005 2006 2004–05 2005–06
  ($ millions)
Net revenues 17,844 18,607 196,889 204,061
Add: Adjustments        
  Canada Child Tax Benefit 
   (personal income tax)
752 809 8,745 9,278
  Revenues netted against program expenses 
   (other revenues)
481 515 2,493 2,837
  Revenues of consolidated Crown corporations 
   and foundations (other revenues)
386 361 1,761 1,718
 
  Net adjustment 1,619 1,685 12,999 13,833
Gross revenues 19,463 20,292 209,888 217,894
         
Net program expenses 25,076 16,654 154,015 158,311
Add: Adjustments        
         
  Canada Child Tax Benefit 
   (transfers to persons)
752 809 8,745 9,278
  Revenues netted against program expenses 
   (other program expenses)
481 515 2,493 2,837
  Revenues of consolidated Crown corporations 
   and foundations (other program expenses)
386 361 1,761 1,718
 
  Net adjustment 1,619 1,685 12,999 13,833
Gross program expenses 26,695 18,339 167,014 172,144

Table 1
Summary statement of transactions

  March April to March
 

  2005 2006 2004–05 2005–06
  ($ millions)
Budgetary transactions        
  Revenues 17,844 18,607 196,889 204,061
  Expenses        
    Program expenses -25,076 -16,654 -154,015 -158,311
    Public debt charges -2,687 -3,004 -34,122 -33,722
 

  Budgetary balance (deficit/surplus) -9,919 -1,051 8,752 12,028
Non-budgetary transactions 6,120 1,046 -4,091 -6,593
Financial source/requirement -3,799 -5 4,661 5,435
Net change in financing activities 13,647 13,886 -4,790 -4,626
Net change in cash balances 9,848 13,881 -129 809
Cash balance at end of period     17,122 17,931
Note: Positive numbers indicate net source of funds. Negative numbers indicate net requirement for funds.

Table 2
Budgetary revenues

  March   April to March  
 
 
 
  2005 2006 Change 2004–05 2005–06 Change
  ($ millions) (%) ($ millions) (%)
Tax revenues            
  Income taxes            
    Personal income tax 8,213 8,732 6.3 88,686 92,558 4.4
    Corporate income tax 4,238 4,043 -4.6 29,872 31,842 6.6
    Other income tax revenue 316 350 10.8 3,567 4,671 31.0
 

    Total income tax 12,767 13,125 2.8 122,125 129,071 5.7
  Excise taxes and duties            
    Goods and services tax 1,939 1,694 -12.6 31,161 33,027 6.0
    Customs import duties 249 336 34.9 3,034 3,409 12.4
    Sales and excise taxes 728 763 4.8 9,606 9,390 -2.2
    Air Travellers Security Charge 33 35 6.1 389 351 -9.8
 

    Total excise taxes and duties 2,949 2,828 -4.1 44,190 46,177 4.5
 

  Total tax revenues 15,716 15,953 1.5 166,315 175,248 5.4
Employment insurance premiums 1,768 1,657 -6.3 17,169 16,748 -2.5
Other revenues 360 997 176.9 13,405 12,065 -10.0
Total budgetary revenues 17,844 18,607 4.3 196,889 204,061 3.6
Note: Totals may not sum due to rounding.

Table 3
Budgetary expenses

  March   April to March  
 
 
 
  2005 2006 Change 2004–05 2005–06 Change
  ($ millions) (%) ($ millions) (%)
Transfer payments            
  Transfers to persons            
    Elderly benefits 2,365 2,512 6.2 27,926 29,192 4.5
    Employment insurance benefits 1,328 1,284 -3.3 14,734 14,352 -2.6
 

    Total 3,693 3,796 2.8 42,660 43,544 2.1
  Transfers to other levels of government            
    Support for health and other social programs            
      Canada Health Transfer 6,835 1,583 -76.8 18,431 19,000 3.1
      Canada Social Transfer 727 685 -5.8 7,900 8,225 4.1
      Health Reform Transfer 125 0 n/a 1,500 0 n/a
 

    Total 7,687 2,268 -70.5 27,831 27,225 -2.2
    Fiscal transfers 2,882 796 -72.4 12,902 12,437 -3.6
    Canada’s cities and communities 0 0 n/a 0 580 n/a
    Alternative Payments for Standing Programs -333 -10 -97.0 -2,746 -2,732 -0.5
 

    Total 10,236 3,054 -70.2 37,987 37,510 -1.3
  Subsidies and other transfers            
    Agriculture 1,044 244 -76.6 2,650 2,658 0.3
    Foreign Affairs 1,182 887 -25.0 3,391 3,058 -9.8
    Health 246 287 16.7 1,864 1,920 3.0
    Human Resources Development 49 148 202.0 1,203 1,416 17.7
    Indian and Northern Development 452 544 20.4 4,354 4,807 10.4
    Industry and Regional Development 207 205 -1.0 1,682 1,983 17.9
    Other 1,497 1,102 -26.4 5,080 5,632 10.9
 

    Total 4,677 3,417 -26.9 20,224 21,474 6.2
 

  Total transfer payments 18,606 10,267 -44.8 100,871 102,528 1.6
Other program expenses            
  Crown corporation expenses            
    Canadian Broadcasting Corporation 0 0 n/a 1,037 1,098 5.9
    Canada Mortgage and Housing Corporation 190 176 -7.4 2,045 2,033 -0.6
    Other 697 874 25.4 2,535 2,571 1.4
 

    Total 887 1,050 18.4 5,617 5,702 1.5
  Defence 1,633 1,566 -4.1 13,562 14,736 8.7
 

  All other departments and agencies 3,950 3,771 -4.5 33,965 35,345 4.1
  Total other program expenses 6,470 6,387 -1.3 53,144 55,783 5.0
Total program expenses 25,076 16,654 -33.6 154,015 158,311 2.8
Public debt charges 2,687 3,004 11.8 34,122 33,722 -1.2
Total budgetary expenses 27,763 19,658 -29.2 188,137 192,033 2.1
Note: Totals may not sum due to rounding.

Table 4
Budgetary balance and financial source/requirement

  March April to March
 

  2005 2006 2004–05 2005–06
  ($ millions)
Budgetary balance (deficit/surplus) -9,919 -1,051 8,752 12,028
Non-budgetary transactions        
  Capital investing activities -862 -674 -2,264 -2,783
  Other investing activities -636 359 -2,651 -2,772
  Pension and other accounts 278 515 -2,628 153
  Other activities        
    Accounts payable, receivables, 
     accruals and allowances
5,321 2,192 -3,307 -5,205
    Foreign exchange activities 1,517 -1,567 3,441 1,045
    Amortization of tangible capital assets 502 221 3,318 2,969
 

    Total other activities 7,340 846 3,452 -1,191
  Total non-budgetary transactions 6,120 1,046 -4,091 -6,593
Net financial source/requirement -3,799 -5 4,661 5,435
Note: Totals may not sum due to rounding.

Table 5
Financial source/requirement and net financing activities

  March April to March
 

  2005 2006 2004–05 2005–06
  ($ millions)
Net financial source/requirement -3,799 -5 4,661 5,435
Net increase (+)/decrease 
 (-) in financing activities
       
  Unmatured debt transactions        
    Canadian currency borrowings        
      Marketable bonds 1,348 674 -12,288 -4,852
      Treasury bills 11,500 11,700 13,800 4,400
      Canada Savings Bonds -83 -124 -2,244 -1,732
      Other -6 -68 -35 -290
 

      Total 12,759 12,182 -767 -2,474
    Foreign currency borrowings 822 1,719 -4,254 -2,202
 

      Total 13,581 13,901 -5,021 -4,676
    Obligations related to capital leases 66 -15 231 50
  Net change in financing activities 13,647 13,886 -4,790 -4,626
Change in cash balance 9,848 13,881 -129 809
Note: Totals may not sum due to rounding.

Table 6
Condensed statement of assets and liabilities

  March 31, 2005 March 31, 2006 Change
  ($ millions)
Liabilities      
  Accounts payable, accruals and allowances 90,478 85,961 -4,517
  Interest-bearing debt      
    Unmatured debt      
      Payable in Canadian dollars      
        Marketable bonds 266,570 261,718 -4,852
        Treasury bills 127,199 131,599 4,400
        Canada Savings Bonds 19,080 17,348 -1,732
        Other 3,393 3,103 -290
 
        Subtotal 416,242 413,768 -2,474
      Payable in foreign currencies 16,286 14,084 -2,202
      Obligations related to capital leases 2,932 2,982 50
 
      Total unmatured debt 435,460 430,834 -4,626
    Pension and other accounts      
      Public sector pensions 129,579 131,479 1,900
      Other employee and veteran future benefits 41,549 43,112 1,563
      Other pension and other accounts 8,680 5,370 -3,310
 
      Total pension and other accounts 179,808 179,961 153
    Total interest-bearing debt 615,268 610,795 -4,473
  Total liabilities 705,746 696,756 -8,990
Financial assets      
  Cash and accounts receivable 76,349 77,846 1,497
  Foreign exchange accounts 40,871 39,826 -1,045
  Loans, investments and advances 
   (net of allowances)
39,249 42,021 2,772
 
  Total financial assets 156,469 159,693 3,224
 
Net debt 549,277 537,063 -12,214
Non-financial assets 54,870 54,684 -186
Federal debt (accumulated deficit) 494,407 482,379 -12,028

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