- Fiscal Monitor 2006 -

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Highlights of financial results for July 2006

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Highlights

July 2006: budgetary surplus of $0.8 billion

There was a budgetary surplus of $0.8 billion in July 2006, down $0.9 billion from the surplus in July 2005. Revenues increased by $0.7 billion, reflecting solid growth in personal income tax revenues, combined with low growth in goods and services tax (GST) revenues and declines in employment insurance (EI) premium and corporate income tax revenues. Program expenses increased by $1.5 billion, reflecting increases in transfers to persons, which now include payments under the new Universal Child Care Benefit (UCCB) program, and increases in transfers to other levels of government. Public debt charges were up $0.1 billion.

April to July 2006: budgetary surplus of $6.3 billion

For the first four months of the 2006–07 fiscal year, the budgetary surplus is estimated at $6.3 billion, up $1.2 billion from the $5.1-billion surplus posted in the same period of 2005–06. Revenues were up $4.2 billion, or 5.8 per cent, driven by strong growth in income tax revenues, slightly offset by declines in EI premium revenues, sales and excise taxes and GST revenues. Program expenses were up $2.8 billion, or 5.1 per cent, due to both higher transfers and other program expenses. Public debt charges were up $0.1 billion.

The results to date do not include a significant portion of the $14.3 billion in tax reductions and expenditure increases for 2006–07 announced in the May 2006 budget. July represents only the first month of benefit payments under the new UCCB program ($181 million in July), which is expected to cost $1.6 billion over the full fiscal year, and the first month of the 1-percentage-point reduction in the GST rate, expected to cost $3.5 billion over the fiscal year. In addition, other spending measures have yet to come on stream.

July 2006

There was a budgetary surplus of $0.8 billion in July 2006, down $0.9 billion from July 2005.

Budgetary revenues increased by $0.7 billion, or 4.0 per cent, to $19.2 billion.

  • Personal income tax revenues were up $0.7 billion, or 7.8 per cent, down from an average growth rate of over 13 per cent through the first three months of the fiscal year.
  • Corporate income tax revenues were virtually unchanged from July 2005, with a small decrease of 0.4 per cent.
  • Other income tax revenues—withholdings from non-residents—were also virtually unchanged, up only 0.5 per cent.
  • Excise taxes and duties were up $0.1 billion, or 2.2 per cent. GST revenues were relatively flat, rising only $46 million, or 1.7 per cent, reflecting strong growth in retail sales, offset by the impact of the GST rate reduction effective July 1, 2006.
  • EI premium revenues declined by 6.6 per cent, reflecting both the decline in the premium rate from $1.95 to $1.87 per $100 of insurable earnings, effective January 1, 2006, as well as the transfer to the province of Quebec of the responsibility for delivering maternity and parental benefits in that province along with the associated premiums, effective the same date.
  • Other revenues, consisting of net profits from enterprise Crown corporations, revenues of consolidated Crown corporations, sales of goods and services, returns on investments, foreign exchange revenues, revenues of certain foundations and miscellaneous revenues, were up $0.1 billion. This component of revenues is volatile.

Program expenses in July 2006 were $15.4 billion, up $1.5 billion, or 11.0 per cent, from July 2005, reflecting increases in transfer payments, notably transfers to persons and transfers to other levels of government.

Transfer payments were up $1.5 billion, or 17.1 per cent.

  • Transfers to persons, consisting of elderly benefits, EI benefits and children’s benefits, were up $313 million, or 7.3 per cent. Elderly benefits increased by 5.1 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 by 1.9 per cent, reflecting declines in regular and maternity benefits. Children’s benefits consist of the Canada Child Tax Benefit and the new UCCB, which began on July 1, 2006. Children’s benefits were up $212 million, largely reflecting $181 million in transfers under the UCCB program.
  • Transfers to other levels of government, consisting of 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, transfers for early learning and child care and Alternative Payments for Standing Programs, were up $1.1 billion, or 37.8 per cent. This increase is mainly attributable to an increase in fiscal transfers and a one-time $650-million transfer to provinces and territories under the Early Learning and Child Care Agreements.
  • Subsidies and other transfers, including transfers made by certain foundations, increased by $56 million, or 4.1 per cent, largely reflecting increased assistance to the farming sector.

Other program expenses consist of transfers to Crown corporations and operating expenses for departments and agencies, including National Defence. They also reflect the ongoing assessment of the Government’s liabilities. These expenses increased by $69 million, or 1.3 per cent.

Public debt charges increased by $136 million.

Revenues and expenses

April to July 2006

In the first four months of the 2006–07 fiscal year, there was a budgetary surplus of $6.3 billion, up $1.2 billion from the $5.1-billion surplus reported for the same period of 2005–06.

Budgetary revenues were up $4.2 billion, or 5.8 per cent, to $75.6 billion.

  • Personal income tax revenues rose $3.8 billion, or 11.8 per cent, reflecting ongoing growth in employment and wages and salaries combined with the progressivity of the personal income tax system.
  • Corporate income tax revenues were up $0.6 billion, or 5.8 per cent, reflecting a higher corporate installment payment base, which in turn reflects profit growth in 2005.
  • Other income tax revenues increased by $0.1 billion, or 9.2 per cent.
  • Excise taxes and duties were down $0.1 billion, or 0.5 per cent, due to a $0.1-billion decline in sales and excise taxes and a $49-million, or 0.4-per-cent, decline in GST revenues, reflecting low growth in imports subject to GST and the impact of the GST rate reduction on July 1, 2006. Customs import duties were up $76 million and revenues from the Air Travellers Security Charge increased by $7 million.

Budgetary balance

  • EI premium revenues declined by 7.1 per cent, reflecting the reduction in the premium rate on January 1, 2006, as well as the transfer to the province of Quebec of the responsibility for delivering maternity and parental benefits in that province along with the associated premiums, effective the same date.
  • Other revenues rose $0.2 billion, or 3.1 per cent.

Program expenses in the April to July 2006 period were $57.9 billion, up $2.8 billion, or 5.1 per cent, over the same period of 2005–06, due to both higher transfers and increased operating costs of departments and agencies, including National Defence. Public debt charges increased by $0.1 billion.

Transfer payments, which account for about two-thirds of total program expenses, increased by $2.1 billion, or 5.7 per cent.

  • Transfers to persons advanced by 2.6 per cent. Elderly benefits were up 4.7 per cent while EI benefits were down 6.5 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 2005–06. Maternity benefits are also down year-to-date, reflecting the transfer to the province of Quebec of the responsibility for delivering maternity and parental benefits in that province. Children’s benefits increased by 9.7 per cent, largely reflecting transfers under the new UCCB, which began on July 1, 2006.

Federal debt (accumulated deficit)

  • Transfers to other levels of government were up $1.2 billion, or 9.6 per cent, largely due to the impact of the 2004 agreement on health care, as well as a $650-million transfer to provinces and territories in July 2006 for early learning and child care.
  • Subsidies and other transfers increased by $0.4 billion, or 6.5 per cent, reflecting the impact of measures from recent budgets.

Other program expenses increased by $0.8 billion, 4.1 per cent, reflecting an increase in the operating costs of departments and agencies, including National Defence. Crown corporation expenses declined by $0.1 billion, or 2.4 per cent.

Public debt charges were up 0.9 per cent due to an increase in the average effective interest rate on the stock of interest-bearing debt.

Financial source of $2.9 billion for April to July 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 $3.4 billion in the April to July period, down from a $10.5-billion requirement in the same period of 2005–06. The decrease in the net requirement largely reflects a number of one-time payments made in 2005–06, such as a $2.8-billion transfer under the Offshore Revenues Accords made in June 2005 upon passage of the Budget Implementation Act, 2005.

With a budgetary surplus of $6.3 billion and a net requirement of $3.4 billion from non-budgetary transactions, there was a financial source of $2.9 billion in the first four months of 2006–07 compared to a financial requirement of $5.4 billion in the same period of 2005–06.

Net financing activities down $16.8 billion

The Government used this financial source of $2.9 billion and a reduction in its cash balances of $13.9 billion to reduce its market debt by $16.8 billion by the end of July 2006, largely through a reduction of treasury bills. 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 $4.0 billion.

Table 1
Summary statement of transactions

July April to July


2005 2006 2005–06 2006–07
($ millions)
Budgetary transactions
  Revenues 18,416 19,151 71,475 75,630
  Expenses
    Program expenses -13,853 -15,373 -55,101 -57,927
    Public debt charges -2,802 -2,938 -11,319 -11,425


  Budgetary balance (deficit/surplus) 1,761 840 5,055 6,278
Non-budgetary transactions -1,819 1,771 -10,480 -3,359
Financial source/requirement -58 2,611 -5,425 2,919
Net change in financing activities -22 -1,323 -8,339 -16,813
Net change in cash balances -80 1,288 -13,764 -13,894
Cash balance at end of period 3,361 4,040
Note: Positive numbers indicate net source of funds. Negative numbers indicate net requirement for funds.

Table 2
Budgetary revenues

July April to July


2005 2006 Change 2005–06 2006–07 Change
($ millions) (%) ($ millions) (%)
Tax revenues
  Income taxes
    Personal income tax 8,896 9,590 7.8 32,584 36,417 11.8
    Corporate income tax 1,997 1,990 -0.4 9,677 10,239 5.8
    Other income tax 428 430 0.5 1,315 1,436 9.2


    Total income tax 11,321 12,010 6.1 43,576 48,092 10.4
  Excise taxes and duties
    Goods and services tax 2,719 2,765 1.7 10,914 10,865 -0.4
    Customs import duties 249 315 26.5 1,046 1,122 7.3
    Sales and excise taxes 817 787 -3.7 3,221 3,106 -3.6
    Air Travellers Security Charge 30 31 3.3 120 127 5.8


    Total excise taxes and duties 3,815 3,898 2.2 15,301 15,220 -0.5


  Total tax revenues 15,136 15,908 5.1 58,877 63,312 7.5
Employment insurance premiums 1,461 1,365 -6.6 6,566 6,102 -7.1
Other revenues 1,819 1,878 3.2 6,032 6,216 3.1
Total budgetary revenues 18,416 19,151 4.0 71,475 75,630 5.8
Note: Totals may not add due to rounding.

Table 3
Budgetary expenses

July April to July


2005 2006 Change 2005–06 2006–07 Change
($ millions) (%) ($ millions) (%)
Transfer payments
  Transfers to persons
    Elderly benefits 2,371 2,493 5.1 9,574 10,023 4.7
    Employment insurance benefits 1,108 1,087 -1.9 4,628 4,325 -6.5
    Children’s benefits 803 1,015 26.4 3,107 3,407 9.7


    Total 4,282 4,595 7.3 17,309 17,755 2.6
  Transfers to other levels of government
    Support for health and other social programs
      Canada Health Transfer 1,583 1,678 6.0 6,333 6,713 6.0
      Canada Social Transfer 686 708 3.2 2,742 2,833 3.3


    Total 2,269 2,386 5.2 9,075 9,546 5.2
    Fiscal transfers 832 1,146 37.7 4,330 4,442 2.6
    Canada’s cities and communitites 0 0 n/a 0 0 n/a
    Early learning and child care 0 650 n/a 0 650 n/a
    Alternative Payments for Standing Programs -240 -239 -0.4 -1,001 -1,044 4.3


    Total 2,861 3,943 37.8 12,404 13,594 9.6
  Subsidies and other transfers
    Agriculture 10 81 710.0 654 750 14.7
    Foreign Affairs and International Trade 173 178 2.9 680 707 4.0
    Health 191 222 16.2 601 636 5.8
    Human Resources Development 120 97 -19.2 577 596 3.3
    Indian and Northern Development 316 356 12.7 1,646 1,648 0.1
    Industry and Regional Development 147 172 17.0 575 523 -9.0
    Other 401 308 -23.2 1,726 2,016 16.8


    Total 1,358 1,414 4.1 6,459 6,876 6.5


  Total transfer payments 8,501 9,952 17.1 36,172 38,225 5.7
Other program expenses
  Crown corporation expenses
    Canadian Broadcasting Corporation 100 62 -38.0 455 477 4.8
    Canada Mortgage and Housing Corporation 186 172 -7.5 704 640 -9.1
    Other 336 303 -9.8 1,233 1,218 -1.2


    Total 622 537 -13.7 2,392 2,335 -2.4
  Defence 1,571 1,354 -13.8 4,467 4,831 8.1


  All other departments and agencies 3,159 3,530 11.7 12,070 12,536 3.9
  Total other program expenses 5,352 5,421 1.3 18,929 19,702 4.1
Total program expenses 13,853 15,373 11.0 55,101 57,927 5.1
Public debt charges 2,802 2,938 4.9 11,319 11,425 0.9
Total budgetary expenses 16,655 18,311 9.9 66,420 69,352 4.4
Note: Totals may not add due to rounding.

Table 4
The budgetary balance and financial source/requirement

July April to July


2005 2006 2005–06 2006–07
($ millions)
Budgetary balance (deficit/surplus) 1,761 840 5,055 6,278
Non-budgetary transactions
  Capital investing activities 178 -187 19 -299
  Other investing activities -541 11 -1,110 463
  Pension and other accounts -305 -846 -1,241 112
  Other activities
    Accounts payable, receivables, 
      accruals and allowances
-3,092 2,974 -11,409 -5,227
    Foreign exchange activities 1,679 -431 2,268 647


    Amortization of tangible capital assets 262 250 993 945
    Total other activities -1,151 2,793 -8,148 -3,635
  Total non-budgetary transactions -1,819 1,771 -10,480 -3,359
Net financial source/requirement -58 2,611 -5,425 2,919
Notes: July 2005 results have been adjusted to reflect the reclassification of certain amounts from "Capital investing activities" to "Acccounts payable, receivables, accruals and allowances."
Totals may not add due to rounding.

Table 5
Financial source/requirement and net financing activities

July April to July


2005 2006 2005–06 2006–07
($ millions)
Net financial source/requirement -58 2,611 -5,425 2,919
Net increase (+)/decrease (-) in financing activities
  Unmatured debt transactions
    Canadian currency borrowings
      Marketable bonds 758 468 -878 -1,431
      Treasury bills 1,300 -1,500 -3,600 -11,100
      Canada Savings Bonds -88 -84 -308 -302
      Other -2 -223 -141 -910


      Total 1,968 -1,339 -4,927 -13,743
  Foreign currency borrowings -2,124 -86 -3,504 -2,909


      Total -156 -1,425 -8,431 -16,652
  Cross-currency swap revaluation -4 2 -5 0
  Unamortized discounts on debt issues 66 106 27 -121
  Obligations related to capital leases 72 -6 70 -40
  Net change in financing activities -22 -1,323 -8,339 -16,813
Change in cash balance -80 1,288 -13,764 -13,894
Note: Totals may not add due to rounding.

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