- Fiscal Monitor 2006 -

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Highlights of financial results for August 2006

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Highlights

August 2006: budgetary surplus of $6 million

There was a budgetary surplus of $6 million in August 2006, compared to a $0.6-billion deficit in August 2005. Revenues increased by $1.1 billion, driven by strong growth in income tax revenues, partially offset by a drop in goods and services tax (GST) revenues, reflecting the cut to the GST rate on July 1, 2006. Program expenses increased by $0.5 billion, or 3.6 per cent, reflecting increases in transfers to persons, which now include payments under the new Universal Child Care Benefit (UCCB) program. Public debt charges were down $17 million.

April to August 2006: budgetary surplus of $6.7 billion

For the first five months of the 2006–07 fiscal year, the budgetary surplus is estimated at $6.7 billion, up $2.0 billion from the $4.8-billion surplus in the same period of 2005–06. Revenues were up $5.2 billion, or 6.0 per cent, driven by strong growth in income tax revenues, slightly offset by declines in excise tax and employment insurance (EI) premium revenues. Program expenses were up $3.2 billion, or 4.6 per cent, due to both higher transfers and other program expenses. Public debt charges were up $0.1 billion.

The results to date are not representative of results expected for the fiscal year as a whole, as they do not yet reflect the full impact of the measures announced in Budget 2006. A full and complete update of the fiscal outlook will be provided in the upcoming Economic and Fiscal Update.

August 2006

There was a budgetary surplus of $6 million in August 2006, compared to a $0.6-billion deficit in August 2005.

Budgetary revenues increased by $1.1 billion, or 6.6 per cent, to $17.1 billion.

  • Personal income tax revenues were up $0.5 billion, or 6.6 per cent, reflecting growth in employment and wages and salaries.
  • Corporate income tax revenues increased by $0.7 billion, or 52.4 per cent, in part reflecting higher payments from the resource sector.
  • Other income tax revenues—withholdings from non-residents—rose $0.2 billion, or 61.2 per cent.
  • Excise taxes and duties were down $0.4 billion, driven by a $0.5-billion or 18.7-per-cent drop in GST revenues, reflecting the impact of the 1-percentage-point reduction in the GST rate effective July 1, 2006.
  • EI premiums declined by 6.7 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, 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 $0.3 billion. This component of revenues is volatile.

Program expenses in August 2006 were $14.3 billion, up $0.5 billion or 3.6 per cent from August 2005, largely reflecting increases in transfers to persons and increased operating expenses of National Defence and other departments.

Transfer payments were up $0.3 billion, or 3.6 per cent.

  • Transfers to persons, consisting of elderly benefits, EI benefits and children’s benefits, were up $308 million, or 7.1 per cent. Elderly benefits increased by 4.9 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 1.7 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 $210 million, largely reflecting $197 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 down $39 million, or 1.2 per cent.
  • Subsidies and other transfers increased by $47 million, or 3.7 per cent.

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 $187 million, or 3.7 per cent.

Public debt charges decreased by $17 million.

Revenues and expenses (April to August 2006)

April to August 2006

In the first five months of the 2006–07 fiscal year, there was a budgetary surplus of $6.7 billion, up $2.0 billion from the $4.8-billion surplus reported in the same period of 2005–06.

Budgetary revenues were up $5.2 billion, or 6.0 per cent, to $92.7 billion.

  • Personal income tax revenues rose $4.3 billion, or 10.8 per cent, reflecting solid growth in employment and wages and salaries combined with the progressivity of the personal income tax system.
  • Corporate income tax revenues were up $1.2 billion, or 11.2 per cent, reflecting a higher corporate instalment payment base and lower refunds to date, which in turn reflect profit growth in 2005 and ongoing gains in corporate profitability this year.
  • Other income tax revenues rose $0.3 billion, or 17.8 per cent.
  • Excise taxes and duties were down $0.5 billion, or 2.7 per cent, primarily due to a $0.6-billion drop in GST revenues, reflecting the impact of the GST rate reduction on July 1, 2006. Sales and excise tax revenues were also lower, declining by $0.1 billion, or 1.4 per cent. Customs import duties were up $0.1 billion while revenues from the Air Travellers Security Charge were up $6 million.
  • EI premium revenues decreased by 7.0 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 rose $0.4 billion, or 5.8 per cent.

Program expenses in the April to August 2006 period were $71.8 billion, up $3.2 billion or 4.6 per cent from 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 $2.2 billion, or 5.0 per cent.

  • Transfers to persons advanced by 3.5 per cent. Elderly benefits were up 4.7 per cent while EI benefits were down 5.6 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 2005–06. Maternity and parental benefits are also down year-to-date due to the implementation of the Quebec Parental Insurance Plan, effective January 1, 2006. Children’s benefits increased by 13.3 per cent, largely reflecting transfers under the new UCCB, which began on July 1, 2006.
  • Transfers to other levels of government were up $1.5 billion, or 9.3 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 $5 million, or 0.1 per cent.

Other program expenses increased by $1.0 billion, or 4.0 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 4.1 per cent.

Public debt charges were up 0.6 per cent due to an increase in the average effective interest rate on the stock of interest-bearing debt.

Budgetary balance

Federal debt (accumulated deficit)

Financial source of $4.1 billion for April to August 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 $2.6 billion in the April to August period, down from a $10.2-billion requirement in the same period of 2005–06. The decrease in the net requirement largely reflects a number of one-time payments, 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 $6.7 billion and a net requirement of $2.6 billion from non-budgetary transactions, there was a financial source of $4.1 billion in the first five months of 2006–07 compared to a financial requirement of $5.4 billion in the same period of 2005–06.

Net financing activities down $17.8 billion

The Government used this financial source of $4.1 billion and a reduction in its cash balances of $13.7 billion to reduce its market debt by $17.8 billion by the end of August 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 August stood at $4.3 billion.

Table 1
Summary statement of transactions

August April to August


2005 2006 2005–06 2006–07
($ millions)
Budgetary transactions
  Revenues 16,048 17,115 87,522 92,747
  Expenses
    Program expenses -13,839 -14,342 -68,649 -71,828
    Public debt charges -2,784 -2,767 -14,103 -14,192


  Budgetary balance (deficit/surplus) -575 6 4,770 6,727
Non-budgetary transactions 562 1,210 -10,206 -2,586
Financial source/requirement -13 1,216 -5,436 4,141
Net change in financing activities 3,942 -1,006 -4,397 -17,819
Net change in cash balances 3,929 210 -9,833 -13,678
Cash balance at end of period     7,290 4,253
Note: Positive numbers indicate net source of funds. Negative numbers indicate net requirement for funds.

Table 2
Budgetary revenues

August April to August


2005 2006 Change 2005–06 2006–07 Change
($ millions) (%) ($ millions) (%)
Tax revenues
  Income taxes
    Personal income tax 7,707 8,217 6.6 40,291 44,634 10.8
    Corporate income tax 1,272 1,938 52.4 10,949 12,177 11.2
    Other income tax 260 419 61.2 1,575 1,855 17.8


    Total income tax 9,239 10,574 14.4 52,815 58,666 11.1
  Excise taxes and duties            
    Goods and services tax 2,802 2,279 -18.7 13,716 13,144 -4.2
    Customs import duties 332 362 9.0 1,378 1,484 7.7
    Sales and excise taxes 821 879 7.1 4,042 3,985 -1.4
    Air Travellers Security Charge 29 28 -3.4 149 155 4.0


    Total excise taxes and duties 3,984 3,548 -10.9 19,285 18,768 -2.7


  Total tax revenues 13,223 14,122 6.8 72,100 77,434 7.4
Employment insurance premiums 1,297 1,210 -6.7 7,863 7,312 -7.0
Other revenues 1,528 1,783 16.7 7,559 8,001 5.8
Total budgetary revenues 16,048 17,115 6.6 87,522 92,747 6.0
Note: Totals may not add due to rounding.

Table 3
Budgetary expenses

August April to August


2005 2006 Change 2005–06 2006–07 Change
($ millions) (%) ($ millions) (%)
Transfer payments
  Transfers to persons
    Elderly benefits 2,404 2,522 4.9 11,978 12,545 4.7
    Employment insurance benefits 1,180 1,160 -1.7 5,808 5,485 -5.6
    Children’s benefits 739 949 28.4 3,846 4,356 13.3


    Total 4,323 4,631 7.1 21,632 22,386 3.5
  Transfers to other levels of government
    Support for health and other social programs
      Canada Health Transfer 1,584 1,679 6.0 7,917 8,392 6.0
      Canada Social Transfer 685 709 3.5 3,427 3,542 3.4


    Total 2,269 2,388 5.2 11,344 11,934 5.2
    Fiscal transfers 1,062 1,081 1.8 5,392 5,523 2.4
    Canada’s cities and communitites 112 0 -100.0 112 306 173.2
    Early learning and child care 0 0 n/a 0 650 n/a
    Alternative Payments for Standing Programs -196 -261 33.2 -1,197 -1,305 9.0


    Total 3,247 3,208 -1.2 15,651 17,108 9.3
  Subsidies and other transfers            
    Agriculture 97 89 -8.2 463 399 -13.8
    Foreign Affairs and International Trade 317 138 -56.5 997 845 -15.2
    Health 81 82 1.2 682 718 5.3
    Human Resources Development 33 86 160.6 610 682 11.8
    Indian and Northern Development 338 355 5.0 1,984 2,003 1.0
    Industry and Regional Development 211 224 6.2 786 747 -5.0
    Other 193 343 77.7 1,919 2,052 6.9


    Total 1,270 1,317 3.7 7,441 7,446 0.1


  Total transfer payments 8,840 9,156 3.6 44,724 46,940 5.0
Other program expenses            
  Crown corporation expenses            
    Canadian Broadcasting Corporation 140 118 -15.7 595 595 0.0
    Canada Mortgage and Housing Corporation 142 158 11.3 846 798 -5.7
    Other 268 211 -21.3 1,501 1,429 -4.8


    Total 550 487 -11.5 2,942 2,822 -4.1
  Defence 1,182 1,344 13.7 5,649 6,175 9.3
  All other departments and agencies 3,267 3,355 2.7 15,334 15,891 3.6


  Total other program expenses 4,999 5,186 3.7 23,925 24,888 4.0
Total program expenses 13,839 14,342 3.6 68,649 71,828 4.6
Public debt charges 2,784 2,767 -0.6 14,103 14,192 0.6
Total budgetary expenses 16,623 17,109 2.9 82,752 86,020 3.9
Note: Totals may not add due to rounding.

Table 4
The budgetary balance and financial source/requirement

August April to August


2005 2006 2005–06 2006–07
($ millions)
Budgetary balance (deficit/surplus) -575 6 4,770 6,727
Non-budgetary transactions        
  Capital investing activities -136 -114 -117 -413
  Other investing activities 170 -47 -940 417
  Pension and other accounts -447 1,358 -1,688 1,482
  Other activities        
    Accounts payable, receivables, 
      accruals and allowances
1,431 -1,159 -10,266 -6,837
    Foreign exchange activities -728 932 1,540 1,579
    Amortization of tangible capital assets 272 240 1,265 1,186


    Total other activities 975 13 -7,461 -4,072
  Total non-budgetary transactions 562 1,210 -10,206 -2,586
Net financial source/requirement -13 1,216 -5,436 4,141
Note:  Totals may not add due to rounding.

Table 5
Financial source/requirement and net financing activities

August April to August


2005 2006 2005–06 2006–07
($ millions)
Net financial source/requirement -13 1,216 -5,436 4,141
Net increase (+)/decrease (-) in financing activities        
  Unmatured debt transactions        
    Canadian currency borrowings        
      Marketable bonds 2,261 3,051 1,383 1,620
      Treasury bills 1,800 -2,700 -1,800 -13,800
      Canada Savings Bonds -84 -77 -392 -379
      Other -1 -105 -142 -1,015


      Total 3,976 169 -951 -13,574
  Foreign currency borrowings -87 -945 -3,591 -3,855


      Total 3,889 -776 -4,542 -17,429
  Cross-currency swap revaluation 0 -121 -5 -121
  Unamortized discounts on debt issues 39 -102 66 -223
  Obligations related to capital leases 14 -7 84 -46
  Net change in financing activities 3,942 -1,006 -4,397 -17,819
Change in cash balance 3,929 210 -9,833 -13,678
Note: Totals may not add due to rounding.

Table 6
Condensed statement of assets and liabilities

March 31, 2006   August 31, 2006   Change

($ millions)

Liabilities
  Accounts payable, accruals and allowances 101,432 88,630 -12,802
  Interest-bearing debt
    Unmatured debt
    Payable in Canadian dollars
       Marketable bonds 261,134 262,754 1,620
       Treasury bills 131,597 117,797 -13,800
       Canada Savings Bonds 17,342 16,963 -379
       Other 3,102 2,087 -1,015

       Subtotal 413,175 399,601 -13,574
    Payable in foreign currencies 14,085 10,230 -3,855
    Cross-currency swap revaluation account -2,258 -2,379 -121
    Unamortized discounts and premiums 
      on market debt
-6,780 -7,003 -223
    Obligations related to capital leases 2,927 2,881 -46

    Total unmatured debt 421,149 403,330 -17,819
    Pension and other accounts
        Public sector pensions 131,062 131,957 895
        Other employee and veteran future benefits 43,369 44,031 662
        Other pension and other accounts 5,493 5,418 -75

         Total pension and other accounts 179,924 181,406 1,482
    Total interest-bearing debt 601,073 584,736 -16,337
  Total liabilities 702,505 673,366 -29,139
Financial assets
  Cash and accounts receivable 82,843 63,200 -19,643
  Foreign exchange accounts 40,827 39,248 -1,579
  Loans, investments and advances 
  (net of allowances)
41,889 41,472 -417

  Total financial assets 165,559 143,920 -21,639

Net debt 536,946 529,446 -7,500
Non-financial assets 55,447 54,674 -773
Federal debt (accumulated deficit) 481,499 474,772 -6,727

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October 2006