- Fiscal Monitor 2006 -

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Highlights of financial results for September 2006

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Highlights

September 2006: budgetary deficit of $1.4 billion

There was a budgetary deficit of $1.4 billion in September 2006, compared to a $0.2-billion surplus in September 2005. Revenues increased by $0.3 billion, or 2.0 per cent, 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 $1.8 billion, or 13.2 per cent, reflecting increases in transfer payments and departmental operating expenses. Public debt charges were up $72 million.

April to September 2006: budgetary surplus of $5.3 billion

For the first six months of the 2006–07 fiscal year, the budgetary surplus is estimated at $5.3 billion, up $0.4 billion from the $4.9-billion surplus posted in the same period of 2005–06. Revenues were up $5.6 billion, or 5.3 per cent, driven by strong growth in income tax revenues, slightly offset by declines in excise taxes and employment insurance (EI) premium revenues. Program expenses were up $5.0 billion, or 6.1 per cent, due to both higher transfers and other program expenses. Public debt charges were up $0.2 billion.

In keeping with the 2006 budget commitment to provide quarterly updates of the fiscal forecast for the current year, an updated forecast will be published in The Economic and Fiscal Update.

September 2006

There was a budgetary deficit of $1.4 billion in September 2006, compared to a $0.2-billion surplus in September 2005.

Budgetary revenues increased by $0.3 billion, or 2.0 per cent, to $17.0 billion.

  • Personal income tax revenues were up $0.7 billion, or 8.9 per cent, reflecting higher employment and wages and salaries.
  • Corporate income tax revenues increased $0.3 billion, or 14.6 per cent. Corporate income tax revenues can be volatile on a monthly basis, as corporate year-ends are distributed throughout the year, with a concentration in September through December. As such, large refunds or settlement payments may be recorded in any given month. In addition, assessments or reassessments, which can relate to activity that took place several years prior, can influence results in a given month.
  • Other income tax revenues—withholdings from non-residents—declined by $0.1 billion, or 26.5 per cent, reflecting the high level of revenues reported at this time last year.
  • Excise taxes and duties were down $0.3 billion due to an 11.4-per-cent drop in GST revenues, reflecting the impact of the 1-percentage-point reduction in the GST rate effective July 1, 2006.
  • EI premium revenues declined by 8.2 per cent, reflecting 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 of enterprise Crown corporations, revenues of consolidated Crown corporations, proceeds from the sales of goods and services, return on investments, foreign exchange revenues and miscellaneous revenues, were down $0.1 billion, or 8.9 per cent, following a 16.7-per-cent gain in August.

Program expenses in September 2006 were $15.5 billion, up $1.8 billion, or 13.2 per cent, from September 2005, reflecting increases in transfer payments and increased operating expenses of departments and agencies, excluding National Defence.

Transfer payments were up $0.8 billion, or 9.7 per cent.

  • Transfers to persons, consisting of elderly, EI and children’s benefits, rose $0.3 billion, or 8.3 per cent. Elderly benefits increased by 5.6 per cent. EI benefits decreased by 0.8 per cent, reflecting declines in both regular and maternity benefits. Children’s benefits consist of the Canada Child Tax Benefit and the new Universal Child Care Benefit (UCCB), which began on July 1, 2006. Children’s benefits were up $219 million, largely reflecting $199 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 $0.1 billion, or 4.1 per cent, reflecting increased funding under the 2004 agreements on health care and equalization/Territorial Formula Financing.
  • Subsidies and other transfers increased by $0.4 billion, or 28.1 per cent, reflecting in part increased agricultural assistance announced in Budget 2006.

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 $1.0 billion, or 19.1 per cent. Expenses increased across a number of departments, bringing year-to-date growth more in line with projected spending in the 2006 budget. In addition, spending in September was affected by a one-time adjustment to reflect an under-accrual of pension costs in prior months.

Public debt charges increased by $72 million.

Revenues and expenses

April to September 2006

In the first six months of the 2006–07 fiscal year, there was a budgetary surplus of $5.3 billion, up $0.4 billion from the $4.9-billion surplus reported in the same period of 2005–06.

Budgetary revenues were up $5.6 billion, or 5.3 per cent, to $109.7 billion.

  • Personal income tax revenues were up $5.0 billion, or 10.5 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 rose $1.5 billion, or 11.7 per cent, reflecting a higher corporate instalment payment base and lower refunds to date, both of which in turn reflect profit growth in 2005 and higher corporate profitability this year.
  • Other income tax revenues rose $0.2 billion, or 9.6 per cent.
  • Excise taxes and duties were down $0.8 billion, or 3.6 per cent, mainly due to a $0.9-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, falling $48 million, or 1.0 per cent. Customs import duties were up $0.1 billion, or 6.4 per cent, while revenues from the Air Travellers Security Charge were $3 million higher.
  • EI premium revenues declined by 7.2 per cent, reflecting 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 were up $0.3 billion, or 3.4 per cent.

Program expenses in the April to September 2006 period were $87.3 billion, up $5.0 billion, or 6.1 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 $0.2 billion.

Transfer payments, which account for about two-thirds of total program expenses, increased by $3.0 billion, or 5.7 per cent.

  • Transfers to persons advanced by 4.3 per cent. Elderly benefits were up 4.9 per cent while EI benefits were down 4.9 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 transfer to the province of Quebec of the responsibility for delivering maternity and parental benefits in that province, effective January 1, 2006. Children’s benefits increased by 15.8 per cent, largely reflecting transfers under the new UCCB, which began on July 1, 2006.
  • Transfers to other levels of government were up $1.6 billion, or 8.4 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 4.1 per cent.

Other program expenses increased by $1.9 billion, or 6.7 per cent, reflecting an increase in the operating costs of departments and agencies as well as a one-time increase in the Government’s estimated liabilities. Crown corporation expenses declined by $0.1 billion, or 1.7 per cent.

Public debt charges were up 1.0 per cent, reflecting an increase in the average effective interest rate on the stock of interest-bearing debt.

Budgetary balance

Federal debt

Financial source of $3.0 billion for April to September 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 $2.3 billion in the April to September period, reflecting payments made to provinces and international organizations pursuant to Bill C-48. This is down from the $7.8-billion requirement recorded in the same period of 2005–06. The decrease in the requirement largely reflects the transfer of the Government’s holdings in the Canada Pension Plan to the Canada Pension Plan Investment Board in 2005–06.

With a budgetary surplus of $5.3 billion and a net requirement of $2.3 billion from non-budgetary transactions, there was a financial source of $3.0 billion in the first six months of 2006–07 compared to a financial requirement of $2.9 billion in the same period of 2005–06.

Net financing activities down $17.5 billion

The Government used this financial source of $3.0 billion and a reduction in its cash balances of $14.5 billion to reduce its market debt by $17.5 billion by the end of September 2006, largely through a reduction of treasury bills and foreign currency borrowings. 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 September stood at $3.4 billion.

Table 1
Summary statement of transactions

  September April to September
 

  2005 2006 2005–06 2006–07
  ($ millions)
Budgetary transactions        
  Revenues 16,652 16,985 104,174 109,732
  Expenses        
    Program expenses -13,674 -15,481 -82,323 -87,309
    Public debt charges -2,814 -2,886 -16,917 -17,078
 

  Budgetary balance (deficit/surplus) 164 -1,382 4,934 5,345
Non-budgetary transactions 2,413 276 -7,793 -2,312
Financial source/requirement 2,577 -1,106 -2,859 3,033
Net change in financing activities -7,163 292 -11,560 -17,527
Net change in cash balances -4,586 -814 -14,419 -14,494
Cash balance at end of period     2,702 3,437
Note: Positive numbers indicate net source of funds. Negative numbers indicate net requirement for funds.

Table 2
Budgetary revenues

  September   April to September  
 
 
 
  2005 2006 Change 2005–06 2006–07 Change
  ($ millions) (%) ($ millions) (%)
Tax revenues            
  Income taxes            
    Personal income tax 7,726 8,413 8.9 48,017 53,047 10.5
    Corporate income tax 1,921 2,202 14.6 12,870 14,379 11.7
    Other income tax 355 261 -26.5 1,930 2,116 9.6
 

    Total income tax 10,002 10,876 8.7 62,817 69,542 10.7
  Excise taxes and duties            
    Goods and services tax 2,834 2,510 -11.4 16,550 15,654 -5.4
    Customs import duties 305 307 0.7 1,683 1,791 6.4
    Sales and excise taxes 864 873 1.0 4,906 4,858 -1.0
    Air Travellers Security Charge 31 28 -9.7 180 183 1.7
 

    Total excise taxes and duties 4,034 3,718 -7.8 23,319 22,486 -3.6
 

  Total tax revenues 14,036 14,594 4.0 86,136 92,028 6.8
Employment insurance premiums 1,140 1,046 -8.2 9,003 8,358 -7.2
Other revenues 1,476 1,345 -8.9 9,035 9,346 3.4
Total budgetary revenues 16,652 16,985 2.0 104,174 109,732 5.3
Note: Totals may not add due to rounding.

Table 3
Budgetary expenses

  September   April to September  
 
 
 
  2005 2006 Change 2005–06 2006–07 Change
  ($ millions) (%) ($ millions) (%)
Transfer payments            
  Transfers to persons            
    Elderly benefits 2,415 2,551 5.6 14,393 15,096 4.9
    Employment insurance benefits 996 988 -0.8 6,804 6,473 -4.9
    Children’s benefits 757 976 28.9 4,603 5,332 15.8
 

    Total 4,168 4,515 8.3 25,800 26,901 4.3
  Transfers to other levels of government            
    Support for health and other social programs            
      Canada Health Transfer 1,583 1,678 6.0 9,500 10,070 6.0
      Canada Social Transfer 686 708 3.2 4,113 4,250 3.3
 

    Total 2,269 2,386 5.2 13,613 14,320 5.2
    Fiscal transfers 1,010 1,111 10.0 6,402 6,634 3.6
    Canada’s cities and communities 69 0 n/a 181 306 69.1
    Early learning and child care 0 0 n/a 0 650 n/a
    Alternative Payments for Standing Programs -239 -261 9.2 -1,436 -1,566 9.1
 

    Total 3,109 3,236 4.1 18,760 20,344 8.4
  Subsidies and other transfers            
    Agriculture and Agri-Food 142 383 169.7 605 782 29.3
    Foreign Affairs and International Trade 248 138 -44.4 1,245 983 -21.0
    Health 230 207 -10.0 912 925 1.4
    Human Resources and Social Development 169 146 -13.6 779 828 6.3
    Indian Affairs and Northern Development 326 378 16.0 2,310 2,381 3.1
    Industry 132 124 -6.1 918 871 -5.1
    Other 17 243 n/a 1,936 2,295 18.5
 

    Total 1,264 1,619 28.1 8,705 9,065 4.1
 

  Total transfer payments 8,541 9,370 9.7 53,265 56,310 5.7
Other program expenses            
  Crown corporation expenses            
    Canadian Broadcasting Corporation 73 100 37.0 668 695 4.0
    Canada Mortgage and  Housing Corporation 184 176 -4.3 1,030 974 -5.4
    Other 239 281 17.6 1,740 1,710 -1.7
 

    Total 496 557 12.3 3,438 3,379 -1.7
  Defence 1,405 1,283 -8.7 7,054 7,458 5.7
  All other departments and agencies 3,232 4,271 32.1 18,566 20,162 8.6
 

  Total other program expenses 5,133 6,111 19.1 29,058 30,999 6.7
Total program expenses 13,674 15,481 13.2 82,323 87,309 6.1
Public debt charges 2,814 2,886 2.6 16,917 17,078 1.0
Total budgetary expenses 16,488 18,367 11.4 99,240 104,387 5.2
Note: Totals may not add due to rounding.

Table 4
The budgetary balance and financial source/requirement

  September April to September
 

  2005 2006 2005–06 2006–07
  ($ millions)
Budgetary balance (deficit/surplus) 164 -1,382 4,934 5,345
Non-budgetary transactions        
  Capital investing activities -613 -411 -730 -824
  Other investing activities -881 -887 -1,821 -471
  Pension and other accounts 807 1,085 -881 2,555
  Other activities        
    Accounts payable, receivables,
     accruals and allowances
2,474 456 -7,792 -6,369
    Foreign exchange activities 344 -322 1,884 1,257
    Amortization of tangible capital assets 282 355 1,547 1,540
 

    Total other activities 3,100 489 -4,361 -3,572
  Total non-budgetary transactions 2,413 276 -7,793 -2,312
Net financial source/requirement 2,577 -1,106 -2,859 3,033
Note: Totals may not add due to rounding.

Table 5
Financial source/requirement and net financing activities

  September April to September
 

  2005 2006 2005–06 2006–07
  ($ millions)
Net financial source/requirement 2,577 -1,106 -2,859 3,033
Net increase (+)/decrease (-) in financing activities        
  Unmatured debt transactions        
    Canadian currency borrowings        
      Marketable bonds -4,461 -2,832 -3,078 -1,212
      Treasury bills -2,600 3,200 -4,400 -10,600
      Canada Savings Bonds -37 -46 -429 -425
      Other -26 -114 -168 -1,129
 

      Total -7,124 208 -8,075 -13,366
    Foreign currency borrowings 8 -75 -3,583 -3,929
 

      Total -7,116 133 -11,658 -17,295
  Cross-currency swap revaluation -73 118 -78 -3
  Unamortized discounts on debt issues 34 38 100 -185
  Obligations related to capital leases -8 3 76 -44
  Net change in financing activities -7,163 292 -11,560 -17,527
Change in cash balance -4,586 -814 -14,419 -14,494
Note: Totals may not add due to rounding.

Table 6
Condensed statement of assets and liabilities

  March 31, 2006 September 30, 2006 Change
  ($ millions)
Liabilities      
  Accounts payable, accruals and allowances 101,432 89,925 -11,507
  Interest-bearing debt      
    Unmatured debt      
      Payable in Canadian dollars      
        Marketable bonds 261,134 259,922 -1,212
        Treasury bills 131,597 120,997 -10,600
        Canada Savings Bonds 17,342 16,917 -425
        Other 3,102 1,973 -1,129
 
        Subtotal 413,175 399,809 -13,366
      Payable in foreign currencies 14,085 10,156 -3,929
      Cross-currency swap revaluation account -2,258 -2,261 -3
      Unamortized discounts and premiums on market debt -6,780 -6,965 -185
      Obligations related to capital leases 2,927 2,883 -44
 
      Total unmatured debt 421,149 403,622 -17,527
    Pension and other accounts      
      Public sector pensions 131,062 132,899 1,837
      Other employee and veteran future benefits 43,369 44,179 810
      Other pension and other accounts 5,493 5,401 -92
 
      Total pension and other accounts 179,924 182,479 2,555
    Total interest-bearing debt 601,073 586,101 -14,972
  Total liabilities 702,505 676,026 -26,479
Financial assets      
  Cash and accounts receivable 82,843 63,211 -19,632
  Foreign exchange accounts 40,827 39,570 -1,257
  Loans, investments and advances (net of allowances) 41,889 42,360 471
 
  Total financial assets 165,559 145,141 -20,418
 
Net debt 536,946 530,885 -6,061
Non-financial assets 55,447 54,731 -716
Federal debt (accumulated deficit) 481,499 476,154 -5,345

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November 2006