- Fiscal Monitor 2006 -

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Highlights of financial results for October 2006

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Highlights

October 2006: budgetary surplus of $0.4 billion

There was a budgetary surplus of $0.4 billion in October 2006, compared to a $1.6-billion surplus in October 2005. Revenues decreased by $0.2 billion, or 1.0 per cent, reflecting both the goods and services tax (GST) rate reduction and a number of one-time factors affecting income tax revenues. Program expenses increased by $1.0 billion, or 7.0 per cent, reflecting increases in transfer payments and departmental operating expenses. Transfer payments, which account for about two-thirds of total program expenses, increased by $0.6 billion, or 6.3 per cent. Public debt charges were down $19 million.

April to October 2006: budgetary surplus of $5.8 billion

For the first seven months of the 2006–07 fiscal year, the budgetary surplus is estimated at $5.8 billion, down $0.7 billion from the $6.5-billion surplus posted in the same period of 2005–06. Revenues were up $5.4 billion, or 4.4 per cent, reflecting solid growth in income tax revenues, partially offset by declines in excise taxes and employment insurance (EI) premium revenues. Program expenses were up $6.0 billion, or 6.2 per cent, due to both higher transfers and other program expenses. This includes transfers to other levels of government, which were up $1.5 billion, or 6.9 per cent. Public debt charges were up $0.1 billion.

October 2006

There was a budgetary surplus of $0.4 billion in October 2006, compared to a $1.6-billion surplus in October 2005.

Budgetary revenues declined by $0.2 billion, or 1.0 per cent, to $18.1 billion.

  • Personal income tax receipts rose just $41 million, or 0.5 per cent, in October, largely due to two one-time factors. First, the October results include the accrual of the costs pertaining to the first 10 months of the increase of the age credit introduced in the October 31 Tax Fairness Plan ($270 million, retroactive to January 1, 2006). Secondly, there were two fewer large processing days for payroll deductions in October 2006 compared to October 2005.
  • Corporate income tax revenues increased $0.1 billion, or 2.6 per cent. This increase was slower than in previous months. Corporate income tax revenues can be volatile on a month-to-month basis, as 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—fell $0.1 billion, or 15.6 per cent, reflecting the high level of receipts reported at this time last year.
  • Excise taxes and duties were down $0.5 billion, due to a 14.9-per-cent drop in GST revenues, reflecting the 1-percentage-point reduction in the GST rate effective July 1, 2006.
  • EI premium revenues declined by 8.5 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, rose $0.4 billion, or 25.7 per cent. This revenue stream is volatile on a monthly basis. The large gain in October follows a decline of 8.9 per cent in September and an increase of 16.7 per cent in August.

Program expenses in October 2006 were $14.9 billion, up $1.0 billion, or 7.0 per cent, from October 2005, reflecting increases in transfer payments and operating expenses of departments and agencies, including National Defence.

Transfer payments increased $0.6 billion, or 6.3 per cent.

  • Transfers to persons, consisting of elderly benefits, EI benefits and children’s benefits, rose $0.3 billion, or 7.0 per cent. Elderly benefits increased 4.0 per cent. EI benefit payments decreased 1.3 per cent, reflecting declines in both maternity and parental 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 $0.2 billion, reflecting transfers under the new 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 $0.1 billion, or 1.9 per cent.
  • Subsidies and other transfers increased by $0.3 billion, or 23.8 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, and also reflect the ongoing assessment of the Government’s liabilities. These expenses increased $0.4 billion, or 8.4 per cent, reflecting increases across a number of departments.

Public debt charges decreased $19 million.

Revenues and expenses

April to October 2006

In the first seven months of the 2006–07 fiscal year, there was a budgetary surplus of $5.8 billion, $0.7 billion less than the $6.5-billion surplus reported for the same period of 2005–06.

Budgetary revenues through the first seven months of the fiscal year were up $5.4 billion, or 4.4 per cent, to $127.9 billion.

  • Personal income tax revenues were up $5.1 billion, or 9.0 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 $1.6 billion, or 10.4 per cent, reflecting a higher corporate instalment payment base. This, in turn, reflects profit growth in 2005 and continued growth in corporate profitability this year. The corporate results to date are not indicative of the eventual outcome for the fiscal year as a whole. Roughly half of corporate income tax revenues comes from corporations with December year-ends, which results in as much as one-third of total corporate receipts being received during the February-to-March settlement period of the fiscal year. Consequently, results for even the first 10 months of the fiscal year can differ markedly from the final, full-year outcome.
  • Other income tax revenues rose $0.1 billion, or 5.2 per cent.
  • Excise taxes and duties declined by $1.4 billion, or 4.9 per cent, mainly due to a $1.4-billion drop in GST revenues, reflecting the impact of the July 1, 2006, GST rate reduction. Sales and excise tax revenues decreased by $0.1 billion, or 1.6 per cent. Customs import duties rose $0.1 billion, or 6.4 per cent, while revenues from the Air Travellers Security Charge were $7 million higher.
  • EI premium revenues declined by 7.3 per cent, reflecting the decline in the premium rate from $1.95 to $1.87 per $100 of insurable earnings, effective January 1, 2006, 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 $0.7 billion, or 6.7 per cent.

Program expenses in the April-to-October 2006 period were $102.2 billion, up $6.0 billion, or 6.2 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 $3.6 billion, or 5.8 per cent.

  • Transfers to persons grew by 4.7 per cent. Elderly benefits were up 4.8 per cent while EI benefits were down 4.4 per cent. The year-to-date decline in EI benefits is mainly attributable to a decline in maternity and parental benefits, which have decreased 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 17.7 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 6.9  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 $0.7 billion, or 6.8 per cent, reflecting increases in transfer payments across a number of departments, most notably Agriculture and Agri-Food Canada.

Other program expenses increased by $2.3 billion, 6.9 per cent, due to an increase in the operating costs of departments and agencies as well as a one-time increase in September 2006 in the Government’s estimated pension liabilities.

Public debt charges were up 0.7 per cent, due mainly to an increase in the average effective interest rate on the stock of interest-bearing debt.

Budgetary balance

Federal debt

Financial source of $2.9 billion for April to October 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 $2.9 billion in the April-to-October period, reflecting payments made to provinces and international organizations pursuant to Bill C-48. This is down from an $8.1-billion requirement in the same period of 2005–06. The decrease in the net 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, as well as an increase in the financial source from foreign exchange activities.

With a budgetary surplus of $5.8 billion and a net requirement of $2.9 billion from non-budgetary transactions, there was a financial source of $2.9 billion in the first seven months of 2006–07 compared to a financial requirement of $1.6 billion in the same period of 2005–06.

Net financing activities down $17.4 billion

The Government used this financial source of $2.9 billion and a reduction in its cash balances of $14.5 billion to reduce its market debt by $17.4 billion by the end of October 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 October stood at $3.4 billion.

Table 1
Summary statement of transactions

  October April to October
 

  2005 2006 2005–06 2006–07
  ($ millions)
Budgetary transactions        
  Revenues 18,325 18,145 122,499 127,877
  Expenses        
    Program expenses -13,877 -14,851 -96,199 -102,158
    Public debt charges -2,882 -2,863 -19,799 -19,941
 

  Budgetary balance (deficit/surplus) 1,566 431 6,501 5,778
Non-budgetary transactions -281 -622 -8,067 -2,918
Financial source/requirement 1,285 -191 -1,566 2,860
Net change in financing activities -412 134 -11,972 -17,393
Net change in cash balances 873 -57 -13,538 -14,533
Cash balance at end of period     3,620 3,426
Note: Positive numbers indicate net source of funds. Negative numbers indicate net requirement for funds.

Table 2
Budgetary revenues

  October   April to October  
 
 
 
  2005 2006 Change 2005–06 2006–07 Change
  ($ millions) (%) ($ millions) (%)
Tax revenues            
  Income taxes            
    Personal income tax 8,604 8,645 0.5 56,621 61,692 9.0
    Corporate income tax 2,199 2,256 2.6 15,069 16,635 10.4
    Other income tax 411 347 -15.6 2,341 2,463 5.2
 

    Total income tax 11,214 11,248 0.3 74,031 80,790 9.1
  Excise taxes and duties            
    Goods and services tax 3,441 2,930 -14.9 19,991 18,584 -7.0
    Customs import duties 315 334 6.0 1,998 2,125 6.4
    Sales and excise taxes 755 710 -6.0 5,661 5,568 -1.6
    Air Travellers Security Charge 26 30 15.4 206 213 3.4
 

    Total excise taxes and duties 4,537 4,004 -11.7 27,856 26,490 -4.9
 

  Total tax revenues 15,751 15,252 -3.2 101,887 107,280 5.3
Employment insurance premiums 1,003 918 -8.5 10,006 9,276 -7.3
Other revenues 1,571 1,975 25.7 10,606 11,321 6.7
Total budgetary revenues 18,325    18,145 -1.0    122,499    127,877 4.4
Note: Totals may not add due to rounding.

Table 3
Budgetary expenses

  October   April to October  
 
 
 
  2005 2006 Change 2005–06 2006–07 Change
  ($ millions) (%) ($ millions) (%)
Transfer payments            
  Transfers to persons            
  Elderly benefits 2,425 2,521 4.0 16,818 17,617 4.8
    Employment insurance benefits 1,136 1,121 -1.3 7,940 7,594 -4.4
    Children’s benefits 766 987 28.9 5,369 6,319 17.7
 

    Total 4,327 4,629 7.0 30,127 31,530 4.7
  Transfers to other levels of government            
    Support for health and other social programs            
      Canada Health Transfer 1,583 1,678 6.0 11,083 11,748 6.0
      Canada Social Transfer 685 708 3.4 4,798 4,958 3.3
 

    Total 2,268 2,386 5.2 15,881 16,706 5.2
    Fiscal transfers 1,045 1,097 5.0 7,447 7,731 3.8
    Canada’s cities and communities 213 0 n/a 394 306 -22.3
    Early learning and child care 0 0 n/a 0 650 n/a
    Alternative Payments for Standing Programs -242 -262 8.3 -1,678 -1,828 8.9
 

    Total 3,284 3,221 -1.9 22,044 23,565 6.9
  Subsidies and other transfers            
    Agriculture and Agri-Food 130 265 103.8 735 1,047 42.4
    Foreign Affairs and International Trade -38 139 n/a 1,207 1,122 -7.0
    Health 98 128 30.6 1,010 1,053 4.3
    Human Resources and Social Development 134 114 -14.9 913 942 3.2
    Indian Affairs and Northern Development 366 373 1.9 2,676 2,754 2.9
    Industry 211 246 16.6 1,129 1,117 -1.1
    Other 471 433 -8.1 2,407 2,728 13.3
 

    Total 1,372 1,698 23.8 10,077 10,763 6.8
 

  Total transfer payments 8,983 9,548 6.3 62,248 65,858 5.8
Other program expenses            
  Crown corporation expenses            
    Canadian Broadcasting Corporation 100 69 -31.0 768 764 -0.5
    Canada Mortgage and Housing Corporation 164 209 27.4 1,194 1,183 -0.9
    Other 229 267 16.6 1,969 1,977 0.4
 

    Total 493 545 10.5 3,931 3,924 -0.2
  Defence 1,237 1,359 9.9 8,291 8,817 6.3
  All other departments and agencies 3,164 3,399 7.4 21,729 23,559 8.4
 

  Total other program expenses 4,894 5,303 8.4 33,951 36,300 6.9
Total program expenses 13,877 14,851 7.0 96,199 102,158 6.2
Public debt charges 2,882 2,863 -0.7 19,799 19,941 0.7
Total budgetary expenses 16,759     17,714 5.7 115,998     122,099 5.3
Note: Totals may not add due to rounding.

Table 4
The budgetary balance and financial source/requirement

  October April to October
 

  2005 2006 2005–06 2006–07
  ($ millions)
Budgetary balance (deficit/surplus) 1,566 431 6,501 5,778
Non-budgetary transactions        
  Capital investing activities -248 -218 -978 -1,042
  Other investing activities -314 -1,314 -2,135 -1,785
  Pension and other accounts 347 331 -534 2,886
  Other activities    
    Accounts payable, receivables, 
     accruals and allowances
710 -202 -7,075 -6,555
    Foreign exchange activities -1,026 535 858 1,792
    Amortization of tangible capital assets 250 246 1,797 1,786
 

    Total other activities -66 579 -4,420 -2,977
  Total non-budgetary transactions -281 -622 -8,067 -2,918
Net financial source/requirement 1,285 -191 -1,566 2,860
Note: Totals may not add due to rounding.

Table 5
Financial source/requirement and net financing activities

  October April to October
 

  2005 2006 2005–06 2006–07
  ($ millions)
Net financial source/requirement 1,285 -191 -1,566 2,860
Net increase (+)/decrease (-) in financing activities        
  Unmatured debt transactions        
    Canadian currency borrowings        
      Marketable bonds -1,585 1,467 -4,663 255
        Treasury bills 1,000     -1,300 -3,400 -11,900
      Canada Savings Bonds -68 -45 -497 -470
      Other -13 -1 -181 -1,130
 

      Total -666 121 -8,741 -13,245
    Foreign currency borrowings 302 -93 -3,281 -4,022
 

      Total -364 28 -12,022     -17,267
  Cross-currency swap revaluation 3 129 -75 126
  Unamortized discounts on debt issues -53 -17 47 -202
  Obligations related to capital leases 2 -6 78 -50
  Net change in financing activities -412 134 -11,972 -17,393
Change in cash balance 873 -57 -13,538 -14,533
Note: Totals may not add due to rounding.

Table 6
Condensed statement of assets and liabilities

  March 31, 2006    October 31, 2006    Change
  ($ millions)
Liabilities      
  Accounts payable, accruals and allowances 101,432 92,265 -9,167
  Interest-bearing debt      
    Unmatured debt      
      Payable in Canadian dollars      
        Marketable bonds 261,134 261,389 255
        Treasury bills 131,597 119,697 -11,900
        Canada Savings Bonds 17,342 16,872 -470
        Other 3,102 1,972 -1,130
 
        Subtotal 413,175 399,930 -13,245
      Payable in foreign currencies 14,085 10,063 -4,022
      Cross-currency swap revaluation account -2,258 -2,132 126
      Unamortized discounts and premiums 
       on market debt
-6,780 -6,982 -202
      Obligations related to capital leases 2,927 2,877 -50
 
      Total unmatured debt 421,149 403,756 -17,393
    Pension and other accounts      
      Public sector pensions 131,062 133,194 2,132
      Other employee and veteran future benefits 43,369 44,315 946
      Other pension and other accounts 5,493 5,301 -192
 
      Total pension and other accounts 179,924 182,810 2,886
    Total interest-bearing debt 601,073 586,566 -14,507
  Total liabilities 702,505 678,831 -23,674
Financial assets      
  Cash and accounts receivable 82,843 65,698 -17,145
  Foreign exchange accounts 40,827 39,035 -1,792
  Loans, investments and advances 
   (net of allowances)
41,889 43,674 1,785
 
  Total financial assets 165,559 148,407 -17,152
 
Net debt 536,946 530,424 -6,522
Non-financial assets 55,447 54,703 -744
Federal debt (accumulated deficit) 481,499 475,721 -5,778

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December 2006