- Fiscal Monitor 2006 -

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Highlights of financial results for December 2006

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Highlights

December 2006: budgetary surplus of $1.2 billion

There was a budgetary surplus of $1.2 billion in December 2006, up $0.3 billion from the $0.9-billion surplus in December 2005. Budgetary revenues rose $1.4 billion, or 7.6 per cent, due to strong growth in personal and corporate income tax revenues as well as non-tax revenues, dampened by declines in other revenue streams, particularly excise taxes and duties. Program expenses increased by $0.8 billion, or 5.5 per cent, reflecting increases in transfer payments and departmental operating expenses. Public debt charges were up $0.3 billion.

April to December 2006: budgetary surplus of $7.3 billion

The budgetary surplus is estimated at $7.3 billion for the first nine months of the 2006–07 fiscal year, down from the $7.5-billion surplus posted in the same period of 2005–06. Revenues rose $7.8 billion, or 4.9 per cent, reflecting strong growth in income tax revenues and non-tax revenues, partially offset by declines in excise taxes and employment insurance (EI) premium revenues. Program expenses were up $7.9 billion, or 6.3 per cent, due to both higher transfers and other program expenses. Public debt charges were up $0.2 billion.

An update of the 2006–07 budgetary surplus projection will be provided in the budget.

December 2006

There was a budgetary surplus of $1.2 billion in December 2006, up from the $0.9-billion surplus in December 2005.

Budgetary revenues increased by $1.4 billion, or 7.6 per cent, to $19.1 billion.

  • Personal income tax revenues rose $0.9 billion, or 9.7 per cent, in December, driven by strong growth in payroll deductions, which in turn reflects economic conditions and a larger than normal number of processing days in the month.
  • Corporate income tax revenues rose $0.8 billion, or 32.4 per cent. Corporate income tax revenues can be volatile on a monthly 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 in prior years, can influence results in a given month.
  • Other income tax revenues—withholdings from non-residents—declined by $0.1 billion, or 24.2 per cent, reflecting very high levels of withholdings in December 2005.
  • Excise taxes and duties declined by $0.4 billion, primarily due to a 14.8-per-cent drop in goods and services tax (GST) revenues, reflecting the 1-percentage-point reduction in the GST rate effective July 1, 2006.
  • EI premium revenues declined by 7.9 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 $0.2 billion, or 14.3 per cent. This revenue stream is volatile on a monthly basis.

Program expenses in December 2006 were $15.1 billion, up $0.8 billion, or 5.5 per cent, from December 2005, reflecting increases in transfer payments and operating expenses of departments and agencies, including National Defence.

Transfer payments increased by $0.5 billion, or 5.2 per cent.

  • Transfers to persons, consisting of elderly benefits, EI benefits and children’s benefits, rose $0.3 billion, or 6.9 per cent. Elderly benefits increased by 5.1 per cent. EI benefits decreased by 2.1 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 up $0.3 billion, or 8.5 per cent.
  • Subsidies and other transfers decreased by $0.1 billion, or 5.2 per cent.

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 by $0.3 billion, or 6.0 per cent, reflecting increases across a number of departments.

Public debt charges increased by $0.3 billion, reflecting an increase in the average effective interest rate on the stock of interest-bearing debt.

April to December 2006

In the first nine months of the fiscal year, there was a budgetary surplus of $7.3 billion, down $0.2 billion from the $7.5-billion surplus reported in the same period of 2005–06.

Budgetary revenues were up $7.8 billion, or 4.9 per cent, to $165.3 billion.

Revenues and expenses

  • Personal income tax revenues rose $6.8 billion, or 9.3 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 increased by $2.5 billion, or 12.4 per cent, reflecting a higher corporate instalment payment base, which in turn reflects profit growth in 2005 and 2006. The corporate results to date are not necessarily indicative of the eventual outcome for the fiscal year as a whole. Roughly half of corporate income tax revenues comes from corporations with year-ends in December, which results in some 40 per cent, on average, of corporate income tax revenues being received in the final three months of the fiscal year, when these corporations must make settlement payments in respect of any differences between their actual tax liabilities for the year and their instalment payments. Consequently, results for even the first nine months of the fiscal year can differ markedly from the final, full-year outcome.
  • Other income tax revenues rose $0.6 billion, or 20.1 per cent, boosted by a one-time payment in November 2006 related to the disposition of Canadian assets by a non-resident firm.

Budgetary balance

  • Excise taxes and duties declined by $2.3 billion, or 6.4 per cent, primarily due to a $2.3-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 1.3 per cent. Customs import duties rose $0.1 billion, or 3.4 per cent, while revenues from the Air Travellers Security Charge were up $11 million.
  • EI premium revenues declined by 7.4 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 rose $1.0 billion, or 7.2 per cent.

Program expenses in the April-to-December 2006 period were $132.6 billion, up $7.9 billion, or 6.3 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 $0.2 billion.

Federal debt (accumulated deficit)

Transfer payments, which account for about two-thirds of total program expenses, increased by $4.6 billion, or 5.7 per cent.

  • Transfers to persons grew by 5.3 per cent. Elderly benefits rose 4.8 per cent while EI benefits declined by 3.7 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 19.8 per cent, reflecting transfers under the new UCCB program, which began on July 1, 2006.
  • Transfers to other levels of government were up $2.1 billion, or 7.3 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 $0.5 billion, or 3.7 per cent, largely reflecting an increase in agricultural assistance.

Other program expenses increased by $3.2 billion, 7.4 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, primarily due to an increase in the average effective interest rate on the stock of interest-bearing debt.

Financial source of $4.0 billion for April to December 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 requirement of $3.3 billion in the April-to-December period, reflecting payments made to provinces and international organizations pursuant to Bill C-48. This is down from a $7.1-billion requirement 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 $7.3 billion and a requirement of $3.3 billion from non-budgetary transactions, there was a net financial source of $4.0 billion in the first nine months of 2006–07 compared to a net financial source of $0.4 billion in the same period of 2005–06.

Net financing activities down $17.9 billion

The Government used this net financial source of $4.0 billion and a reduction in its cash balances of $13.9 billion to reduce its market debt by $17.9 billion by the end of December 2006, largely through a reduction of treasury bills, marketable bonds 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 December stood at $4.1 billion.

Table 1
Summary statement of transactions

December April to December


2005 2006 2005–06 2006–07
($ millions)
Budgetary transactions
Revenues 17,771 19,127 157,538 165,315
Expenses
  Program expenses -14,336 -15,127 -124,728 -132,583
  Public debt charges -2,521 -2,827 -25,310 -25,477


Budgetary balance (deficit/surplus) 914 1,173 7,500 7,255
Non-budgetary transactions 965 54 -7,055 -3,260
Financial source/requirement 1,879 1,227 445 3,995
Net change in financing activities -4,398 -10,504 -13,095 -17,887
Net change in cash balances -2,519 -9,277 -12,650 -13,892
Cash balance at end of period 4,509 4,067
Note: Positive numbers indicate net source of funds. Negative numbers indicate net requirement for funds.

Table 2
Budgetary revenues

December April to December


2005 2006 Change 2005–06 2006–07 Change
($ millions)

(%)

($ millions)

(%)

Tax revenues
Income taxes
  Personal income tax 9,155 10,044 9.7 73,494 80,296 9.3
  Corporate income tax 2,512 3,325 32.4 19,974 22,450 12.4
  Other income tax 530 402 -24.2 3,214 3,859 20.1


  Total income tax 12,197 13,771 12.9 96,682 106,605 10.3
Excise taxes and duties
  Goods and services tax 2,160 1,841 -14.8 25,157 22,877 -9.1
  Customs import duties 265 251 -5.3 2,592 2,680 3.4
  Sales and excise taxes 814 778 -4.4 7,272 7,179 -1.3
  Air Travellers Security Charge 26 25 -3.8 257 268 4.3


  Total excise taxes and duties 3,265 2,895 -11.3 35,278 33,004 -6.4


Total tax revenues 15,462 16,666 7.8 131,960 139,609 5.8
Employment insurance premiums 802 739 -7.9 11,704 10,840 -7.4
Other revenues 1,507 1,722 14.3 13,874 14,866 7.2
Total budgetary revenues 17,771 19,127 7.6 157,538 165,315 4.9
Note: Totals may not add due to rounding.

Table 3
Budgetary expenses

December April to December


2005 2006 Change 2005–06 2006–07 Change

($ millions)

(%)

($ millions)

(%)

Transfer payments
Transfers to persons
  Elderly benefits 2,442 2,566 5.1 21,693 22,745 4.8
  Employment insurance benefits 1,154 1,130 -2.1 10,144 9,765 -3.7
  Children’s benefits 782 985 26.0 6,930 8,304 19.8


  Total 4,378 4,681 6.9 38,767 40,814 5.3
Transfers to other levels of government
  Support for health and 
  other social programs
    Canada Health Transfer 1,583 1,678 6.0 14,250 15,105 6.0
    Canada Social Transfer 686 708 3.2 6,169 6,375 3.3


  Total 2,269 2,386 5.2 20,419 21,480 5.2
  Fiscal transfers 1,044 1,128 8.0 9,536 9,984 4.7
  Canada’s cities and communities 167 204 22.2 561 548 -2.3
  Early learning and child care 0 0 n/a 0 650 n/a
  Alternative Payments for
   Standing Programs
-261 -226 -13.4 -2,200 -2,281 3.7


  Total 3,219 3,492 8.5 28,316 30,381 7.3
Subsidies and other transfers
  Agriculture and Agri-Food 164 330 101.2 1,060 1,701 60.5
  Foreign Affairs and International Trade 215 265 23.3 1,604 1,576 -1.7
  Health 137 111 -19.0 1,320 1,372 3.9
  Human Resources and 
   Social Development
100 108 8.0 1,145 1,186 3.6
  Indian Affairs and 
   Northern Development
380 448 17.9 3,619 3,553 -1.8
  Industry 205 266 29.8 1,452 1,518 4.5
  Other 503 87 -82.7 3,442 3,236 -6.0


  Total 1,704 1,615 -5.2 13,642 14,142 3.7


Total transfer payments 9,301 9,788 5.2 80,725 85,337 5.7
Other program expenses
Crown corporation expenses
  Canadian Broadcasting Corporation 110 56 -49.1 978 946 -3.3
  Canada Mortgage and 
   Housing Corporation
170 155 -8.8 1,536 1,510 -1.7
  Other 322 360 11.8 2,476 2,578 4.1


  Total 602 571 -5.1 4,990 5,034 0.9
Defence 1,226 1,375 12.2 10,766 11,627 8.0
All other departments and agencies 3,207 3,393 5.8 28,247 30,585 8.3


Total other program expenses 5,035 5,339 6.0 44,003 47,246 7.4
Total program expenses 14,336 15,127 5.5 124,728 132,583 6.3
Public debt charges 2,521 2,827 12.1 25,310 25,477 0.7
Total budgetary expenses 16,857 17,954 6.5 150,038 158,060 5.3
Note: Totals may not add due to rounding.

Table 4
The budgetary balance and financial source/requirement

December April to December


2005 2006 2005–06 2006–07
($ millions)
Budgetary balance (deficit/surplus) 914 1,173 7,500 7,255
Non-budgetary transactions
Capital investing activities -343 -283 -1,514 -1,572
Other investing activities -1 1,680 -2,387 -954
Pension and other accounts 241 469 -308 3,853
Other activities
  Accounts payable, receivables,
   accruals and allowances
-977 -1,652 -7,468 -8,050
  Foreign exchange activities 1,769 -380 2,313 1,205
  Amortization of tangible
  capital assets
276 220 2,309 2,258


Total other activities 1,068 -1,812 -2,846 -4,587
Total non-budgetary transactions 965 54 -7,055 -3,260
Net financial source/requirement 1,879 1,227 445 3,995
Note: Totals may not add due to rounding.

Table 5
Financial source/requirement and net financing activities

December April to December


2005 2006 2005–06 2006–07
($ millions)
Net financial source/requirement 1,879 1,227 445 3,995
Net increase (+)/decrease (-) in financing activities
Unmatured debt transactions
  Canadian currency borrowings
    Marketable bonds -6,582 -8,642 -7,992 -5,088
    Treasury bills 2,400 -3,200 -100 -6,900
    Canada Savings Bonds -423 -69 -1,368 -1,877
    Other -9 -27 -205 -1,160


     Total -4,614 -11,938 -9,665 -15,025
  Foreign currency borrowings 367 26 -3,131 -3,938


     Total -4,247 -11,912 -12,796 -18,963
Cross-currency swap revaluation -43 1,117 -70 1,335
Unamortized discounts on debt issues -111 297 -295 -190
Obligations related to capital leases 3 -6 66 -69
Net change in financing activities -4,398 -10,504 -13,095 -17,887
Change in cash balance -2,519 -9,277 -12,650 -13,892
Note: Totals may not add due to rounding.

Table 6
Condensed statement of assets and liabilities

March 31, 2006 December 31, 2006 Change
($ millions)
Liabilities
Accounts payable, accruals and allowances 101,432 92,217 -9,215
Interest-bearing debt
  Unmatured debt
     Payable in Canadian dollars
       Marketable bonds 261,134 256,046 -5,088
       Treasury bills 131,597 124,697 -6,900
       Canada Savings Bonds 17,342 15,465 -1,877
       Other 3,102 1,942 -1,160

       Subtotal 413,175 398,150 -15,025
    Payable in foreign currencies 14,085 10,147 -3,938
    Cross-currency swap
     revaluation account
-2,258 -923 1,335
    Unamortized discounts and
     premiums on market debt
-6,780 -6,970 -190
    Obligations related to 
     capital leases
2,927 2,858 -69

    Total unmatured debt 421,149 403,262 -17,887
  Pension and other accounts
     Public sector pensions 131,062 133,817 2,755
     Other employee and veteran
       future benefits
43,369 44,584 1,215
     Other pension and other accounts 5,493 5,376 -117

      Total pension and other accounts 179,924 183,777 3,853
  Total interest-bearing debt 601,073 587,039 -14,034
Total liabilities 702,505 679,256 -23,249
Financial assets
Cash and accounts receivable 82,843 67,786 -15,057
Foreign exchange accounts 40,827 39,622 -1,205
Loans, investments and advances
(net of allowances)
41,889 42,843 954

Total financial assets 165,559 150,251 -15,308

Net debt 536,946 529,005 -7,941
Non-financial assets 55,447 54,761 -686
Federal debt (accumulated deficit) 481,499 474,244 -7,255

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February 2007