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Annex 1:
Canada’s Financial Performance in an International Context

Introduction

This annex reviews Canada’s financial position on a comparable basis with those of the other Group of Seven (G7) countries (United States, United Kingdom, France, Germany, Japan and Italy). For Canada, the relevant measure is the total government financial position, which consists of the federal, provincial-territorial and local government sectors, as well as the Canada Pension Plan and the Quebec Pension Plan.

On a total government, National Accounts basis:

• Canada was the only G7 country to record a surplus in 2003, 2004 and 2005.

• The Organisation for Economic Co-operation and Development (OECD) projects that Canada will be the only G7 country to record a surplus in both 2006 and 2007.

• Canada’s total government sector net debt burden declined to an estimated 26.4 per cent of gross domestic product (GDP) in 2005, and has been the lowest in the G7 since 2004.

Looking at the fiscal positions of the federal governments in Canada and the United States:

• In 2004–05 the Canadian federal government posted a surplus of C$1.5 billion or 0.1 per cent of GDP, while the U.S. federal government incurred an "on-budget" deficit of US$494 billion or 4.0 per cent of GDP.

• For 2005–06, the federal government in Canada is forecasting a surplus of C$8 billion or 0.6 per cent of GDP, while the U.S. Administration is projecting an on-budget deficit of US$602 billion or 4.6 per cent of GDP.

• As a result of continued surpluses in Canada and the deterioration in U.S. federal finances, the federal market debt-to-GDP ratio in Canada fell below the U.S. figure in 2003–04 for the first time since 1977–78, with the gap expected to widen in 2005–06.

Canada is expected to be the only G7 country to record a surplus in 2006 and 2007

• Canada was the only G7 country to record a surplus in 2005, according to OECD estimates of the total government sector financial position. This was the third consecutive year in which Canada was the only G7 country in surplus. Canada’s surplus for 2005 was estimated at 1.3 per cent of GDP, compared to an average deficit of 3.9 per cent in the G7 countries.

• The OECD expects that Canada will continue to be the only G7 country to post a total government surplus again in 2006 and in 2007.

Canada has the lowest net debt burden in the G7

• Canada currently has the lowest ratio of total government net financial liabilities^[1] to GDP among G7 countries. Canada’s ratio was estimated at 26.4 per cent of GDP in 2005, a significant decline from the peak in 1995. The OECD estimates that Canada will continue to have the lowest net debt burden in both 2006 and 2007. In contrast, the debt burdens of all other G7 countries are projected to continue to increase.

The federal government in Canada has maintained a budgetary surplus since 1997–98, unlike the U.S.

• Like the Canadian federal government, the U.S. federal government moved from large deficits to surpluses in the latter half of the 1990s. However, since 2000–01 the U.S. has returned to deficits whereas Canada has recorded successive surpluses.

• The Canadian federal government posted a surplus of C$1.5 billion or 0.1 per cent of GDP in 2004–05, while the U.S. federal government incurred an "on-budget" deficit of US$494 billion or 4.0 per cent of GDP. Even when Social Security surpluses are included, the U.S. "unified budget" deficit was US$318 billion or 2.6 per cent of GDP in 2004–05.

• While the Canadian federal government is expecting a surplus of C$8 billion in 2005–06, the U.S. on-budget deficit is expected to increase to US$602 billion or 4.6 per cent of GDP (with a unified budget deficit of US$423 billion). The U.S. Administration does not project a return to balanced budgets for at least the next five years.

The federal market debt-to-GDP ratio in Canada fell below that of the U.S. in 2003–04

• As a result of continued surpluses at the federal level in Canada and the deterioration in U.S. federal finances, the federal market debt-to-GDP ratio in Canada fell below the U.S. figure in 2003–04 for the first time since 1977–78.

• The Canadian federal market debt-to-GDP ratio fell to 33.8 per cent in 2004–05 while the U.S. figure rose for the fourth consecutive year to 37.4 per cent. This gap is expected to widen in 2005–06 as the Canadian ratio is expected to fall to 31.5 per cent while the U.S. ratio is expected to rise to 38.5 per cent.

¹ The OECD uses the term "net financial liabilities" to mean "net debt" of the total government sector.[Return]