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Ottawa, September 21, 2005
2005-060

Government of Canada Records Eighth Consecutive Surplus

Related document:

• Backgrounder
• Annual Financial Report of the Government of Canada Fiscal Year 2004–2005
• Fiscal Reference Tables, September 2005

Minister of Finance Ralph Goodale today announced a $1.6-billion surplus for fiscal year 2004–05, the Government of Canada’s eighth consecutive annual surplus and a record unmatched in the history of the country. Also, Canada was once again the only Group of Seven (G7) country to post a total government sector surplus in the most recent fiscal year and is the only G7 country expected to do so in 2005 and 2006, according to the Organisation for Economic Co-operation and Development.

"This surplus was particularly gratifying given the numerous challenges affecting our bottom line at the end of the year," said Minister Goodale. "It clearly demonstrates the benefits of prudent, long-term fiscal planning."

The $1.6-billion surplus has been applied to reduce Canada’s federal debt, which now stands at $499.9 billion. Federal debt as a percentage of the economy was 38.7 per cent in 2004–05, down roughly 30 percentage points from its peak of 68.4 per cent in 1995–96.

"Canada has made more progress in reducing its debt burden than any other G7 country," said Minister Goodale. "By reducing federal debt by a total of $63 billion in the last eight years, we have freed up some $3 billion in interest savings every year that can be directed to the priorities of Canadians."

Information about the $1.6-billion surplus is contained in the Annual Financial Report of the Government of Canada, which was released today and reviews the Government’s financial performance in the 2004–05 fiscal year.

Among the report’s highlights:

• In 2004–05, the Government spent just over 17 cents of every revenue dollar on interest on the public debt. This is down from the peak of approximately 39 cents in 1990–91, and is the lowest this ratio has been since the late 1970s.
• Budgetary revenues increased by $12.2 billion or 6.6 per cent, reflecting strong growth in virtually all tax bases and net gains from the sale of the Government’s remaining shares in Petro-Canada in September 2004.
• Program expenses increased by $21.3 billion or 15.1 per cent: $10.6 billion is due to one-time spending, with 80 per cent comprising transfers to provinces and territories. Excluding these one-time expenses, program spending was up 7.6 per cent.
• Canada has made more progress in reducing its debt burden than any other G7 country. Second highest in the G7 as recently as the mid-1990s, Canada’s net debt burden for the total government sector was the lowest among these countries in 2004.

The 2004–05 Annual Financial Report of the Government of Canada and Fiscal Reference Tables can be viewed free of charge on the Department of Finance website. Printed copies of the documents are available for $16.00 from the Department of Finance Distribution Centre at (613) 995-2855.

The attached backgrounder compares the actual outcome for the major components of the budgetary balance for 2004–05 to the estimates presented in the February 2005 budget.

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Backgrounder

A Comparison of Actual Budgetary Outcomes to Budget Estimates

In the February 2005 budget, the Government of Canada estimated the budgetary surplus for 2004–05 at $3 billion. As indicated in the Annual Financial Report of the Government of Canada, the final figure for the 2004–05 fiscal year is $1.6 billion.

Each fiscal year, there are numerous adjustments that occur in finalizing the fiscal results. These include year-end accrual adjustments to income taxes, which reflect taxes owed and refunds payable at year-end.

In addition, over the course of any fiscal year the Government can incur liabilities for which payments will not be made until after the fiscal year is closed. The recording of the liabilities affects the final fiscal outcome. These changes can raise or lower the Government’s bottom line by several billion dollars.

The decrease in the 2004–05 surplus compared to the February 2005 budget estimate was attributable to higher-than-expected program expenses, which were partially offset by higher-than-expected budgetary revenues.

Budgetary revenues were $2.6 billion higher than forecast, due primarily to stronger-than-expected growth in corporate income tax revenues and net gains from Crown corporations. Also, public debt charges were $0.6 billion less than estimated in the 2005 budget.

Program expenses were $4.5 billion greater than forecast. A number of factors were responsible for this increase.

Offshore Revenues Accords: The Offshore Revenues Accords, signed in February 2005, enhance the benefits the provinces of Nova Scotia and Newfoundland and Labrador receive from offshore resource revenues and provide the provinces with immediate flexibility to address their unique fiscal challenges. At the time of the February budget, the Government intended to expense transfers under the Accords in annual instalments, which is consistent with the intent of these agreements. However, after further consideration and discussions with the Auditor General of Canada, it was determined that the entire transfer should be expensed in 2004–05. This change in accounting for the Offshore Revenues Accords increased program expenses by $2.7 billion.

Increased Agricultural Funding: On March 29, 2005, the Government of Canada announced $1 billion in immediate federal assistance to Canadian farmers in an effort to restructure the national agriculture and agri-food industry. This assistance was included in the 2004–05 fiscal year.

Increased liabilities: Notably, Atomic Energy of Canada Limited incurred a one-time increase in environmental liabilities due to changes in its decommissioning and waste management plan.