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- Fiscal Monitor 2001 -

The Fiscal Monitor

Highlights of financial results for March 2001

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March 2001: budgetary results

On a year-over-year basis, budgetary revenues increased $0.5 billion, as lower personal income tax revenues were more than offset by higher revenues in all the other major components.

• Personal income tax revenues declined by 12.0 per cent, reflecting the impact of the tax relief measures announced in the October Economic Statement and Budget Update, as well as the timing of receipts between February and March.

• Corporate income tax revenues were up 11.4 per cent, reflecting higher corporate profits in 2000.

• Employment insurance (EI) premium revenues were up 5.9 per cent, as increases in the number of people employed more than offset the reductions in premium rates.

• Excise taxes and duties were up 6.6 per cent, primarily reflecting strong growth in goods and services tax (GST) revenues and in customs import duties.

• Non-tax revenues were up strongly, reflecting higher net profits relating to activities in the Exchange Fund Account.

Table 1
Summary statement of transactions

On a year-over-year basis, program spending increased by 10.1 per cent. Among the major components:

• Major transfers to persons were up 2.4 per cent, as both elderly benefit payments and EI benefit payments were higher.

• Major transfers to other levels of government were up 18.1 per cent, reflecting higher cash transfers under the Canada Health and Social Transfer (CHST) and equalization programs.

• Direct program spending increased 11.7 per cent, primarily reflecting the inclusion of the policy initiatives mentioned above.

Public debt charges, on a year-over year basis, were up 4.3 per cent, as an increase in the average effective interest rate offset the impact of the decline in the stock of interest-bearing debt.

April 2000 to March 2001: budgetary results

In the April 2000 to March 2001 period, the budgetary surplus was estimated at $19.8 billion, up $4.7 billion from the surplus of $15.1 billion reported in the same period of 1999-2000.

Budgetary revenues were up $12.6 billion, or 7.6 per cent, on a year-over-year basis. Among the major revenue components:

• Personal income tax collections were up $3.7 billion, or 4.7 per cent, primarily reflecting higher receipts from monthly deductions from employment income, due to increases in the number of people employed, as well as higher remittances from quarterly filers. Dampening the impact of these factors was the effect of the tax relief measures announced in the February 2000 budget and October 2000 Economic Statement and Budget Update and higher transfers to the Canada Pension Plan and EI accounts, reflecting underpayments with respect to the 1999 taxation year. Increases in the Canada Child Tax Benefit, up 13.4 per cent (reflecting increases to average benefits, which came into effect July 1, 2000, and the indexation of benefits), also served to restrain the overall growth in personal income tax revenues.

• Corporate income tax revenues were up $4.4 billion, or 18.8 per cent, in line with the estimated increase of 23.4 per cent in corporate profits for  2000.

• EI premium revenues were up $0.2 billion, or 1.2 per cent, as the decline in premium rates for 2000 and 2001 was more than offset by the impact of prior-year adjustments and the growth in the number of people employed and therefore paying premiums. The employee rate for 2001 is $2.25 per $100 of insurable earnings, compared to $2.40 in 2000 and $2.55 in 1999.

• Excise taxes and duties increased by $2.5 billion, or 7.4 per cent. GST revenues were up $1.8 billion, or 8.0 per cent, in line with the growth in consumer demand. Customs import duties were up strongly, while sales and excise taxes were up marginally.

• Non-tax revenues were up $1.1 billion, or 12.7 per cent, primarily reflecting higher Bank of Canada and Exchange Fund Account profits and interest on bank balances.

Table 2
Budgetary revenues

Program spending increased by $7.7 billion, or 7.1 per cent, in the April 2000 to March 2001 period, compared to the same period in 1999-2000. Among the major components, major transfers to other levels of government were up $3.4 billion, direct program spending was up $2.4 billion, while major transfers to persons were up $1.9 billion.

• The increase in major transfers to persons was attributable to the heating expense relief payment ($1.4 billion) and higher elderly benefits, up $0.8 billion, reflecting an increase in the number of individuals eligible for benefits and higher average benefits, which are indexed to inflation. EI benefit payments were down $0.3 billion, reflecting fewer beneficiaries due to the decline in the number of unemployed, dampened by the impact of higher average benefit rates and higher transfers to provinces under the Labour Market Agreements.

• Major transfers to other levels of government were up 16.2 per cent, reflecting higher cash transfers under the CHST and equalization programs, as well as the $1-billion payment in trust to the provinces and territories for new medical equipment, to support the agreements reached last September by the first ministers on health renewal and early childhood development. The increase in CHST cash transfers reflected the 1999 budget measure to increase base funding from $12.5 billion in 1999-2000 to $13.5 billion in 2000-01. The increase in equalization entitlements was attributable to the continued stronger economic growth in Ontario than in the equalization-receiving provinces.

• Direct program spending, consisting of total program spending less the major transfers to persons and other levels of government, increased by 4.6 per cent. This component includes subsidy and other transfer payments, payments to Crown corporations, and the operating and capital costs of government, including defence. Developments in this component are affected by the impact of new initiatives announced during 2000-01 and the lifting of the wage freeze.

Public debt charges were virtually unchanged, as the impact of the decline in the stock of interest-bearing debt was offset by an increase in the average effective interest rate on that debt.

Table 3
Budgetary expenditures

Financial source of $19.4 billion (excluding foreign exchange transactions) for April 2000 to March 2001

The budgetary balance is presented on a modified accrual basis of accounting, recording government liabilities when they are incurred, regardless of when the cash payment is made. In addition, the budgetary balance includes only those activities over which the Government has legislative control.

In contrast, financial requirements/source measures the difference between cash coming in to the Government and cash going out. Financial requirements/source differs from the budgetary balance as the former includes transactions in loans, investments and advances, federal employees’ pension accounts, other specified purpose accounts, and changes in other financial assets and liabilities. These activities are included as part of non-budgetary transactions. The conversion from accrual to cash is also reflected in non-budgetary transactions.

Non-budgetary transactions resulted in a net requirement of $0.4 billion in the April 2000 to March 2001 period, compared to a net source of $1.3 billion in the same period in 1999-2000. This was attributable, in part, to payments related to the pay equity settlement, changes to the financing of the Canada Student Loans Program, and the investing of current contributions to the federal employees’ pension plans in the private market.

As a result, with a budgetary surplus of $19.8 billion and a net requirement of $0.4 billion from non-budgetary transactions, there was a financial source (excluding foreign exchange transactions) of $19.4 billion in the April 2000 to March 2001 period, compared to a financial source of $16.4 billion in the same period in 1999-2000.

Table 4
The budgetary balance and financial requirements/source

Table 5
Net financial balance and net borrowings

Table 6
Condensed statement of assets and liabilities

Net financial source of $10.9 billion for April 2000 to March 2001

Net borrowings down $10.7 billion for April 2000 to March 2001

This financial source has allowed the Government to reduce its holding of market debt by $10.7 billion to the end of March 2001. In addition, cash balances increased by $0.2 billion to stand at $13.2 billion. 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.