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- Fiscal Monitor 2006 -

The Fiscal Monitor

Highlights of financial results for May  2006

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May 2006

There was a budgetary surplus of $0.6 billion in May 2006, up $0.2 billion from May 2005.

Budgetary revenues increased by $0.9 billion, or 5.2 per cent, to $18.3 billion.

• Personal income tax receipts were up $0.9 billion or 12.0 per cent, reflecting solid growth in employment and wages and salaries.

• Corporate income tax revenues rose $0.5 billion or 20.5 per cent in May, following a 3.0-per cent decline in April.

• Other income tax receipts—withholdings from non-residents—fell by $4 million, or 1.2 per cent.

• Excise taxes and duties fell $0.5 billion, or 12.7 per cent. The decline was largely due to a $0.4-billion or 12.9-per-cent decrease in GST revenues, reflecting in part weak customs GST receipts, following a 5.0-percent rise in GST revenues in April. GST revenue can be volatile on a month-to-month basis. Customs import duties and sales and excise taxes were each down $0.1 billion. Revenues from the Air Travellers Security Charge were up $2 million.

• Employment insurance (EI) premiums 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.

• Other revenues, consisting of net profits from enterprise Crown corporations, revenues of consolidated Crown corporations, sales of goods and services, returns on investments, foreign exchange revenues and miscellaneous revenues, were up $0.2 billion from last year. Other revenues can be volatile on a monthly basis.

Program expenses in May 2006 were $14.8 billion, up $0.7 billion, or 5.0 per cent, from May 2005, due to both higher transfer payments and higher other program expenses.

Transfer payments were up $0.5 billion, or 5.8 per cent.

• Major transfers to persons, consisting of elderly benefits, EI benefits and child tax benefits, were down $0.2 billion, or 3.9 per cent, on a year-over-year basis. Elderly benefits increased 4.6 per cent due to both higher average benefits, which are indexed to CPI-inflation, and an increase in the number of individuals eligible for benefits. EI benefit payments decreased by 23.0 per cent, reflecting a decline in regular benefits. Child tax benefits were up 3.4 per cent.

• Major transfers to other levels of government, consisting of the federal 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, and Alternative Payments for Standing Programs were up $0.2 billion, or 5.0 per cent, reflecting an increase in federal transfers in support of health and other social transfers under the 2004 agreement on health care.

• Subsidies and other transfers increased by $0.6 billion, or 37.1 per cent. This component is volatile on a monthly basis.

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. On a year-over-year basis, these expenses increased $0.2 billion or 3.5 per cent.

Public debt charges decreased by $36 million.

April to May 2006

In the first two months of the fiscal year, there was a budgetary surplus of $3.3 billion, $1.4 billion more than the $1.9-billion surplus reported for the same period of 2005–06.

Budgetary revenues were up $2.0 billion, or 5.6 per cent, to $37.2 billion.

• Personal income tax revenues rose $2.1 billion, or 13.2 per cent, reflecting strong growth in employment and wages and salaries.

• Corporate income tax revenues were up $0.4 billion, or 8.9 per cent, reflecting the higher instalment base, which in turn reflects profit growth in 2005. In addition, while the accelerated elimination of the federal capital tax announced in Budget 2006 was retroactive to January 2006, it is not yet reflected in corporate income tax collections. The measure is expected to be reflected in instalment payments in the coming months.

• Other income tax revenues increased by $0.1 billion, or 16.0 per cent.

• Excise taxes and duties declined by $0.3 billion, or 4.2 per cent, largely due to a decline in GST revenues. GST revenues decreased $0.3 billion, or 4.6 per cent, in spite of a 7.6-per-cent increase in retail sales over the corresponding period. The decline is largely the result of unusually strong GST growth at this point last year, which fell into line with retail sales growth as the year progressed. GST growth is expected to become consistent with retail sales growth as the year progresses. Weak GST growth to date also reflects weak growth in GST on imports over the April to May period. Custom import duties were up marginally by 0.8 per cent or $4 million. Sales and excise taxes were down $0.1 billion, while revenues from the Air Travellers Security Charge were up $4 million.

• EI premiums were down 7.0 per cent, reflecting the reduction in the premium rate in January 2006.

• Other revenues were down $47 million, or 1.7 per cent.

Program expenses in the April to May 2006 period were $28.4 billion, up $0.7 billion, or 2.4 per cent, over the same period of 2005–06, with the increase largely attributable to higher subsidies and transfers. Public debt charges declined by $0.1 billion.

Transfer payments, which account for over two-thirds of total program expenses, increased by $0.5 billion, or 2.9 per cent.

• Transfers to persons advanced by 0.6 per cent. Elderly benefits were up 4.5 per cent, while EI benefits were down by 8.8 per cent. The year-to-date decline in EI benefits is mainly attributable to a decline in regular benefits, which is in turn due to improved labour market conditions compared to the same period in 2005–06.

• Transfers to other levels of government were up $0.2 billion, or 3.9 per cent, reflecting the impact of the 2004 agreement on health care.

• Subsidies and other transfers increased by 6.9 per cent, reflecting the impact of measures from recent budgets.

Other program expenses increased by 1.3 per cent. This growth was due to increases in Crown corporation expenses and Defence spending, partially offset by a decrease in spending by all other departmental and agencies.

Public debt charges were down 1.8 per cent compared to the same period last year, due to a decline in the stock of interest-bearing debt.

Financial source of $2.8 billion for April to May 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 $0.5 billion in the April to May period, down $3.2 billion from the requirement in the same period of 2005–06.

With a budgetary surplus of $3.3 billion and a net requirement of $0.5 billion from non-budgetary transactions, there was a financial source of $2.8 billion in the first two months of 2006–07 compared to a financial requirement of $1.9 billion from the same period last year.

Net financing activities down $10.0 billion

The government used this financial source of $2.8 billion and a reduction in its cash balances of $7.2 billion to reduce its market debt by $10.0 billion by the end of May 2006, largely through a reduction of treasury bills. 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 May stood at $10.8 billion.

Table 1
Summary statement of transactions

Table 2
Budgetary revenues

Table 3
Budgetary expenses

Table 4
The budgetary balance and financial source/requirement

Table 5
Financial source/requirement and net financing activities

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