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- Fiscal Monitor 2006 -

The Fiscal Monitor

Highlights of financial results for June 2006

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June 2006

There was a budgetary surplus of $2.2 billion in June 2006, up $0.7 billion from June 2005.

Budgetary revenues increased by $1.5 billion, or 8.1 per cent, to $19.3 billion.

• Personal income tax revenues were up $1.1 billion, or 13.3 per cent. This reflects solid growth in employment and wages and salaries as well as strong growth in tax revenues relative to this base, which in turn reflects the interaction of real income gains and the progressivity of the tax system.

• Corporate income tax revenues rose $139 million, or 4.9 per cent, in June following a 20.5-per-cent increase in May.

• Other income tax revenues—withholdings from non-residents—increased by $27 million, or 8.6 per cent.

• Excise taxes and duties were up $167 million, or 4.7 per cent. This increase is largely due to a $169-million, or 7.1-per-cent, rise in GST revenues, following a 12.9-per-cent decrease in GST revenues in May.

• EI premiums were down 7.6 per cent, reflecting both 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 from enterprise Crown corporations, revenues of consolidated Crown corporations, sales of goods and services, returns on investments, foreign exchange revenues, revenues of certain foundations and miscellaneous revenues, were up $0.2 billion. This component of revenues can be volatile on a monthly basis.

Program expenses were $14.2 billion in June 2006, up $0.7 billion, or 4.8 per cent, from June 2005, reflecting increases in other program expenses, notably defence spending.

Transfer payments were up $68 million, or 0.8 per cent.

• Transfers to persons, consisting of elderly benefits, EI benefits and child tax benefits, were up $81 million, or 1.9 per cent. Elderly benefits increased 4.7 per cent due to both higher average benefits, which are indexed to Consumer Price Index inflation, and an increase in the number of individuals eligible for benefits. EI benefit payments decreased 6.0 per cent, reflecting declines in regular and maternity benefits. Child tax benefits were up 3.7 per cent.

• Transfers to other levels of government, consisting of 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 down $132 million, or 4.0 per cent, reflecting a decline in fiscal transfers, slightly offset by an increase in federal transfers in support of health and other social programs.

• Subsidies and other transfers increased by $119 million, or 8.0 per cent. This component is volatile on a monthly basis.

Other program expenses consist of transfers to Crown corporations, the expenses of certain foundations, and operating expenses for departments and agencies, including National Defence. They also reflect the ongoing assessment of the Government’s liabilities. On a year-over-year basis, these expenses increased $0.6 billion, or 12.9 per cent, with higher defence expenses responsible for roughly half of this increase.

Public debt charges increased by $71 million.

In the first three months of the 2006–07 fiscal year, there was a budgetary surplus of $5.4 billion, $2.1 billion higher than the $3.3-billion surplus reported for the same period of 2005–06.

Budgetary revenues were up $3.4 billion, or 6.4 per cent, to $56.5 billion.

• Personal income tax revenues rose $3.1 billion, or 13.3 per cent, reflecting ongoing growth in employment and wages and salaries, combined with the progressivity of the personal income tax system.

• Corporate income tax revenues were up $0.6 billion, or 7.4 per cent, reflecting a higher corporate instalment payment base, which in turn reflects profit growth in 2005. 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 should be reflected in instalment payments in the coming months.

• Other income tax revenues increased by $0.1 billion, or 13.4 per cent.

• Excise taxes and duties declined by $0.2 billion, or 1.4 per cent, due to declines in GST and sales and excise tax revenues. GST revenues decreased $0.1 billion, or 1.2 per cent, compared to an increase of almost 9 per cent in retail sales over the corresponding period. This weakness is largely the result of unusually strong GST growth during the same period last year, as well as weak growth in GST on imports over the April to June 2006 period. The growth in net GST receipts is expected to move more into line with that of retail sales as the year progresses, abstracting from the impact of the reduction in the tax rate. Sales and excise taxes were down $0.1 billion, or 3.5 per cent, while customs import duties and revenues from the Air Travellers Security Charge were up $10 million and $6 million respectively.

• EI premiums were down 7.2 per cent, reflecting the reduction in the premium rate on 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 $127 million, or 3.0 per cent.

Program expenses in the April to June 2006 period were $42.6 billion, up $1.3 billion or 3.2 per cent from the same period of 2005–06, largely due to higher transfers and increased defence spending. Public debt charges declined by $30 million.

Transfer payments, which account for about two-thirds of total program expenses, increased by $0.6 billion, or 2.2 per cent.

• Transfers to persons advanced by 1.0 per cent. Elderly benefits were up 4.5 per cent while EI benefits were down 8.0 per cent. The year-to-date decline in EI benefits is mainly due to a decline in regular benefits, which is in turn due to improved labour market conditions compared to the same period in 2005–06. Maternity benefits are also down year-to-date, reflecting the transfer to the province of Quebec of the responsibility for delivering maternity and parental benefits in that province.

• Transfers to other levels of government were up $0.1 billion, or 1.1 per cent, largely due to the impact of the 2004 agreement on health care.

• Subsidies and other transfers increased by $0.4 billion, or 7.2 per cent, reflecting the impact of recent budget measures.

Other program expenses increased by $0.7 billion, or 5.2 per cent, mainly due to a $0.6-billion, or 20.1-per-cent, increase in defence spending.

Public debt charges were down 0.4 per cent due to a decline in the stock of interest-bearing debt.

Financial source of $0.3 billion for April to June 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 $5.1 billion in the April to June 2006 period, down $3.5 billion from the $8.7-billion requirement in the same period of 2005–06.

With a budgetary surplus of $5.4 billion and a net requirement of $5.1 billion from non-budgetary transactions, there was a financial source of $0.3 billion in the first three months of 2006–07 compared to a financial requirement of $5.4 billion in the same period of 2005–06.

Net financing activities down $15.5 billion

The Government used this financial source of $0.3 billion and a reduction in its cash balances of $15.2 billion to reduce its market debt by $15.5 billion by the end of June 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 June stood at $2.7 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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