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- Fiscal Monitor 2002 -

The Fiscal Monitor

Highlights of financial results for April 2002

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Budgetary surplus of $0.9 billion in April 2002

There was a budgetary surplus of $0.9 billion in April 2002, down $2.6 billion from the revised surplus of $3.5 billion in April 2001.¹ On a year-over-year basis, the lower surplus was attributable to a decline in budgetary revenues (down $2.4 billion) and higher program spending (up $0.8  billion). The impact of these developments was partially offset by lower public debt charges (down $0.5 billion).

The decline of $2.4 billion, or 14.6 per cent, in budgetary revenues on a year-over year basis was spread throughout all the major components except excise taxes and duties.

• Personal income tax collections were down $2.1 billion, or 24.6 per cent. Most of this decline was attributable to lower final tax settlement payments and higher refunds with respect to the 2001 tax year. Final tax settlement payments in April 2001 were extraordinarily high, reflecting, among others things, strong increases in capital gains in the 2000 tax year. However, the decline in the stock market in 2001, coupled with the impact of lower interest rates on other components of investment income, resulted in much lower final tax settlement payments and higher refunds. Monthly deductions from employment income were somewhat lower, reflecting the timing of receipts and the impact of the tax reduction measures announced in the February 2000 budget and October 2000 Economic Statement and Budget Update.

• Corporate income tax collections declined $0.7 billion, or 30.5 per cent, primarily attributable to higher refunds reflecting the weakness in corporate profits in 2001.

• Employment insurance (EI) premium revenues were down 2.7 per cent, largely due to the decline in premium rates (the employee rate for 2002 is $2.20 per $100 of insurable earnings compared to $2.25 in 2001).

• Excise taxes and duties were up $0.6 billion, or 23.7 per cent, primarily reflecting strong growth in imports, which resulted in higher GST revenues and customs import duties. Sales and excise taxes were also higher, primarily attributable to the increase in tobacco taxes.

• Non-tax revenues were down 14.4 per cent.

Program spending increased by $0.8 billion, or 8.7 per cent, on a year-over-year basis.

• Major transfers to persons were up $0.4 billion, or 12.3 per cent. The increase in elderly benefits reflects an increase in the number of individuals eligible for benefits and higher average benefits, which are indexed to inflation. The increase in EI benefits was attributable to both higher regular benefits, reflecting an increase in the number of beneficiaries, and program enhancements.

• Major transfers to other levels of government were up $53 million, or 2.4 per cent, attributable to higher cash transfers under the Canada Health and Social Transfer, reflecting the September 2000 agreement reached by first ministers to increase base funding from $17.3 billion in 2001-02 to $18.6 billion in 2002-03. The decline in fiscal transfers was primarily attributable to the timing of payments, which should be reversed in future months.

• Direct program spending, consisting of total program spending less major transfers to persons and other levels of government, increased by $0.4 billion, or 9.2 per cent. Subsidies and other transfers and payments to Crown corporations declined, while operating and capital expenditures were higher. The monthly fluctuations in these components are due in large part to the timing of payments.

Public debt charges were down $0.5 billion, or 15.2 per cent, attributable to both a decline in the stock of interest-bearing debt and a lower average effective interest rate on that debt.

Table 1
Summary statement of transactions

Financial requirement of $4.7 billion (excluding foreign exchange transactions) in April 2002

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 $5.6 billion in April 2002, up from a net requirement of $4.0 billion in April 2001. The higher requirement is primarily due to timing factors affecting the other transactions component.

With a budgetary surplus of $0.9 billion and a net requirement of $5.6 billion from non-budgetary transactions, there was a financial requirement (excluding foreign exchange transactions) of $4.7 billion in April 2002, compared to a requirement of $0.4 billion in April 2001.

Table 2
Budgetary revenues

Net financial requirement of $5.3 billion in April 2002

Foreign exchange transactions represent all transactions in international reserves held in the Exchange Fund Account (EFA). The objectives of the EFA are to provide general foreign currency liquidity for the Government and promote orderly conditions in the foreign exchange market. The EFA contains foreign currency investments, the Government’s gold holdings and assets related to Canada’s commitment to the International Monetary Fund (IMF). Increases in the level of the reserves through borrowings, contributions to the IMF or selling of Canadian dollars represent a requirement. Conversely, decreases in the level of reserves represent a source of funds. Taking all of these factors into account, there was a net requirement of $0.7 billion in April 2002, compared to a net source of $0.2 billion in April 2001.

With a budgetary surplus of $0.9 billion, a net requirement of $5.6 billion from non-budgetary transactions and a net requirement of $0.7 billion from foreign exchange transactions, there was a net financial requirement of $5.3 billion in April 2002, compared to a net requirement of $0.3 billion in April 2001.

Table 3
Budgetary expenditures

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 borrowings down slightly

This financial requirement was financed by a drawdown in cash balances of $6.3 billion, which also resulted in a decrease of $0.9 billion in net borrowings. Cash balances at the end of April 2002 stood at $13.0 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.

¹ The budgetary surplus for April 2001 was originally estimated at $4.6 billion. However, this result was affected by systems problems relating to personal income tax and goods and services tax (GST) refunds. This had the effect of overstating the April 2001 surplus by $1.1 billion and understating the surplus in the May and June period by a comparable amount. This will have no impact on the final results for the year as a whole. [Return]