- Fiscal Monitor 2000 -

The Fiscal Monitor

Highlights of financial results for  March 2000

• Adobe Acrobat Version (42,510 bytes).

Budgetary deficit of $31 million in March 2000

There was a budgetary deficit of $31 million in March 2000, an improvement of $501 million from March 1999. Budgetary revenues were up $977 million, or 7.2 per cent, program spending increased $470 million, or 4.4 per cent, while public debt charges were virtually unchanged (up $6 million, or 0.2 per cent), from year earlier levels.

Year-to-date: budgetary surplus of $14.9 billion

Over 12 months (April 1999 to March 2000), the budgetary surplus was estimated at $14.9 billion, up $5.4 billion from the surplus of $9.5 billion reported in the same period of 1998-99. Budgetary revenues were up $8.5 billion, or 5.5 per cent, program spending was up $3.3 billion, or 3.1 per cent, while public debt charges were down $90 million, or 0.2 per cent.

Final results to come in the fall

The financial results for the April 1999 to March 2000 period are not the final results for the 1999-2000 fiscal year. Still to come are the regular end-of-year accounting adjustments.

Consistent with government accounting principles, these adjustments incorporate increases in program spending to include the costs of liabilities incurred during the fiscal year for which no payments were made in 1999-2000. For example, the 2000 budget announcement of a one-time cash supplement of $2.5 billion to the Canada Health and Social Transfer will be booked in the end-of-year accounting period, following passage of legislation. In addition, adjustments are made to include liabilities incurred by departments for goods and services received in late 1999-2000 but for which payments were made in the April/May 2000 period.

These adjustments, coupled with the inclusion of $3 billion for the Contingency Reserve, underlie the balanced budget estimate in the February 2000 budget for 1999-2000. However, the results to date indicate the final outcome for 1999-2000 will be better than expected. Economic growth for 1999 and the first quarter of 2000 was much stronger than expected by private sector economists when the budget estimates were finalized. This has translated into higher-than-expected personal and corporate income tax revenues. Spending remains largely on track. Any surplus for 1999-2000 will be applied to reducing the federal debt.

Final audited financial results for 1999-2000 will be released in the fall.

Table 1
Summary statement of transactions

Year-to date: budgetary revenues up $8.5 billion

In the April 1999 to March 2000 period, budgetary revenues were up $8.5 billion, or 5.5 per cent, compared to the same period of 1998-99.

• Personal income tax revenues were up $4.0 billion, or 5.5 per cent, primarily reflecting higher receipts from monthly deductions from employment income, due to increases in the number of people employed. Dampening these developments were higher personal income tax refunds relating to the 1998 and 1999 taxation years and higher Canada Child Tax Benefit payments. The large increase in personal income tax revenues in March 2000 over March 1999 was primarily attributable to the reallocation of revenues from personal income tax to corporate income tax in March 1999. Personal income revenues in February 1999 were overstated and this was corrected in March 1999.

• Corporate income tax revenues were up $2.6 billion, or 12.3 per cent, about half the estimated increase in corporate profits for 1999. The decline in revenues in March 2000 over March 1999 was attributable to the reallocation noted above. Corporate income tax revenues were understated in February 1999 with a comparable upward correction in March 1999.

• Employment insurance (EI) premium revenues were down $0.9 billion, or 4.6 per cent, as the decline in the EI premium rate from $2.70 (employee rate per $100 of insurable earnings) in 1998 to $2.55 in 1999 and $2.40 in 2000 more than offset the impact of the growth in the number of people employed and therefore paying premiums.

• Excise taxes and duties increased $1.6 billion, or 5.1 per cent, with all of the increase attributable to higher goods and services tax (GST) revenues, up $2.0 billion, or 9.8 per cent, reflecting the strong gains in those expenditures subject to the GST. Customs import duties were down 6.6 per cent, while sales and excise taxes and duties declined 3.3 per cent, primarily attributable to the elimination of the Air Transportation Tax, effective November 1998.

• Non-tax revenues, consisting of the return on investments and other non-tax revenues, such as fees and proceeds from sales, were up 8.5 per cent.

Table 2
Budgetary revenues

Year-to date: program spending up $3.3 billion

Program spending increased by $3.3 billion, or 3.1 per cent, in the April 1999 to March 2000 period, compared to the same period of 1998-99.

• Major transfers to persons were up $0.2 billion or 0.5 per cent, as higher elderly benefit payments more than offset a decline in EI benefits. The increase in elderly benefits reflected an increase in the number of individuals eligible for benefits and higher average benefits, which are indexed to inflation. The decline in EI benefit payments was due to a decline in the number of beneficiaries, reflecting a reduction in the number of people unemployed. In contrast, special EI benefits and payments under employment benefit and support measures were higher.

• Major transfers to other levels of government declined $0.6 billion, or 3.0 per cent, reflecting the impact of prior-year adjustments in 1998-99 affecting fiscal transfers, most notably for Equalization. As indicated in the 1999 budget, Equalization entitlements were revised up significantly for years prior to 1999 due to historical data revisions, which indicated much stronger economic growth in Ontario than in the Equalization-receiving provinces. While an adjustment of $1.7 billion was included in the February 1999 results, no such large adjustments are expected this year.

• Direct program spending, consisting of total program spending less the major transfers to persons and other levels of government, increased by $3.7 billion, or 7.7 per cent. This component includes subsidies 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 lifting of the wage freeze, the effect of new initiatives announced in the 1999 and 2000 budgets, and the costs associated with Canada's international peacekeeping commitments.

Table 3
Budgetary expenditures

Year-to date: public debt charges down $90 million

Public debt charges declined 0.2 per cent from year-earlier levels, as a lower average effective interest rate more than offset the impact of an increase in the stock of interest-bearing debt.

Financial surplus of $16.1 billion (excluding foreign exchange transactions) in 1999-2000

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/surplus measures the difference between cash coming in to the Government and cash going out. Financial requirements/surplus 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 source of $1.2 billion for the April 1999 to March 2000 period, unchanged from the same period in 1998-99. As a result, there was a financial surplus (excluding foreign exchange transactions) of $16.1 billion in the April 1999 to March 2000 period, up $5.4 billion from the financial surplus recorded in the same period of 1998-99.

Net financial surplus of $6.9 billion (including foreign exchange transactions) in 1999-2000

Foreign exchange transactions represent all transactions in international reserves held in the Exchange Fund Account. The purpose of the Exchange Fund Account is to promote order and stability in the foreign exchange market. It fulfills this function by buying foreign exchange (selling Canadian dollars) when there is upward pressure on the value of the Canadian dollar and selling foreign exchange (buying Canadian dollars) when there is downward pressure. The buying of Canadian dollars represents a source of funds from exchange fund transactions, while the selling of Canadian dollars represents a requirement. Changes in foreign currency liabilities, which are undertaken to change the level of Canada's foreign exchange reserves, also impact on foreign exchange transactions. Taking all of these factors into account, there was a net requirement of $9.2 billion in the April 1999 to March 2000 period, compared to a net requirement of $4.5 billion in the same period of 1998-99.

With a budgetary surplus of $14.9 billion, a net source of $1.2 billion from non-budgetary transactions and a net requirement of $9.2 billion from foreign exchange transactions, there was a net financial surplus of $6.9 billion in the April 1999 to March 2000 period, compared to a net surplus of $6.3 billion in the same period of 1998-99. This surplus was used to retire $3.2 billion of market debt and increase cash balances by $3.7 billion. Cash balances at the end of March 2000 stood at $13.0 billion.

Table 4
The budgetary balance and financial requirements/surplus

Table 5
Net financial balance and net borrowings

Table 6
Condensed statement of assets and liabilities

Table 7
Debt Servicing and Reduction Account (DSRA)

The Debt Servicing and Reduction Account

In June 1991, legislation to establish the Debt Servicing and Reduction Account (DSRA) received Royal Assent. As a result, effective April 1, 1991, all GST revenues net of the applicable input tax credits, rebates and the low-income credit, along with the net proceeds from the sale of Crown corporations and gifts to the Crown identified for debt reduction, must, by law, go directly to the DSRA. The funds in this Account can only be used to pay the cost of servicing the public debt and ultimately to reduce the debt. The Account is audited on an annual basis by the Auditor General of Canada.