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- Fiscal Monitor 2000 -

The Fiscal Monitor

Highlights of financial results for May 2000

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Budgetary surplus of $3.3 billion in May 2000

There was a budgetary surplus of $3.3 billion in May 2000, up $1.4 billion from the surplus of $1.9 billion reported in May 1999. Budgetary revenues were up $1.8 billion, or 13.6 per cent, while public debt charges declined $0.1 billion, or 3.6 per cent. Program spending increased $0.5 billion, or 6.7 per cent.

Higher personal income tax and goods and services tax (GST) revenues accounted for most of the year-over-year increase in budgetary revenues.

• Personal income tax revenues were up $0.7 billion, or 10.8 per cent, on a year-over-year basis. This increase primarily reflected higher taxes paid on filing, with respect to the 1999 taxation year, which more than offset the year-over-year decline witnessed in tax on filing in April 2000.

• GST revenues increased $0.8 billion, or 44.0 per cent, on a year-over-year basis. Most of the increase was attributable to a decline in refunds and rebates, reflecting timing factors. This should be reversed in future months, which would bring the results more in line with the growth in the underlying tax base.

• Among the other major revenue components, corporate income tax revenues increased by 7.6 per cent, employment insurance premium revenues were down 1.4 per cent, reflecting the decline in premium rates, while sales and excise taxes and duties fell by 5.3 per cent.

All major components of program spending were higher on a year-over-year basis, while the decline in public debt charges reflected a decline in the average effective interest rate as the stock of interest-bearing debt was virtually unchanged.

Year-to-date: budgetary surplus of $6.1 billion

Over the first two months of fiscal year 2000-01, the budgetary surplus was estimated at $6.1 billion, up $2.6 billion from the surplus of $3.4 billion reported in the same period of 1999-2000.

However, the results to date do not include any impact of the tax reductions measures affecting the current fiscal year, as announced in the 2000 Budget as part of the Government's Five-Year Tax Reduction Plan. The restoration of full indexation of the personal income tax system, the reduction in the middle tax rate from 26 per cent to 24 per cent, increases in the amounts at which the personal income tax rates apply, among others, will restrain the growth in personal income tax revenues, beginning in July 2000. As indicated in The Budget Plan 2000, the net fiscal impact of all the tax reduction measures affecting 2000-01 amounts to $4.6 billion. As such, the budgetary results for the first few months of 2000-01 are not an appropriate indicator of developments over the year as a whole.

Table 1
Summary statement of transactions

Financial source of $3.5 billion (excluding foreign exchange transactions) for April and May 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 only includes those activities over which the government has legislative control.

In contrast, financial requirements/source measure 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 funds of $2.6 billion in the first two months of 2000-01, compared to a source of $0.8 billion in the same period last year. The net requirement to date primarily reflected the first instalment of the pay equity settlement payments. As a result, there was a financial source (excluding foreign exchange transactions) of $3.5 billion in the April/May 2000 period, compared to a financial source of $4.3 billion recorded in the same period last year.

Net financial source of $5.4 billion for April and May 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 source of $2.0 billion in April/May 2000 period, compared to a net source of $0.5 billion in the same period last year.

With a budgetary surplus of $6.1 billion, a net requirement of $2.6 billion from non-budgetary transactions and a net source of funds of $2.0 billion from foreign exchange transactions, there was a net financial source of $5.4 billion in the April/May 2000 period compared to a net source of $4.8 billion in the same period last year.

Table 2
Budgetary revenues

Net borrowings down $5.6 billion for April and May 2000

With a net financial source of $5.4 billion in the April/May 2000 period and a reduction in cash balances of $0.2 billion, the government retired $5.6 billion of market debt in the April/May 2000 period. Cash balances at the end of May 2000 amounted to $12.7 billion.

Table 3
Budgetary expenditures

Table 4
The budgetary balance and financial requirements/surplus

Table 5
Net financial balance and net borrowings

Table 6
Condensed statement of assets and liabilities¹