- Fiscal Monitor 2000 -

The Fiscal Monitor

Highlights of financial results for September 2000

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Budgetary surplus of $3.3 billion in September 2000

There was a budgetary surplus of $3.3 billion in September 2000, compared to a surplus of $1.9 billion in September 1999. All of the year-over-year increase in the surplus was attributable to higher budgetary revenues, up 10.4 per cent, or $1.5 billion. Program spending increased by $84 million while public debt charges were virtually unchanged.

Among the major revenue components, on a year-over-year basis:

• Personal income tax revenues were up $0.8 billion, or 10.4 per cent. This increase reflected continued strong growth in deductions from employment income, due to the increase in the number of people employed, as well as timing factors related to the receipt of payments. These factors more than offset the impact of the 2000 budget measures, which came into effect in July.

• Corporate income tax revenues increased $0.4 billion, or 33.8 per cent, primarily reflecting timing factors related to the monthly tax instalment procedures, as explained below. Other income taxes were lower, reflecting timing factors.

• Employment insurance (EI) premium revenues were up slightly due to a transfer from personal income tax revenues relating to underpayments with respect to the 1999 taxation year.

• Excise taxes and duties were up $0.1 billion, or 3.6 per cent, as lower goods and services tax (GST) revenues, reflecting higher rebates and refunds, were more than offset by higher customs import duties and sales and excise taxes.

• Non-tax revenues were up. Monthly changes in this component are extremely volatile, reflecting the timing of receipts.

Within program spending, on a year-over-year basis:

• Major transfers to persons were up 4.4 per cent, as higher elderly benefit payments more than offset lower EI benefit payments.

• Major transfers to other levels of government were up 11.0 per cent, reflecting higher cash transfers under the Canada Health and Social Transfer (CHST) and Equalization programs.

• Direct program spending was down 5.1 per cent, reflecting timing factors.

Table 1
Summary statement of transactions

Year-to-date: budgetary surplus of $13.5 billion

Over the first six months of fiscal year 2000-01, the budgetary surplus was estimated at $13.5 billion, up $5.4 billion from the surplus of $8.1 billion reported in the same period of 1999-2000. These results are in line with the average private sector forecast of the fiscal surplus for 2000-01 of $17 billion, as set out in the October 18, 2000, Economic Statement and Budget Update.

Budgetary revenues were up $8.1 billion, or 10.2 per cent, on a year-over-year basis. Among the major revenue components:

• Personal income tax collections were up $4.4 billion, or 11.2 per cent, primarily reflecting higher receipts from monthly deductions from employment income, due to increases in the number of people employed. In addition, higher taxes paid on filing and lower refunds, pertaining to the 1999 taxation year, contributed to the year-over-year increase. Over the balance of the fiscal year, growth in this component will be restrained as the impact of tax reductions announced in the 2000 budget and the Economic Statement and Budget Update is realized.

• Corporate income tax revenues were up $2.6 billion, or 29.3 per cent. Although part of this increase reflects the continued strength in corporate profits, the increase is also affected by tax instalment procedures. Corporations are required to remit monthly instalments based on either their previous year's actual tax liability or their current year's projected tax liability. Although corporate profits rebounded strongly in 1999, monthly tax instalments for most of 1999 were based on the tax liability for 1998 – a year in which corporate profits declined – thereby depressing instalment payments in 1999. Corporations have 60 days from the end of their taxation year to remit their final settlement payments. Last February, record settlement payments were made relating to underpayments during the course of the 1999 taxation year. Thus, it is estimated that instalments for the first seven months were understated by an average of $0.6 billion per month. With current monthly instalments largely based on 1999 tax liabilities, the year-over-year changes to date are misleading.

Table 2
Budgetary revenues

• EI premium revenues were down 0.6 per cent, as the decline in premium rates (the employee rate for 2000 is $2.40 per $100 of insurable earnings compared to $2.55 in 1999) offset the impact of the growth in the number of people employed and therefore paying premiums.

• Excise taxes and duties increased by $0.9 billion, or 5.4 per cent. GST revenues were up $0.8 billion, or 6.9 per cent – this is somewhat less than the growth in consumer demand, reflecting strong growth in the payment of refunds and rebates. Customs import duties were up strongly, while sales and excise taxes were lower.

• Non-tax revenues were up $0.3 billion, or 9.7 per cent.

Program spending increased by $2.5 billion, or 5.0 per cent, in the April to September 2000 period, over the same period last year. This increase was spread among all major components.

• Major transfers to persons were up 1.4 per cent, as higher elderly benefits more than offset the decline in EI benefit payments. The higher elderly benefits reflect 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 reflects a lower number of beneficiaries due to the decline in the number of unemployed.

Table 3
Budgetary expenditures

• Major transfers to other levels of government were up 9.8 per cent, reflecting higher cash transfers under the CHST and Equalization programs. The increase in CHST cash transfers reflected the 1999 budget measure to increase base funding from $12.5 billion in 1999-2000 to $13.5 billion in 2000-01. The increase in Equalization entitlements was attributable to the continued stronger economic growth in Ontario than in the Equalization-receiving provinces.

• Direct program spending, consisting of total program spending less the major transfers to persons and other levels of government, increased by 5.5 per cent. This component includes subsidy 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 timing of payments, as well as the lifting of the wage freeze and the effect of new initiatives announced in recent budgets.

Public debt charges were up 0.7 per cent, as the impact of somewhat higher interest rates more than offset a decline in the stock of interest-bearing debt.

Financial source of $7.5 billion (excluding foreign exchange transactions) for April to September 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/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 $6.0 billion in the first six months of 2000-01. This was attributable, in part, to the payment to a third-party trust of the $2.5-billion CHST cash supplement, as announced in the 2000 budget, as well as to payments related to the pay equity settlement.

As a result, with a budgetary surplus of $13.5 billion and a net requirement of $6.0 billion from non-budgetary transactions, there was a financial source (excluding foreign exchange transactions) of $7.5 billion in the April to September 2000 period, compared to a financial source of $3.9 billion in the same period last year.

Net financial source of $8.0 billion for April to September 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 $0.4 billion in the first six months of 2000-01, compared to a net source of $0.2 billion in the same period last year.

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

Table 7
Debt Servicing and Reduction Account (DSRA)