- Fiscal Monitor 2000 -

The Fiscal Monitor

Highlights of financial results for November 2000

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

• Major transfers to persons were up 3.2 per cent, attributable to higher elderly benefit payments, as EI benefit payments were virtually unchanged.

• Major transfers to other levels of government were up 6.0 per cent, reflecting higher cash transfers under the Canada Health and Social Transfer (CHST) and Equalization programs.

• Direct program spending was up 5.4 per cent, primarily reflecting increases in departmental operating and capital expenditures. In contrast, subsidies and other transfers, and payments to Crown corporations, were lower.

The decline in public debt charges on a year-over-year basis primarily reflected timing adjustments, which impacted negatively on the November 1999 results.

Table 1
Summary statement of transactions

Year-to-date: budgetary surplus of $14.1 billion

Over the first eight months of fiscal year 2000-01, the budgetary surplus was estimated at $14.1 billion, up $6.2 billion from the surplus of $7.9 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, as set out in the October 18, 2000, Economic Statement and Budget Update.

Budgetary revenues were up $10.6 billion, or 10.2 per cent, on a year-over-year basis. Among the major revenue components:

• Personal income tax collections were up $3.6 billion, or 7.1 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, also contributed to the year-over-year increase. Dampening the impact of these factors were the tax relief measures announced in the February 2000 budget and higher transfers to the Canada Pension Plan and EI accounts, reflecting underpayments with respect to the 1999 taxation year. Over the balance of the fiscal year, growth in this component will be further restrained as the full impact of tax reductions announced in the February 2000 budget and October 2000 Economic Statement and Budget Update is realized. These include the reduction in the tax rates, the elimination of the 5-per-cent surtax, increases in the thresholds, increases in the Canada Child Tax Benefit and the restoration of full indexation of the personal income tax system.

Table 2
Budgetary revenues

• Corporate income tax revenues were up $3.6 billion, or 30.8 per cent. Although part of this increase reflects the continued strength in corporate profits, up 17.5 per cent in the first three quarters of 2000 over the same period in 1999, the increase in revenues 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, with final settlement payments made 30 days following the end of their taxation year. 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. Since current monthly instalments are being compared to the understated instalments of 1999, the year-over-year changes are likely not an appropriate indicator of the results for the year as a whole.

• EI premium revenues were up $0.3 billion, or 2.4 per cent, as the decline in premium rates for 2000 was more than offset by the impact of prior-year adjustments and the growth in the number of people employed and therefore paying premiums.

• Excise taxes and duties increased by $2.1 billion, or 9.4 per cent. Goods and services tax revenues were up $1.6 billion, or 10.4 per cent, somewhat above the growth in consumer demand, reflecting the timing of receipts and the payment of refunds and rebates. Customs import duties were up strongly, while sales and excise taxes were up marginally.

• Non-tax revenues were up $0.8 billion, or 21.2 per cent, primarily reflecting the change in accounting procedures for receivables.

Table 3
Budgetary expenditure

Program spending increased by $4.3 billion, or 6.4 per cent, in the April to November 2000 period, compared to the same period in 1999. This increase was spread among all major components.

• Major transfers to persons were up 1.8 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 fewer beneficiaries due to the decline in the number of people unemployed, dampened by the impact of higher average benefit rates and higher transfers to provinces under the labour market agreements.

• Major transfers to other levels of government were up 9.3 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 8.3 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, the lifting of the wage freeze and the effect of new initiatives, including the $1-billion payment in trust to the provinces and territories for new medical equipment, to support the agreements reached by the First Ministers on health renewal and early childhood development.

Public debt charges were up marginally, reflecting timing factors.

Financial source of $10.0 billion (excluding foreign exchange transactions) for April to November 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.

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

Non-budgetary transactions resulted in a net requirement of $4.1 billion in the first eight months of 2000-01, compared to a requirement of $0.8 billion in the same period in 1999-2000. This was attributable, in part, to pay equity settlement payments and changes to the financing of the Canada Student Loans Program.

As a result, with a budgetary surplus of $14.1 billion and a net requirement of $4.1 billion from non-budgetary transactions, there was a financial source (excluding foreign exchange transactions) of $10.0 billion in the April to November 2000 period, compared to a financial source of $7.1 billion in the same period in 1999.

Net financial source of $9.5 billion for April to November 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. 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 $0.5 billion in the first eight months of 2000-01, compared to a net requirement of $4.2 billion in the same period in 1999-2000.

With a budgetary surplus of $14.1 billion, a net requirement of $4.1 billion from non-budgetary transactions and a net requirement of funds of $0.5 billion from foreign exchange transactions, there was a net financial source of $9.5 billion in the April to November 2000 period, compared to a net source of $2.9 billion in the same period in 1999.

Net borrowings down $9.7 billion for April to November 2000

In November 2000, the Government's holding of market debt increased by $4.9 billion, with the result that, for the first eight months of 2000-01, there was a net retirement of $9.7 billion of market debt. This was financed largely by the net financial source $9.5 billion, as cash balances were only marginally lower. 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. At the end of November 2000, cash balances were $12.7 billion.