Annual Financial Report 1999-2000: 3
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Budgetary Expenditures

Table 3 on page 15 presents budgetary expenditures on both a gross and net basis. The differences are identical to those between gross and net budgetary revenues.

Net budgetary expenditures amounted to $153.4 billion in 1999-2000, up $0.6 billion, or 0.4 per cent, from 1998-99. The "expenditure ratio" – net budgetary expenditures as a percentage of net budgetary revenues – stood at 92.6 per cent in 1999-2000, down from 98.1 per cent in 1998-99. In 1993-94, the expenditure ratio stood at 136.2 per cent.

Public debt charges increased by $0.3 billion, or 0.6 per cent, in 1999-2000. They are affected by interest rate developments as well as by the stock and composition of interest-bearing debt.

• The average effective interest rate on the Government's interest-bearing debt (unmatured debt and pension liabilities) was 7.4 per cent in 1999-2000, unchanged from 1998-99. The average effective interest rate on unmatured debt was 6.7 per cent, while that on pension and other accounts was 9.6 per cent. Since 1989-90, the average effective interest rate on interest-bearing debt has declined by 3.5 percentage points, with virtually all of this attributable to lower average effective interest rates on unmatured debt – down 4.5 percentage points.

• The stock of total interest-bearing debt increased slightly in 1999-2000, from $595.0 billion to $597.9 billion. However, the stock of market debt declined by $4.0 billion to $456.4 billion, while the liabilities to pension and other accounts increased by $6.9 billion to $141.5 billion. Since 1993-94, the share of market debt has declined by about 4 percentage points with a corresponding increase in the liabilities for pension and other accounts. Within market debt, the share of marketable bonds has increased by about 20 percentage points, while that for Treasury bills and Canada Savings Bonds has declined.

The interest ratio – public debt charges as a percentage of net budgetary revenues – declined from 26.6 per cent in 1998-99 to 25.1 per cent in 1999-2000. This ratio means that, in 1999-2000, the Government spent about 25 cents of every revenue dollar on interest on the public debt. This is down from the peak of 36 cents in 1995-96 and is the lowest ratio since 1981-82. This is money that must be paid to meet the Government's obligations on its debt. The lower the ratio, the more flexibility the Government has to address the key priorities of Canadians.

Net program spending – net budgetary expenditures less public debt charges – increased $0.4 billion, or 0.3 per cent, in 1999-2000. The program share – net program spending as a percentage of net budgetary revenues – amounted to 67.4 per cent, down from 71.6 per cent in 1998-99. In 1993-94, the program share was 103.5 per cent.

Within program spending, major transfer payments to persons, consisting of elderly benefits and employment insurance benefits, increased marginally, up $46 million, or 0.1 per cent.

• Elderly benefits consist of Old Age Security payments, Guaranteed Income Supplement payments and spouse's allowance payments. Total benefits were up $629 million in 1999-2000, reflecting both higher average benefits, which are indexed to inflation, and an increase in the number of recipients.

• Employment insurance benefits declined $583 million, or 4.9 per cent, in 1999-2000. Regular benefit payments were $0.7 billion lower, reflecting the decline in the number of unemployed. In contrast, transfers to the provinces under the Labour Market Development Agreements and payments under special benefits, such as sickness, maternity and parental benefits, were slightly higher.

Major transfer payments to other levels of government include the Canada Health and Social Transfer (CHST), fiscal arrangements (Equalization, transfers to the territories, as well as a number of small transfer programs) and Alternative Payments for Standing Programs. Net cash transfers declined by $2.3 billion in 1999-2000, or 8.9 per cent. However, all of this decline was attributable to a lower CHST cash supplement in 1999-2000 than in 1998-99 and the inclusion of large prior-year Equalization entitlements in 1998-99.

• The CHST – a block-funded transfer – supports health care, post-secondary education, social assistance and social services. It provides support in the form of cash and tax transfers to the provinces and territories. In the 1998 budget, the cash floor was increased from $11 billion to $12.5 billion.

• In the 1999 budget, the Government announced a special payment of $3.5 billion to be paid to a third-party trust to be drawn by the provinces and territories for health care needs over a period of three years. This supplement was charged to the 1998-99 fiscal year. In the 2000 budget, the Government announced another special payment, this time of $2.5 billion. This payment was also made to a third-party trust to be drawn by the provinces and territories for post-secondary education and health care over a period of four years. This supplement was charged to the 1999-2000 fiscal year.

• Equalization is the largest of the transfers under fiscal arrangements. Under the Equalization program, the federal government transfers funds to the less prosperous provinces so that they can provide reasonably comparable levels of public services at reasonably comparable levels of taxation. In 1998-99, tax data for previous taxation years indicated much stronger revenue gains in the non-Equalization receiving provinces than in the Equalization-receiving provinces, thereby resulting in large retroactive entitlement adjustments in 1998-99. In the absence of these adjustments, payments in 1999-2000 would have increased roughly in line with the growth in nominal income.

• The Alternative Payments for Standing Programs represent recoveries of federal tax point abatements under contracting-out arrangements. These arrangements allow provinces to assume the administrative and financial authority for certain federal-provincial programs. In turn, the federal government provides provinces with tax points, the value of which are netted against total entitlements, and accordingly recovered from cash transfers. These recoveries reflect the growth in the value of the tax points.

Direct program spending – total program spending less major transfers to persons and other levels of government – consists of subsidies and other transfer payments, expenditures related to Crown corporations, defence spending, and operating and capital expenditures of non-defence departments and agencies. Spending in this component amounted to $53.8 billion in 1999-2000, up $2.6 billion, or 5.1 per cent, from 1998-99. This increase was entirely attributable to the impact of the initiatives announced in the 2000 budget, which totalled $3.4 billion.

Within direct program spending:

• Subsidies and other transfer payments declined by $0.2 billion, or 1.1 per cent, as the ending of the special transitional assistance programs to fishers and plant workers affected by the East Coast groundfish crisis, lower spending on labour market programs, reduced liabilities against loans outstanding and the ending of transitional assistance to NAV CANADA associated with the transfer of air navigational services more than offset the impact of new initiatives announced in Budget 2000. The latter included:

• $900 million to the Canada Foundation for Innovation (CFI) to award funds to help post-secondary educational institutions, research hospitals and not-for-profit institutions modernize their research infrastructure. This brings the Government's total transfer to the CFI to $1.9 billion.
• $160 million to Genome Canada to fund the activities of five genome science centres.
• $100 million to create a revolving fund – the Green Municipal Investment Fund – to support projects in areas such as energy and water savings, urban transit and waste diversion.
• $60 million to fund the Canadian Foundation for Climate and Atmospheric Sciences.
• $586 million for income disaster assistance to help Canadian farmers.

• Expenditures related to Crown corporations were down $0.5 billion, or 15.6 per cent, from 1998-99. This component includes appropriations to consolidated Crown corporations (those Crown corporations that rely on government funding as their principal source of revenue) and the annual profit and losses for enterprise Crown corporations. The decline was largely attributable to the increase in net profits of enterprise Crown corporations.

• Operating and capital expenditures include the costs of defence, government administration and delivery of specific services to the public, such as:

• health care to Aboriginals and veterans;
• research undertaken by government departments;
• food inspection;
• Coast Guard and air and sea rescue;
• operation of national parks and historic sites;
• collection of taxes;
• operation of federal correctional institutions and provision of police services; and
• administration of programs.

Spending in this component increased $3.3 billion, or 11.6 per cent, from 1998-99. Of this amount:

• Defence spending increased $1.4 billion, primarily attributable to increased funding to assist the military in meeting Canada's international commitments in Kosovo. In addition, the 1999 budget provided funding to address compensation and benefit pressures.

• Non-defence departmental operating and capital spending increased $1.9 billion. About half of this increase was attributable to the increased employee benefit costs in large part associated with the resumption of collective bargaining after six years of legislative wage restraint. In addition, during the fiscal year, the Treasury Board Secretariat conducted a major review of the capacity of a number of government departments to deliver existing programs. This review resulted in an increase in funding of about $500 million in a limited number of areas that were considered as essential to the health and safety of Canadians and to the sustainability of quality public services. Most of this incremental funding was directed to Citizenship and Immigration Canada, the Royal Canadian Mounted Police and Fisheries and Oceans Canada.

Consistent with the difference between gross and net budgetary revenues, gross budgetary expenditures were $12.4 billion higher than net budgetary expenditures. The differences are described in the section on budgetary revenues.

Table 3
Budgetary Expenditures

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