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- Fiscal Monitor 2004 -

The Fiscal Monitor

Highlights of financial results for
May 2004

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May 2004: budgetary results

The May 2004 budgetary surplus of $1.0 billion was slightly higher than that reported in May 2003.

On a year-over-year basis, budgetary revenues, at $15.2 billion, were up $0.5 billion, or 3.4 per cent. Strong year-over-year increases in personal income tax and the goods and services tax (GST) revenues more than offset declines in corporate income tax revenues, sales and excise taxes, employment insurance premiums and other revenues.

• Personal income tax revenues were up $0.9 billion or 15.1 per cent, primarily due to strong year-over-year growth in source deductions from employment income, reflecting, in part, strong gains in employment over the past twelve months.

• Corporate income tax revenues declined by $0.1 billion on a year-over-year basis, primarily reflecting higher refunds related to reassessments of tax liabilities in previous years.

• Excise taxes and duties increased by $0.1 billion, or 4.5 per cent. Goods and Services Tax (GST) advanced by $0.3 billion, or 14.7 per cent. The higher GST revenues reflected higher gross receipts from both domestic sales and imports. Customs import duties were up 8.6 per cent, while sales and excise taxes declined by 20.1 per cent, primarily attributable to lower energy excise taxes.

• Employment insurance (EI) premiums were down 5.2 per cent, as the reduction in premium rates (the employee rate for 2004 is $1.98 per $100 of insurable earnings compared to $2.10 in 2003) more than offset the increase in employment and thus the number of people paying premiums.

• Other revenues, consisting of revenues from Crown corporations, sales of goods and services and foreign exchange revenues, were down $0.5 billion, or 33.1 per cent. This component is extremely volatile on a monthly basis.

On a year-over-year basis, program expenses in May 2004 were $11.2 billion, up $0.4 billion, or 4.1 per cent, from May 2003, due to higher transfer payments, as other program expenses were lower.

Transfer payments were $0.5 billion higher, with increases in the three major components.

• Major transfers to persons, consisting of elderly and EI benefits, were up $0.2 billion, or 6.3 per cent, on a year-over-year basis. Elderly benefits increased 3.5 per cent due to both higher average benefits, which have risen because of higher inflation in early 2003, and an increase in the number of individuals eligible for benefits. EI benefit payments were up 12.0 per cent, mainly because of one more payment cycle in May 2004 compared to last year.

• Major transfers to other levels of government, consisting of the federal transfers in support of health and other social programs (Canada Health Transfer, Canada Social Transfer and Medical Reform Transfer), fiscal transfers and Alternative Payments for Standing Programs were up $0.3 billion, or 10.3 per cent. The increase in federal transfers in support of health and other social transfers reflected increased funding under the February 2003 Health Accord. Fiscal transfers consist of Equalization, payments to the territorial governments, statutory subsidies and recoveries under the Youth Allowance Recovery Program. In aggregate, these transfers were up 17.0 per cent from May 2003.

• Subsidies and other transfers increased marginally. This component is extremely volatile over the first few months of the fiscal year, reflecting the timing of payments.

Other program expenses consist of transfers to Crown corporations and operating expenses for departments and agencies, including defense. All major components were lower than in May 2003, reflecting the timing of payments.

Public debt charges were down marginally, as a lower stock of interest-bearing debt offset the impact of an increase in the average effective interest rate on that debt.

April and May 2004: budgetary results

In the first two months of the fiscal year, there was a budgetary surplus of $1.8 billion, slightly less than the $1.9 billion surplus reported in the same period of 2003–04, as higher program expenses offset an increase in budgetary revenues. On a year-over-year basis, budgetary revenues, at $30.4 billion, were up $0.7 billion, or 2.5 per cent, as higher personal income tax and GST revenues more than offset declines in most of the other major revenue components. On a year-over-year basis, program expenses in the April and May 2004 period, at $22.7 billion, were up $0.9 billion, or 4.0 per cent, over the same period of 2003–04, with most of the increase attributable to higher transfers, especially for health care. Public debt charges were marginally lower.

Financial requirement of $2.7 billion for April and May 2004

The budgetary balance is presented on a full accrual basis of accounting, recording government assets and liabilities when they are receivable or incurred, regardless of when the cash is received or paid. In contrast, the financial source/requirement measures the difference between cash coming in to the Government and cash going out. This measure is affected not only by changes in the budgetary balance but also by the cash source/requirement resulting from the Government’s investing activities through its acquisition of capital assets, its loans, financial investments and advances, and pensions and other accounts, as well as from other activities, including payment of accounts payable and collection of accounts receivable, foreign exchange activities, and the amortization of its tangible capital assets. The difference between the budgetary balance and financial source/requirement is recorded in non-budgetary transactions.

Non-budgetary transactions resulted in a net requirement of $4.5 billion in April and May, up $0.2 billion from the requirement in the same period of 2003–04, primarily reflecting a lower net source of funds from pensions and other accounts.

With a budgetary surplus of $1.8 billion and a net requirement of $4.5 billion from non-budgetary transactions, there was a financial requirement of $2.7 billion in the first two months of 2004-05, up slightly from the same period last year.

Net financing activities up $1.1 billion

To finance this net financial requirement, the Government increased its net financing activities by $1.1 billion and reduced its cash balances by $1.6 billion. 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. Cash balances at the end of May stood at $15.7 billion.

Table 1
Summary statement of transactions

Table 2
Budgetary revenues

Table 3
Budgetary expenses

Table 4
Budgetary balance and financial source/requirement

Table 5
Financial source/requirement and net financing activities