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- Fiscal Monitor 2004 -

The Fiscal Monitor

Highlights of financial results for
August 2004

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August 2004: budgetary results

The August 2004 budgetary surplus is estimated at $306 million, up from $103 million in August 2003.

On a year-over-year basis, budgetary revenues, at $14.6 billion, were up $0.7 billion, or 4.9 per cent. This increase is primarily attributable to a $0.6-billion increase in personal income tax revenues and a $0.4-billion increase in excise taxes and duties, offset somewhat by declines in employment insurance premium revenues and other revenues.

• Personal income tax revenues increased by $0.6 billion, or 10.1 per cent, primarily due to strong growth in source deductions.

• Corporate income tax revenues were up 3.8 per cent, as strong gains in monthly installments were partially offset by an increase in refunds related to prior taxation years.

• Excise taxes and duties increased by $0.4 billion, or 9.8 per cent. This increase reflects strong growth in goods and services tax (GST) revenues, somewhat offset by declines in customs import duties and sales and excise taxes. GST revenues increased $0.6 billion, or about 27 per cent, due to similar growth in gross receipts from both domestic sales and customs. Customs import duties were 11.5 per cent lower due in part to an increase in refunds. Sales and excise taxes declined 21.1 per cent, partly reflecting the ongoing effect of higher energy prices on energy demand. Other excise and sales taxes were generally lower than last year.

• Employment insurance (EI) premiums were down 11.3 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, which consist of revenues from Crown corporations, sales of goods and services and foreign exchange revenues, declined 17.7 per cent. This component is extremely volatile on a monthly basis.

On a year-over-year basis, program expenses in August 2004 were $11.4 billion, up $0.6 billion, or 5.5 per cent, from August 2003. Higher EI benefits and equalization entitlements accounted for most of the increase.

Transfer payments were up $0.5 billion, or 6.9 per cent.

• Major transfers to persons, consisting of elderly and EI benefits, were up strongly on a year-over-year basis. Elderly benefits increased 3.4 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 increased 23.5 per cent, reflecting the timing of payments in August 2004 compared to the same month in 2003. Some of this increase should be reversed in September 2004.

• Major transfers to other levels of government, consisting of federal transfers in support of health and other social programs (the Canada Health Transfer, Canada Social Transfer and Health Reform Transfer), fiscal transfers and Alternative Payments for Standing Programs, were up $0.3 billion, or 11.6 per cent. The increase in federal transfers in support of health and other social programs reflects increased funding under the February 2003 First Ministers’ Accord on Health Care Renewal. Fiscal transfers consist of equalization entitlements, payments to the territorial governments, statutory subsidies and recoveries under the Youth Allowance Recovery Program. In aggregate, these transfers were up 17.5 per cent from August 2003, primarily reflecting the impact of recoveries in 2003–04 of overpayments in previous years.

• Subsidies and other transfers were down 11.6 per cent. This component is extremely volatile on a monthly basis, reflecting the timing of payments. Negative amounts in Agriculture and Human Resources Development for August 2004 reflect corrections to estimates for previous months.

Other program expenses consist of transfers to Crown corporations and operating expenses for departments and agencies, including defence. On a year-over-year basis, these expenses were up 3.3 per cent, as a decline in Crown corporation and defence-related expenses was more than offset by higher expenses in all other departments and agencies. This component is also quite volatile on a monthly basis, reflecting the timing of payments and the coming into force of budget measures.

Public debt charges were down 4.0 per cent, as a lower stock of interest-bearing debt more than offset the impact of an increase in the average effective interest rate on that debt.

April to August 2004: budgetary results

In the first five months of the fiscal year, there was a budgetary surplus of $4.7 billion, up $0.9 billion from the surplus of $3.8 billion reported in the same period of 2003–04.

Budgetary revenues, at $76.2 billion, were up $2.6 billion, or 3.6 per cent, reflecting strong gains in most components of tax revenue, dampened slightly by lower EI premiums and other revenues. Tax revenues were up 6.6 per cent.

• Personal income tax revenues increased by $1.9 billion, or 5.6 per cent, primarily due to strong growth in source deductions from employment income, reflecting, in part, gains in employment.

• Corporate income tax revenues were up $0.6 billion, or 8.0 per cent, consistent with ongoing strength in corporate profits.

• Excise taxes and duties increased by $1.3 billion, or 7.7 per cent, primarily due to growth in GST revenues, which were up 11.2 per cent. Customs import duties were also up, partially offset by declines in sales and excise taxes and revenues related to the Air Travellers Security Charge.

• EI premiums were down $0.6 billion, or 7.4 per cent.

• Other revenues declined 12.7 per cent.

On a year-over-year basis, program expenses in the April to August 2004 period, at $57.0 billion, were up 3.8 per cent over the same period of 2003–04, with most of the increase attributable to higher transfer payments. Public debt charges were $0.3 billion lower than in the first five months of 2003–04.

Transfer payments, which accounted for nearly two-thirds of total program expenses, increased by $1.9 billion, or 5.4 per cent.

• Transfers to persons advanced by $0.6 billion, or 3.6 per cent. Elderly benefits were up 3.2 per cent while EI benefits were up 4.3 per cent. Within EI benefits, most of the increase was in special benefits, such as sickness, maternity and parental benefits.

• Transfers to other levels of government were up $0.9 billion, or 7.5 per cent, reflecting higher transfers in support of health and other social programs due to the 2003 health accord, and increased fiscal transfers. The latter primarily reflects the impact on the 2003–04 results of recoveries related to overpayments in previous years under the equalization program.

• Subsidies and other transfers increased by $0.4 billion, or 6.5 per cent, primarily reflecting the impact of previous budget measures.

Other program expenses increased by $0.2 billion, or 1.2 per cent, as lower expenses related to Crown corporations and defence were offset by an increase in all other departmental and agency expenses.

Public debt charges were down $0.3 billion, reflecting the impact of a decline in the stock of interest-bearing debt.

Financial requirement of $4.1 billion for April to August 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 and its loans, financial investments and advances, 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 $8.8 billion in the April to August period, down $6.9 billion from the requirement in the same period of 2003–04. The decline is primarily attributable to the cash transfers in the April to August 2003 period to trust funds established in the 2003 budget for the Canada Health and Social Transfer cash supplement ($2.5 billion), the Diagnostic/Medical Equipment Fund ($1.5 billion), Canada Health Infoway ($600 million) and the Canada Foundation for Innovation ($500  million).

With a budgetary surplus of $4.7 billion and a net requirement of $8.8  billion from non-budgetary transactions, there was a financial requirement of $4.1 billion in the first five months of 2004–05, down $7.8 billion from the same period last year.

Net financing activities down $4.1 billion

The Government reduced market debt by $4.1 billion by the end of August 2004, largely by reducing its holdings of marketable bonds. As a result, to finance both the reduction in market debt and the financial requirement of $4.1 billion, the Government lowered its cash balances by $8.3 billion. The monthly level of cash balances varies as a result of a number of factors including periodic large debt maturities, which can be quite volatile on a monthly basis. Cash balances at the end of August stood at $9.0 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

Table 6
Condensed statement of assets and liabilities