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- Fiscal Monitor 2004 -

The Fiscal Monitor

Highlights of financial results for  
October 2004

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October 2004: budgetary results

The October 2004 budgetary surplus was estimated at $1.1 billion, up from a surplus of $159 million in October 2003.

On a year-over-year basis, budgetary revenues totalled $15.5 billion, up $1.3 billion, or 9.1 per cent. This increase is almost entirely attributable to sharply higher net corporate income tax receipts, which rose $1.2 billion, or 91.8 per cent, above their level of one year ago. Corporate income tax receipts continue to be affected by the recent public sector labour disruption. There were also increases in personal income tax revenues ($0.4 billion) and other revenues ($0.1 billion), offset somewhat by declines in employment insurance (EI) premium revenues ($0.1 billion) and excise taxes and duties ($0.3 billion).

• Personal income tax revenues increased $0.4 billion, or 5.8 per cent, primarily due to growth in source deductions, consistent with higher employment.

• Corporate income tax revenues jumped $1.2 billion, or 91.8 per cent, partly reflecting the impact of the public service labour disruption. For example, gross receipts in October were up 33.5 per cent while refunds dropped 44.2 per cent, resulting in a 91.8-per-cent gain in net receipts. Some of these higher net receipts will be reversed in the coming months as the backlog of refunds is processed.

• Excise taxes and duties were down $0.3 billion. This decline is largely due to lower goods and service tax (GST) receipts, which fell $0.3 billion, or 11.1 per cent, primarily due to the timing of receipts. Among other excise taxes and duties, customs import duties rose 1.7 per cent while sales and excise taxes fell 1.3 per cent.

• EI premiums were down 11.7 per cent, reflecting the impact of the lower premium rate (the employee rate for 2004 is $1.98 per $100 of insurable earnings compared to $2.10 in 2003), which 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, were up $0.1 billion.

On a year-over-year basis, program expenses in October 2004 were $11.6 billion, up $0.8 billion or 7.3 per cent from October 2003. Higher transfer payments accounted for most of this increase.

Total transfer payments were up $0.7 billion, or 9.8 per cent, in October 2004.

• Major transfers to persons, consisting of elderly and EI benefits, were up $0.2 billion on a year-over-year basis. Elderly benefits increased 3.9 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 benefits climbed by 10.3 per cent, reflecting the timing of payments in October 2004 compared to the same month last year.

• Major transfers to other levels of government, consisting of federal transfers in support of health and other social programs (Canada Health Transfer, Canada Social Transfer and Health Reform Transfer), fiscal transfers and Alternative Payments for Standing Programs, were up 13.7 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 8.1 per cent from October 2003, primarily reflecting the impact of recoveries in 2003–04 for overpayments in previous years under the equalization program.

• Subsidies and other transfers were up 13.1 per cent. This component is extremely volatile on a monthly basis, largely reflecting the timing of payments. The October estimate of transfers from Human Resources Development is unusually low as it includes corrections to prior 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 3.1 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 12.6 per cent, as a decline in the stock of interest-bearing debt more than offset the impact of an increase in the average effective interest rate on that debt.

In the first seven months of the fiscal year, there was a budgetary surplus of $9.0 billion, up $5.8 billion from the $3.2-billion surplus reported in the same period of 2003–04. However, almost half of the increase in the surplus relates to one-time factors.

Budgetary revenues, at $108.6 billion, were up $7.4 billion or 7.3 per cent. This increase reflects gains in tax revenues and other revenues, including the sale of the Government’s remaining shares in Petro-Canada, offset somewhat by lower EI premiums. Tax revenues were up $6.5 billion, or 7.8 per cent. However, as noted above, the recent labour disruption in the federal public service has raised year-to-date tax revenues due to a lower volume of refunds processed. This impact should largely unwind in the coming months.

• Personal income tax revenues increased $2.9 billion, or 6.3 per cent. This increase is primarily due to strong growth in source deductions from employment income, reflecting in part gains in employment.

• Corporate income tax revenues were up $2.4 billion, or 22.8 per cent, reflecting in part the lower volume of refunds processed in both September and October 2004. In addition, the monthly results are affected by remittance procedures. Corporations are required to remit monthly instalments based on their previous year’s actual tax liabilities or their current year’s estimated liabilities, with settlement payments made within 60 days of the close of their taxation year. Given the large increase in settlement payments in 2003–04, reflecting the increase in corporate profits in 2003, the current monthly instalments are more reflective of the increase in tax liabilities last year than an increase in the current year.

• Excise taxes and duties increased $1.0 billion, or 4.0 per cent, primarily due to growth in GST revenues, which were 5.6 per cent higher than last year. Customs import duties were also up (2.2 per cent), while there were declines in both sales and excise taxes (down 0.2 per cent) and the Air Travellers Security Charge (down 1.2 per cent).

• EI premiums were down $0.9 billion, or 8.4 per cent.

• Other revenues increased $1.9 billion, or 25.9 per cent, due to the sale of the Government’s remaining shares in Petro-Canada. In the absence of this transaction, other revenues would have declined on a year-over-year basis.

Transfer payments, which accounted for nearly two-thirds of total program expenses, increased by $2.6 billion, or 5.4 per cent.

• Transfers to persons advanced by $0.5 billion, or 2.2 per cent. Elderly benefits were up 3.3 per cent while EI benefits were virtually unchanged. Within EI benefits, an increase in special benefits, such as sickness, maternity and parental benefits, and employment benefit and support measures, was offset by a decline in regular benefits, reflecting the improvement in the labour market.

• Transfers to other levels of government were up $1.4 billion, or 8.5 per cent, reflecting higher transfers in support of health and other social programs, resulting from the February 2003 First Ministers’ Accord on Health Care Renewal, and increased fiscal transfers. Fiscal transfers were up 8.5 per cent, primarily reflecting the impact on the 2003–04 results of recoveries related to overpayments in previous years under the equalization program. These results do not reflect the impacts of the 2004 First Ministers’ agreements on health care, equalization and Territorial Formula Financing. These will be included in the monthly fiscal results once the legislation has received Royal Assent.

• Subsidies and other transfers increased by $0.7 billion, or 8.4 per cent, primarily reflecting the impact of previous budget measures.

Other program expenses fell by $0.1 billion, or 0.2 per cent, as lower expenses related to Crown corporations more than offset marginally higher defence expenses. These expenses do not incorporate the impact of recent wage settlements in the federal public sector.

Public debt charges were down $0.9 billion, as a decline in the stock of interest-bearing debt more than offset the impact of an increase in the average effective interest rate on that debt.

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), pensions and other accounts, as well as 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 $7.7 billion in the April to October period, down $5.7 billion from the requirement in the same period of 2003–04. The decline is primarily attributable to the cash transfers in the April to October 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 $9.0 billion and a net requirement of $7.7 billion from non-budgetary transactions, there was a financial source of $1.2 billion in the first seven months of 2004–05, compared to a net requirement of $10.2 billion in the same period last year.

The Government reduced market debt by $9.0 billion by the end of October 2004, largely through a reduction of marketable bonds. Given the reduction in market debt and the financial source of $1.2 billion, the Government lowered its cash balances by $7.7 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 October stood at $9.5 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