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- Fiscal Monitor 2004 -

The Fiscal Monitor

Highlights of financial results for  December 2004

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December 2004: budgetary results

The December 2004 budgetary surplus was estimated at $280 million, down from a surplus of $3.2 billion in December 2003.

Budgetary revenues totalled $15.6 billion in the month, down $2.0 billion or 11.2 per cent from December 2003. This decline is almost entirely attributable to sharply lower corporate income tax receipts.

• Personal income tax revenues increased $0.4 billion, or 6.1 per cent, primarily due to growth in source deductions, consistent with higher employment.

• Corporate income tax revenues were down $2.5 billion, or 48.4 per cent. The sharp decline reflects the unusually high collections in December 2003. Significant year-end settlement payments were received from several financial institutions in December 2003 relating to their one-time foreign exchange gains in the 2003 tax year. For the remaining months of the fiscal year, the year-over-year growth in corporate receipts should be more reflective of developments in corporate profits.

• Excise taxes and duties were down $0.1 billion. This decline is almost entirely the result of lower goods and services tax (GST) receipts, which were down $0.1 billion, or 2.2 per cent, primarily reflecting higher refunds. Customs import duties rose $10 million, while sales and excise taxes and receipts from the Air Travellers Security Charge were down a combined $26 million.

• Employment insurance (EI) premiums were up 29.4 per cent, reflecting prior-year adjustments in December 2003.

• Other revenues, which consist of revenues from Crown corporations, sales of goods and services and foreign exchange revenues, were down $0.1 billion or 12.5 per cent. This revenue component is volatile on a monthly basis.

Program expenses in December 2004 totalled $12.7 billion, up $1.2 billion or 10.3 per cent from December 2003. The increase is mostly due to higher other program expenses.

Total transfer payments were up $0.1 billion or 1.9 per cent in December 2004.

• Major transfers to persons, consisting of elderly and EI benefits, were 0.9 per cent higher on a year-over-year basis. Elderly benefits increased 4.4 per cent due to both higher average benefits, which have risen in line with inflation, and an increase in the number of individuals eligible for benefits. EI benefits were down 5.4 per cent, reflecting the lower number of unemployed as well as a difference in the timing of payments between November and December 2004 compared to the same months in 2003.

• 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 10.5 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 14.6 per cent from December 2003, primarily reflecting the impact of recoveries in 2003–04 of overpayments in previous years.

• Subsidies and other transfers were down 7.8 per cent. This component is volatile on a monthly basis, largely reflecting the timing of payments.

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 26.8 per cent due to both higher Crown corporation expenses and higher expenses related to defence and other departments and agencies. Defence expenses rose $0.7 billion or 70.8 per cent, due to one-time accrual adjustments related to the measurement and expensing of inventory stocks and capital assets. 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 8.2 per cent lower, reflecting the impact of a decline in the stock of interest-bearing debt, along with a decline in the average effective interest rate on that debt.

April to December 2004: budgetary results

In the first nine months of the fiscal year, there was a budgetary surplus of $11.0 billion, up $3.7 billion from the $7.3-billion surplus reported in the same period of 2003–04.

Budgetary revenues, at $140.4 billion, were up $7.3 billion or 5.5 per cent. This increase reflects gains in tax revenues and other revenues, including $2.6 billion from the sale of the Government’s remaining shares in Petro-Canada, offset somewhat by lower EI premiums.

• Personal income tax revenues increased $3.5 billion or 5.7 per cent. The year-over-year increase is primarily attributable to the strong growth in source deductions from employment income, reflecting gains in employment and income.

• Corporate income tax revenues were up $0.3 billion or 1.8 per cent. This is a sharp turnaround from the November 2004 year-to-date results, when revenues were up $2.8 billion or 23.5 per cent, and reflects the impacts of large December 2003 settlement payments, as discussed above. Absent these large settlement payments, underlying corporate receipts are up about 19 per cent year-to-date, in line with the growth in corporate profits.

• Excise taxes and duties increased $2.1 billion or 6.8 per cent. Virtually all of this increase is attributable to growth in GST revenues, which were up 9.8 per cent, in part reflecting weak year-to-date refunds. Over the balance of the year, the growth in GST refunds should pick up to more closely reflect the increase in gross revenues, which were up 6.1 per cent. Customs import duties were also up (4.4 per cent), while there were declines in both sales and excise taxes (down 0.9 per cent) and the Air Travellers Security Charge (down 4.5 per cent).

• EI premiums were down $0.8 billion or 6.7 per cent. The year-to-date decline is in part a function of positive accrual adjustments that were made in the April to December period of 2003, and which were reversed in January 2004. As a result, the decline should moderate over the balance of the fiscal year.

• Other revenues increased $1.9 billion or 21.5 per cent, reflecting 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.

On a year-over-year basis, program expenses in the April to December 2004 period were up 4.6 per cent to $103.6 billion, largely due to higher transfers. Public debt charges were $1.0 billion lower, reflecting the impact of a decline in the stock of interest-bearing debt, along with a decline in the average effective interest rate on that debt.

Transfer payments, which account for about two-thirds of total program expenses, increased by $3.2 billion, or 5.0 per cent.

• Transfers to persons advanced by $0.5 billion, or 1.5 per cent. Elderly benefits were up 3.5 per cent while EI benefits were down 2.2 per cent. Within EI benefits, an increase in special benefits, such as sickness, maternity and parental benefits, and employment benefit and support measures, was more than offset by a decline in regular benefits, reflecting the improvement in the labour market.

• Transfers to other levels of government were up $1.8 billion, or 8.6 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 8.4 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 $0.9 billion, or 7.9 per cent, primarily reflecting the impact of previous budget measures.

Other program expenses increased by $1.4 billion, or 3.9 per cent, as lower expenses related to Crown corporations were more than offset by higher expenses related to defence and other departments and agencies. Defence expenses were up $0.9 billion or 10.6 per cent, reflecting a one-time accrual adjustment in December 2004 due to changes in the measurement and expensing of inventory stocks and capital assets. Other program expenses do not incorporate the impact of recent wage settlements in the federal public sector.

Financial source of $6.4 billion for April to December 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), 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 $4.6 billion in the April to December period, an improvement of $8.2 billion from the requirement in the same period of 2003–04. The improvement is primarily attributable to the unusually large cash requirements in the April to December 2003 period related to transfers 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). Dampening the improvement somewhat was an increase in financial requirements for pension and other accounts in the April to December period, reflecting payments to the Canada Pension Plan Investment Board.

With a budgetary surplus of $11.0 billion and a net requirement of $4.6 billion from non-budgetary transactions, there was a financial source of $6.4 billion in the first nine months of 2004–05, compared to a requirement of $5.5 billion in the same period of 2003–04.

Net financing activities down $19.6 billion

The Government used this financial source of $6.4 billion and a reduction in its cash balances of $13.2 billion to reduce its market debt by $19.6 billion by the end of December 2004, largely through a reduction of Treasury bills and foreign currency borrowings. 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 December stood at $4.0 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