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- Fiscal Monitor 2003 -

The Fiscal Monitor

Highlights of financial results for June 2003 

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June 2003: budgetary results

The June 2003 budgetary surplus is estimated at $2.6 billion, down $1.2 billion from June 2002. Budgetary revenues, at $16.5 billion, were down $0.5  billion, or 3.0 per cent, primarily reflecting lower corporate income tax and other revenues.

• Personal income tax revenues increased 0.3 per cent. The June results include quarterly instalment payments, primarily from the self-employed and pensioners. These payments were slightly lower this year, primarily reflecting lower interest and dividend income. This was more than offset by higher tax remittances from employment income, reflecting the increase in the number of people employed.

• Corporate income tax revenues were down $0.5 billion, or 22.1 per cent, down sharply from the strong year-over-year gains reported in each of the previous two months. The year-over-year decline is attributable to lower instalment payments and higher refunds. As noted in the 2003 budget, the data to convert corporate tax revenues to accrual are not available in order to present the financial statements in a timely manner. As such, cash is used as a proxy for the accrual numbers.

• Excise taxes and duties increased by $0.3 billion or 9.2 per cent, primarily reflecting higher goods and services tax (GST) revenues, up $0.4 billion or 16.3 per cent, largely due to timing factors. On a monthly basis, cash received is used as a proxy for the accrual numbers, with adjustments made at year-end.

• Employment insurance (EI) premiums were marginally lower due to the reduction in premium rates (the employee rate for 2003 is $2.10 per $100 of insurable earnings compared to $2.20 in 2002).

• Other revenues, consisting of revenues from Crown corporations and sales of goods and services and foreign exchange revenues, declined $0.3  billion, or 22.8 per cent.

On a year-over-year basis, program expenses in June 2003 were $0.9 billion, or 9.1 per cent, higher than in June 2002. All major components were higher, with the exception of defence spending.

Transfer payments increased by $0.5 billion, or 8.5 per cent, on a year-over-year basis.

• Major transfers to persons, consisting of elderly and EI benefits, were up $149 million, or 4.8 per cent. The increase in elderly benefits reflects an increase in the number of individuals eligible for benefits and higher average benefits, which are indexed to inflation. The increase in EI benefits is attributable to higher regular benefits, reflecting an increase in the number of beneficiaries.

• Major transfers to other levels of government, consisting of the Canada Health and Social Transfer (CHST), fiscal transfers and Alternative Payments for Standing Programs, were up $106 million, or 4.4 per cent. The year-over-year increase is attributable to higher CHST cash transfers, reflecting the February 2003 agreement reached by first ministers to increase funding from $18.6  billion in 2002–03 to $20.3 billion in 2003–04, and lower recoveries under the Alternative Payments for Standing Programs. Fiscal transfers, which consist of equalization, payments to the territorial governments, statutory subsidies and recoveries under the Youth Allowance Recovery Program, were lower, reflecting lower equalization transfers due to improved economic developments in the eligible provinces.

• Subsidies and other transfers increased by $286 million, primarily reflecting the impact of budget measures.

Other program expenses consist of operating expenses for departments and agencies, including defence and Crown corporations. On a year-over-year basis, these expenses were up $0.4 billion, or 10.1 per cent, reflecting the impact of increased operating costs as well as policy initiatives announced in previous budgets.

Public debt charges were down $0.2 billion, or 7.3 per cent, due to both a decline in the stock of interest-bearing debt and a lower average effective interest rate on that debt.

April to June 2003: budgetary results

In the first three months of the 2003–04 fiscal year, there was a budgetary surplus of $3.2 billion—a year-over-year deterioration of $0.2  billion from the surplus of $3.4 billion reported in the same period last year.

On a year-over-year basis, budgetary revenues were up $1.5 billion, or 3.3 per cent.

• Personal income tax revenues were up $0.2 billion, or 1.1 per cent. This increase is attributable to higher tax remittances from employment income as employment, and therefore the number of Canadians paying taxes, was up over last year. The net impact of this increase in taxes from employment income was somewhat dampened by lower remittances from quarterly filers and the reduction in tax rates announced in previous budgets.

• Corporate income taxes were up $0.5 billion, or 10.1 per cent, due to higher instalment payments—reflecting the strong growth in corporate profits in 2003—and lower refunds. Lower tax rates, as announced in previous budgets, dampened the overall increase.

• Excise taxes and duties increased $0.7 billion, or 6.7 per cent, as all components, with the exception of customs import duties, were higher. GST revenues were up $0.7 billion, or 10.1 per cent, primarily attributable to an increase in gross collections, reflecting continued strong consumer demand and somewhat lower refunds.

• EI premiums were virtually unchanged, as the reduction in premium rates offset the impact of the increase in the number of people employed.

• Other revenues were also virtually unchanged.

On a year-over-year basis, program expenses in the April to June 2003 period were up $2.3 billion, or 7.4 per cent, over the same period last year.

Transfer payments increased by $1.3 billion, or 6.5 per cent.

• Major transfers to persons, consisting of elderly and EI benefits, were up $0.3 billion or 3.3 per cent, with increases in both components.

• Major transfers to other levels of government increased by $0.4 billion, or 5.5 per cent, primarily reflecting higher entitlements under the CHST program.

• Subsidies and other transfers increased by $0.6 billion, or 20.5 per cent, primarily reflecting the impact of budget measures.

Other program expenses increased by $1.0 billion, or 9.0 per cent. Within this component, defence spending was lower, reflecting higher security-related spending in the first part of 2002–03. The increases in Crown corporation expenses and in all other departmental and agency program expenses were primarily due to the impact of increased operating costs as well as policy initiatives announced in previous budgets.

Financial requirement of $10.4 billion for April to June 2003

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 addition, the budgetary balance includes only those activities over which the Government has legislative control.

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 $13.6 billion in the first three months of 2003–04, up $1.6 billion from the requirement in the same period last year. This increase primarily reflects cash transfers to the trust funds established in the 2003 budget for the CHST cash supplement ($2.5 billion) and the Diagnostic/Medical Equipment Fund ($1.5 billion). The impact of these payments was somewhat offset by a lower requirement from foreign exchange activities than in the same period last year. The liability for these trust transfers was established in 2002–03 and affected the budgetary balance in that year. Therefore the cash payments had no impact on the June 2003 budgetary balance.

With a budgetary surplus of $3.2 billion and a net requirement of $13.6 billion from non-budgetary transactions, there was a financial requirement of $10.4 billion in the April to June 2003 period, up $1.9 billion from the same period last year.

Net financing activities up $0.3 billion

This financial requirement of $10.4 billion was financed by a reduction in the Government’s cash balances of $10.1 billion and an increase of $0.3 billion in net financing activities through an increase in liabilities to the pension and other accounts. Unmatured debt transactions, in both Canadian and foreign currency borrowing, were lower. 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 June stood at $4.6 billion.

Note to readers

Beginning with the April 2003 Fiscal Monitor, the financial results are presented on a full accrual basis of accounting. This has necessitated a recasting of the previously published monthly financial results for 2002–03. It has also resulted in a number of classification and terminology changes. The Statement of Assets and Liabilities will be presented once final results for 2002–03 are published.

In the 2003 budget the Government implemented its commitment to present its financial statements on a full accrual accounting basis. Previously the Government’s financial statements were prepared under modified accrual accounting. Full accrual accounting provides a more comprehensive reporting of assets and liabilities and a more transparent picture of the Government’s financial position. Under full accrual, the budgetary balance is now more reflective of current economic developments, rather than being influenced by prior-year developments. It is the accounting standard recommended for senior levels of government in Canada by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants and has been strongly recommended by the Auditor General of Canada and the House of Commons Standing Committee on Public Accounts.

The shift to full accrual accounting primarily affects tax revenues and non-financial, or capital, assets. Tax revenues are now accounted for in the period to which they relate, not when they are received, as was the case under modified accrual. Under full accrual, the costs of capital assets are now being spread over the useful lives of these assets. Under modified accrual, such costs were recognized in the year of purchase. For more information on the implementation and effects of full accrual accounting, please refer to Annex 6 of The Budget Plan 2003, which is available at www.fin.gc.ca.

Table 1
Summary statement of transactions

Table 2
Budgetary revenues

Table 3
Budgetary expenses

Table 4
The budgetary balance and financial requirement/source

Table 5
Net financial balance and net borrowings