Annual Financial Report 1998-99: 2
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Budgetary Revenues

Table 2 on page 11 shows budgetary revenues on both a budget, or "net", basis as well as on a "gross" basis. The net figures reflect the way in which revenues and expenditures are presented to Parliament and in the government's annual budget. As such, there are a number of tax expenditures which are netted against revenues and a number of revenue items that are netted against spending.

Netted against revenues are:

• the Canada Child Tax Benefit;
• the quarterly goods and services tax (GST) credit; and
• repayments of Old Age Security benefits.

Netted against spending are:

• revenues of consolidated Crown corporations; and
• revenues levied by departments for specific services, such as the costs of policing services in provinces.

On a gross basis, the tax expenditures netted against revenues are included as part of spending, while the items netted against spending are included as part of revenues, thereby increasing both revenues and spending with no impact on the balance.

On a net basis, revenues amounted to $155.7 billion in 1998-99, an increase of $2.5 billion, or 1.6 per cent, from the 1997-98 level. The revenue ratio – net budgetary revenues as a percentage of GDP – represents an approximate measure of the overall "tax burden" in that it compares the total of all revenues collected to the size of the economy. However, as some important components of income subject to taxation are excluded from the Statistics Canada measure of GDP, such as capital gains and income from trusteed pension plans, this ratio overstates the tax burden. In addition, the sharp rise in capital gains and the growth in income from trusteed pension plans due to the aging of the population distort year-to-year changes in the ratio. Therefore, caution should be exercised in interpreting this ratio. The revenue ratio stood at 17.4 per cent in 1998-99, down slightly from 17.5 per cent in 1997-98. This decline reflects lower corporate income tax revenues and the impact of the tax relief measures announced in the 1998 budget, which restrained the growth in personal income tax revenues.

Net personal income tax revenues, the largest component of budgetary revenues, were up $1.7 billion, or 2.4 per cent, in 1998-99. This is in sharp contrast to the increase of 11.9 per cent reported in 1997-98. This slowdown in the rate of growth was attributable to the tax relief measures announced in previous budgets and prior-year adjustments.

• In the 1998 budget, the amount of income that low-income Canadians can receive on a tax-free basis was increased by $500. In addition, the general federal surtax was eliminated for Canadians earning up to about $50,000 and reduced for those earning between $50,000 and $65,000. It is estimated that these measures reduced tax revenues by $0.9 billion in 1998-99. There were a number of other tax expenditure measures (credit for interest on student loans, part-time education tax credit, caregiver credit, among others) which served to reduce taxes otherwise payable. In consultation with provincial governments, the Child Tax Benefit was restructured to create an enriched Canada Child Tax Benefit (CCTB). These changes came into effect July 1, 1998 and reduced personal income tax revenues by about $0.4 billion in 1998-99.

• Prior-year adjustments also affected the flow of personal income tax revenues in both 1997-98 and 1998-99. For example, refunds were up $1 billion in 1998-99, reflecting overpayment of taxes pertaining to the 1997 taxation year. In contrast, refunds were lower in 1997-98 than in 1996-97. Gross remittances received include not only federal personal income tax liabilities but also provincial income tax liabilities (as set out under the tax collection agreements with participating provinces) and employee and employer premium contributions for employment insurance and the Canada Pension Plan. On a monthly basis, deductions for these liabilities are based on estimates, with adjustments made once either preliminary or final data become available from Revenue Canada. In 1997-98, there were large transfers to personal income tax revenues, pertaining to overestimations of these deductions during the course of the fiscal year. The reverse occurred in 1998-99.

• According to Statistics Canada, personal income – a proxy for the applicable tax base for personal income tax revenues – advanced by 4 per cent in 1998, compared to an increase of 3.7 per cent in 1997. Although personal income excludes some important income components subject to taxation, such as capital gains and income from trusteed pension plans, the underlying growth in personal income tax revenues is broadly in line with the growth in personal income.

Corporate income tax revenues declined $0.9 billion, or 4.1 per cent, in 1998-99, as profits fell by 6 per cent in 1998. Other income tax revenues, which closely mirror the performance of corporate income tax revenues, were down $73 million, or 2.4 per cent.

Employment insurance premium revenues increased $0.6 billion, or 3 per cent, in 1998-99. However, this increase was entirely attributable to prior-year adjustments.

• As noted above, in 1997-98, there was a transfer from employment insurance premium revenues to personal income tax revenues, reflecting underpayments with respect to the 1996 taxation year.

• However, in 1998-99, there were net transfers from personal income tax revenues due to overpayments with respect to previous taxation years. The net impact of these adjustments was about $0.8 billion, implying a decline in underlying revenues in 1998-99.

• This decline was attributable to the reduction in premium rates. The employee premium rate (per $100 of insurable earnings) was reduced from $2.90 for 1997 to $2.70 for 1998 and to $2.55 for 1999 (with a corresponding decline in the employer rate). The net impact of these rate reductions was to lower revenues by about $1.5 billion.

• Dampening the effect of these rate reductions was an increase in the number of people employed.

Net excise taxes and duties increased $0.5 billion, or 1.7 per cent, down from a gain of 6.1 per cent recorded in 1997-98. There were significant variations among the various components.

• Net GST revenues were up 6.3 per cent. Excluding the quarterly GST credit, gross revenues were up 5.3 per cent, roughly in line with the growth in the applicable tax bases.

• Customs import duties declined 14.7 per cent, reflecting reductions in tariffs, as specified under international agreements.

• Other excise taxes and duties include customs import duties, excise taxes on motive fuels, excise taxes and duties primarily on tobacco and tobacco products, and the air transportation tax. They were down 3.2 per cent, due initially to the reduction in the air transportation tax effective January 1, 1998 and to its subsequent elimination effective November 1, 1998.

Non-tax revenues include return on investments and other non-tax revenues, such as net proceeds from the sale of assets, user charges, etc. Net non-tax revenues increased $0.7 billion, or 9.7 per cent, in 1998-99, primarily reflecting higher Bank of Canada profits and gains from the foreign exchange accounts.

Gross budgetary revenues in 1998-99 were $11.9 billion higher than net budgetary revenues, of which $5.7 billion was for the CCTB, $2.9 billion for the quarterly GST credit, $1.5 billion for revenues of consolidated Crown corporations and $2.3 billion for revenues levied by departments, which are credited back to the programs giving rise to these revenues. Old Age Security benefit repayments increased net revenues by $0.5 billion. The increase in the CCTB payments was attributable to the increase in benefits announced in the 1997 budget.

Table 2
Budgetary revenues

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