Archived - The Fiscal Monitor A publication of the Department of Finance: 2016-06

June 2016: budgetary deficit of $1.1 billion

There was a budgetary deficit of $1.1 billion in June 2016, compared to a surplus of $1.1 billion in June 2015. Revenues decreased by $0.5 billion, or 2.2 per cent, reflecting lower revenues from corporate income tax, non-resident income tax, and excise taxes and duties. Program expenses increased by $1.6 billion, or 7.5 per cent, reflecting increases in major transfers to other levels of government and direct program expenses, offset in part by a decrease in major transfers to persons. Public debt charges increased by $0.1 billion, or 3.1 per cent, due mainly to higher Consumer Price Index adjustments on Real Return Bonds that were partially offset by a lower average effective interest rate on the stock of interest-bearing debt.

April to June 2016: budgetary deficit of $1.0 billion

For the April to June 2016 period of the 2016–17 fiscal year, the Government posted a budgetary deficit of $1.0 billion, compared to a surplus of $5.0 billion reported in the same period of 2015–16. Revenues were down $1.5 billion, or 2.1 per cent, largely reflecting a decrease in other revenues. Program expenses were up $5.1 billion, or 8.3 per cent, reflecting increases in major transfers to persons and other levels of government and direct program expenses. Public debt charges were down $0.6 billion, or 8.9 per cent, largely reflecting a lower average effective interest rate on the stock of interest-bearing debt.

Quarterly update of the fiscal outlook

The financial results for the first three months of the fiscal year provide limited information with respect to the outlook for the year as a whole. This is because the timing of revenues and expenses can vary from year to year and because the results do not yet reflect several significant government initiatives, such as the introduction of the Canada Child Benefit. That being said, financial results over the April to June 2016 period show a budgetary deficit of $1.0 billion, which represents a $6.0-billion deterioration relative to the same period the previous year, indicating that results are broadly consistent with the fiscal projection for 2016–17 presented in the budget.

An update of the economic and fiscal outlook will be provided in the fall in the Update of Economic and Fiscal Projections.

There was a budgetary deficit of $1.1 billion in June 2016, compared to a surplus of $1.1 billion in June 2015.

Revenues decreased by $0.5 billion, or 2.2 per cent, to $23.7 billion.

• Personal income tax revenues were up $26 million, or 0.2 per cent.
• Corporate income tax revenues were down $0.3 billion, or 7.2 per cent.
• Non-resident income tax revenues were down $0.2 billion, or 38.3 per cent.
• Excise taxes and duties were down $0.2 billion, or 3.9 per cent, driven mainly by a $0.1-billion, or 24.4-per-cent, decrease in energy tax revenues. Goods and Services Tax (GST) revenues were up $34 million, while customs import duties were down $5 million and other excise taxes and duties were down $0.1 billion.
• Employment Insurance (EI) premium revenues were up $29 million, or 1.3 per cent, reflecting growth in earnings.
• Other revenues, consisting of net profits from enterprise Crown corporations, revenues of consolidated Crown corporations, revenues from sales of goods and services, returns on investments, net foreign exchange revenues and miscellaneous revenues, were up $0.1 billion, or 5.1 per cent.

Program expenses in June 2016 were $22.9 billion, up $1.6 billion, or 7.5 per cent, from June 2015.

• Major transfers to persons, consisting of elderly, EI and children’s benefits, decreased by $0.5 billion, or 6.3 per cent. Elderly benefits increased by $0.2 billion, or 4.2 per cent, due to growth in the elderly population and changes in consumer prices, to which benefits are fully indexed. EI benefit payments increased by $0.1 billion, or 4.8 per cent. Children’s benefits, which consist of the Canada Child Tax Benefit and the Universal Child Care Benefit (UCCB), decreased by $0.7 billion, or 30.7 per cent. This decline reflects the accrual of benefits related to the expansion and enhancement of the UCCB for the April to June 2015 period recorded in June 2015, which did not recur in June 2016.
• Major transfers to other levels of government consist of federal transfers in support of health and other social programs (primarily the Canada Health Transfer and the Canada Social Transfer), fiscal arrangements and other transfers (Equalization, transfers to the territories, as well as a number of smaller transfer programs), transfers to provinces on behalf of Canada’s cities and communities, and the Quebec Abatement. Major transfers to other levels of government increased by $0.3 billion, or 5.3 per cent, mainly due to legislated growth in the Canada Health Transfer, the Canada Social Transfer, Equalization transfers and transfers to the territories.
• Direct program expenses include transfer payments to individuals and other organizations not included in major transfers to persons and other levels of government, and other direct program expenses, which consist of operating expenses of National Defence, other departments and agencies, and expenses of Crown corporations. Direct program expenses were up $1.8 billion, or 20.4 per cent. Within direct program expenses:
  • Transfer payments increased by $1.1 billion, or 39.6 per cent, due mainly to an increase in transfers for disaster assistance.
  • Other direct program expenses increased by $0.7 billion, or 11.8 per cent, due in large part to an increase in pension and benefit costs based on the Government’s latest actuarial valuations and an increase in operating expenses of Crown corporations.

Public debt charges increased by $0.1 billion, or 3.1 per cent, due mainly to higher Consumer Price Index adjustments on Real Return Bonds that were partially offset by a lower average effective interest rate on the stock of interest-bearing debt.

For the April to June 2016 period of the 2016–17 fiscal year, there was a budgetary deficit of $1.0 billion, compared to a surplus of $5.0 billion reported during the same period of 2015–16.

Revenues decreased by $1.5 billion, or 2.1 per cent, to $71.8 billion.

• Personal income tax revenues were up $0.4 billion, or 1.2 per cent.
• Corporate income tax revenues were up $0.2 billion, or 1.8 per cent.
• Non-resident income tax revenues were down $0.1 billion, or 4.5 per cent.
• Excise taxes and duties were down $0.4 billion, or 3.3 per cent, largely reflecting a $0.2-billion decrease in both energy tax revenues and GST revenues. Customs import duties were up $47 million and other excise taxes and duties were down $0.1 billion.
• EI premium revenues were up $0.1 billion, or 1.6 per cent, reflecting growth in earnings.
• Other revenues were down $1.7 billion, or 19.4 per cent. This decline largely reflects the $2.1-billion gain realized on the sale of the Government’s remaining holdings of General Motors common shares in April 2015, which did not recur in 2016.

For the April to June 2016 period, program expenses were $66.4 billion, up $5.1 billion, or 8.3 per cent, from the same period the previous year.

• Major transfers to persons were up $0.8 billion, or 4.0 per cent. Elderly benefits increased by $0.5 billion, or 4.1 per cent, reflecting growth in the elderly population and changes in consumer prices, to which benefits are fully indexed. EI benefit payments increased by $0.2 billion, or 3.8 per cent. Children’s benefits were up $0.2 billion, or 4.0 per cent.
• Major transfers to other levels of government were up $0.8 billion, or 4.7 per cent, mainly reflecting legislated growth in the Canada Health Transfer, the Canada Social Transfer, Equalization transfers and transfers to the territories.
• Direct program expenses were up $3.5 billion, or 14.3 per cent. Within direct program expenses:
  • Transfer payments increased by $1.8 billion, or 23.9 per cent, reflecting year-over-year differences in the timing of transfers and an increase in transfers for disaster assistance.
  • Other direct program expenses increased by $1.7 billion, or 10.2 per cent, due in large part to an increase in pension and benefit costs based on the Government’s latest actuarial valuations and an increase in operating expenses of Crown corporations.

Public debt charges decreased by $0.6 billion, or 8.9 per cent, largely reflecting a lower average effective interest rate on the stock of interest-bearing debt.

The budgetary balance is presented on an accrual basis of accounting, recording government revenues and expenses when they are earned 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.

With a budgetary deficit of $1.0 billion and a requirement of $12.6 billion from non-budgetary transactions, there was a financial requirement of $13.6 billion for the April to June 2016 period, compared to a financial requirement of $5.3 billion for the same period the previous year.

The Government financed this financial requirement of $13.6 billion and increased cash balances by $0.7 billion by increasing unmatured debt by $14.3 billion. The increase in unmatured debt was achieved primarily through the issuance of treasury bills and foreign currency borrowings.

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 2016 stood at $38.5 billion, up $10.5 billion from their level at the end of June 2015.

Note: Unless otherwise noted, changes in financial results are presented on a year-over-year basis.

For inquiries about this publication, contact Bradley Recker at 613-369-5667.

August 2016