Quarterly financial report for the quarter ended September 30, 2021

1.1   Basis of presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities (Table 3) includes ESDC’s spending authorities granted by Parliament, consistent with the Main Estimates and the budgetary authorities used by the Department for the fiscal year ending March 31, 2022. This quarterly report has been prepared using a special-purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities.

The authority of Parliament is required before moneys can be spent by the Government. Approvals are given in the form of annually approved limits through appropriation Acts or through legislation in the form of statutory spending authorities for specific purposes.

As part of the departmental performance reporting process, ESDC prepares its annual departmental financial statements on a full accrual basis in accordance with Treasury Board accounting policies, which are based on Canadian generally accepted accounting principles for the public sector. However, the spending authorities voted by Parliament remain on an expenditure basis.

The quarterly report has not been subject to an external audit or review.

1.2 ESDC’s financial structure

ESDC has a complex financial structure, with various funding mechanisms used to deliver its mandate. This includes budgetary authorities, comprised of voted and statutory authorities, as well as non-budgetary authorities.

The voted budgetary authorities include:

• vote 1 (Operating Expenditures)
• vote-netted revenues
• vote 5 (Grants and Contributions)

The statutory authorities are mainly comprised of:

• the Old Age Security (OAS) Program
• the Canada Student Financial Assistance Program, formerly know as the Canada Student Loans Program, and Canada Apprentice Loans
• the Canada Education Savings Program
• the Canada Disability Savings Program
• the Wage Earner Protection Program
• Federal Workers’ Compensation
• employee benefit plans (EBP)

The non-budgetary authorities consist of loans disbursed under the Canada Student Financial Assistance Act and the Apprentice Loans Act.

The Department is generally financed by 4 main sources of funds:

1. appropriated funds from the Consolidated Revenue Fund (CRF)
2. the Employment Insurance (EI) Operating Account
3. the Canada Pension Plan (CPP)
4. other government departments and Crown corporations

EI and CPP benefits and related administrative costs are charged against revenues earmarked in separate specified purpose accounts and not through appropriations from government. The EI Operating Account and the CPP are financed by employers and employees. Federal administrative costs incurred by departments in the delivery of programs related to EI and CPP are charged to the respective accounts and reported as revenues credited to the vote. While presented in the Departmental Plan, the EI Operating Account and the CPP are excluded from ESDC’s Main and Supplementary Estimates. Accordingly, these accounts are not reflected in the Quarterly Financial Report.

2.1 Significant changes to authorities

ESDC’s budgetary authorities available for use decreased by $43,730 million compared to the second quarter of the fiscal year ending March 31, 2021 (Tables 3 and 4).

Approximately $69,919 million of the decrease in the authorities available for use is due to benefits that were provided as part of the department’s response to COVID-19 under the Public Health Events of National Concern Payments Act, the most significant measure being $60 billion for the Canada Emergency Response Benefit (CERB).  Other measures included the Canada Emergency Student Benefit (CESB), Additional support for Canadian seniors, Support for students and youth impacted by COVID-19, the Emergency Community Support Fund, Reaching Home, and the New Horizons for Seniors Program expansion.

Additionally, a decrease of $190 million for the Canada Disability Savings Program is mostly due to an adjustment in the forecasting model to better reflect trends in actual expenditures.

Offsetting these decreases are increases totalling $26,379 million, mainly related to statutory items.

• An increase totaling $14,207 million for the Canada Recovery Benefit, the Canada Recovery Caregiving Benefit and the Canada Recovery Sickness Benefit
• Forecasted OAS pension, Guaranteed Income Supplement (GIS) and Allowances payments represent an increase of $2,946 million, owing to expected changes in the average monthly benefit payments and in the number of beneficiaries
• An increase of $2,648 million for new statutory investments in Early Learning and Child Care to be provided to provinces and territories as soon as bilateral agreements are reached
• An increase of $2,611 million in voted grants and contributions (Vote 5) is partly due to the Main Estimates for the fiscal year ending March 31, 2021 authorities not being received in full as of September 2020 due to limited parliamentary sessions in the spring of 2020. Full supply of the Main Estimates for the fiscal year ending March 31, 2021 was received in December 2020, while full supply for the fiscal year ending March 31, 2022 was received before September 30, 2021. Additional resources were also approved for investments announced  in the 2020 Fall Economic Statement and Budget 2021 to support: Early Learning and Child Care (ELCC), the Youth Employment and Skills Strategy, Reaching Home, the Student Work Placement Program, Training and Skills Support for those hardest hit by the pandemic, a Comprehensive Training Strategy to drive recovery, the Canada Emergency Response Benefit, Support for Black Canadian Communities, the Supports for Student Learning Program and the Enabling Accessibility Fund
• An increase of $1,673 million for a one-time taxable payment of $500 to be provided to seniors who are 75 years old or older to help them meet their immediate needs until a permanent 10 percent increase to the monthly Old Age Security pension is implemented in July 2022; and an increase of $130 million to provide support to the Government of Quebec to offset the cost of aligning the Quebec Parental Insurance Plan with the temporary measures that have made Employment Insurance maternity and parental benefits more generous and easier to access for some claimants
• An increase of $1,405 million in the Canada Student Financial Assistance Program and Canada Apprentice Loans authorities mainly attributed to an extension of the doubling of all Canada Student Grants for an additional 2 years until July 31, 2023 in response to the COVID-19 pandemic
• An increase of $642 million in the authorities available for use in operating expenditures (Vote 1) partly due to the Main Estimates for the year ending March 31, 2021 authorities not being  received in full as of September 2020. Additional authorities were also approved mainly for the administration and the integrity of the Canada Emergency Response Benefit, the Canada Emergency Student Benefit and the Employment Insurance Emergency Response Benefit and for investments announced in the 2020 Fall Economic Statement and Budget 2021
• An increase of $98 million in contributions to employee benefit plans as a result of a planned increase in personnel spending
• An increase of $19 million to various other items

With respect to non-budgetary loans, there is a net decrease in authorities of $60 million from the fiscal year ending March 31, 2021. Despite a forecasted increase to loans resulting from COVID-19 measures which temporarily increased the loan limit and waived the student and spousal contribution, there is higher than expected increase in repayments for fiscal year 2021 to 2022 following the 2020 to 2021 6 month moratorium on loan repayments.  The result is a net decrease in the fiscal year ending March 31, 2022.

As shown in Table 4, total authorities related to transfer payments have decreased by $44,751 million compared to the second quarter of the fiscal year ending March 31, 2021 mainly due to COVID-19 measures undertaken to provide relief under the Public Health Events of National Concern Payments Act.

In contrast, there is an increase of $698 million to personnel authorities due to measures to address workload, including increases related to COVID-19 measures, to transformation and modernization initiatives and to employee compensation increases.

An increase of $631 million related to professional and special services is mainly due to additional resources for the administration and the integrity of the Canada Emergency Response Benefit, the Canada Emergency Student Benefit and the Employment Insurance Emergency Response Benefit and for transformation and modernization initiatives.

Variances to other operating expenditures (standard objects 02, 03, 05, 06, 07, 09, 12) are the result of adjustments made to authorities available for use to align them with actual historical spending trends.

2.2 Significant changes to expenditures

Overall, the proportion of ESDC’s total budgetary expenditures as of September 30, 2021 is lower than last year at second quarter, with approximately 54% of the authorities available for use expensed. This percentage follows historic trends, with the exception of last year, which saw a significant increase to total available authorities as of September 30, 2020 due to COVID-19 emergency measures.

Compared to the previous year, total budgetary expenditures as of the quarter ending September 30, 2021 have decreased by $29,006 million (36%) from $80,467 million to $51,461 million (refer to Tables 3 and 4).

This 36% decrease is primarily explained by the decrease in statutory expenditures from $78,693 million for the second quarter in the fiscal year ending March 31, 2021 to $48,935 million for the same period in the fiscal year ending March 31, 2022, representing a $29,758 million decrease as of the end of the second quarter of the fiscal year ending March 31, 2022.

This decrease is primarily related to Payments related to Public Health Events of National Concern and Income Support which have decreased by $46,310 million as of the second quarter of the year ending March 31, 2022. This emergency funding was available during the second quarter of the fiscal year ending March 31, 2021 as a response to the COVID-19 pandemic.

Offsetting this decrease was an increase of $13,466 million related to payments under the Canada Recovery Benefits Act, which include the Canada Recovery Benefit, the Canada Recovery Caregiving Benefit and the Canada Recovery Sickness Benefit. Continued pandemic relief support is mainly provided under the Canada Recovery Benefits Act for the second quarter of the fiscal year ending March 31, 2022.

• One-time payment for older seniors, which was issued to Old Age Security pensioners who will be 75 years old as of June 30, 2022, accounts for $1,678 million of the increase
• The Old Age Security Program, including the Guaranteed Income Supplement and Allowances, has increased by $918 million. The main factors explaining this increase are the aging population and higher average monthly amounts paid to beneficiaries
• Grant and contribution expenditures under Vote 5 have increased by $708 million compared to the spending at the end of the same quarter in the fiscal year ending March 31, 2021. This increase is mainly attributable to the additional spending under the Youth Employment and Skills Strategy, Reaching Home and the Early Learning and Child Care program
• Payments under the Canada Student Financial Assistance Program and Canada Apprentice Loans have increased by $306 million. Last year, a temporary measure of doubling the grants was implemented in response to COVID-19. The measure started on August 1, 2020 and has since been extended for an additional 2 years until July 31, 2023. The increase is mainly explained by the fact that at second quarter last year, the measure had been in place for only 2 months (August and September 2020) whereas at second quarter this year, the measure has been impacting the Program’s payments since the start of the fiscal year (6 months)
• Payments under the Canada Disability Savings Grants and Canada Disability Savings Bonds have increased by $91 million primarily due to an increase in Canada Disability Savings Program beneficiaries and faster processing times of the payments when compared to the second quarter of the fiscal year ending March 31, 2021
• Canada Education Saving Grant payments increased by $56 million in large part because of the strong performance of financial markets, which encouraged families to invest in RESPs
• Operating expenditures under Vote 1 have increased by $44 million. This increase is mainly explained by a workforce increase to implement and address initiatives and measures in response to COVID-19 and to increases to employee compensation related to new collective agreements
• A $28 million increase to the Department of Employment and Social Development Act is mostly attributable to passport spending.  This increase in spending is mainly due to the gradual increase in volumes in 2021-22 as well as the resumption of activities postponed during the COVID-19 pandemic
• A $25 million increase in One-time Payment for Persons with Disabilities (a COVID-19 measure)
• Other smaller changes, equating $16 million, also contribute to the variance.

In Table 3, the net amount of non-budgetary loans disbursed under the Canada Student Financial Assistance Act for the second quarter has decreased compared the same period last year. The net decrease of $946 million is mainly due to repayments increasing back to normal levels in 2021 to 2022. Last year, a temporary COVID-19 measure providing a 6 month moratorium on Canada Student Loan repayments was in place from March 30, 2020 to September 30, 2020. This means that at second quarter last year, only borrowers’ voluntary repayments were being collected.

In Table 4, the increase in personnel expenditures is mostly related to an increase in the workforce to address and implement COVID-19 measures and to compensation increases resulting from the implementation of new collective agreements. Reasons for the reduction in transfer payments (standard object 10) are in line with explanations provided in previous paragraphs regarding the changes in statutory items and voted grants and contributions (Vote 5) expenditures.