Quarterly Financial Report for the quarter ended December 31, 2023

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 4) includes ESDC's spending authorities granted by Parliament, consistent with the Main Estimates and Supplementary Estimates (A)and (B) for the fiscal year ending March 31, 2024. 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.

The department uses the full accrual method of accounting to prepare and present its annual departmental financial statements that are part of the departmental results reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis.

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
• the Canada Education Savings Program
• the Canada Disability Savings Program
• the Canada Recovery Benefits
• the Canada Worker Lockdown Benefit
• the Wage Earner Protection Program
• Federal Workers' Compensation
• Employee Benefit Plans

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

The department is 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 and, in the case of the CPP, income from its investments. 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 Quarterly Financial Reports.

Also, the department has the legislative authority, through the Department of Employment and Social Development Act to deliver services to the public for partners on a cost-recovery basis as well as to deliver select services for the Government of Canada, such as Passport services.

2.1 Significant changes to authorities

ESDC's total budgetary authorities available for use in the third quarter increased by $6,744 million, from $87,323 million as of December 31, 2022, to $94,067 million as of December 31, 2023 (Table 2).

This increase is primarily associated with statutory items, in particular forecasted OAS pension, Guaranteed Income Supplement (GIS) and Allowance payments representing an increase of $8,007 million. This can be explained by an expected increase in the number of pensioners due to the aging of the population, and to an expected increase in the average monthly payments resulting mainly from the indexation of the benefits and the 10% increase to the OAS pension for seniors aged 75 years and older, in effect since July 2022.

Other factors contributing to the increase include:

• an increase of $206 million for the Canada Disability Savings Program, mostly due to an adjustment to the forecasting model to better reflect trends in actual expenditures and to a forecasted increase in the number of beneficiaries.
• an increase of $181 million in voted operating expenditures (Vote 1), mainly due to voted funding received for investments to modernize information technology infrastructure supporting benefit delivery, to address OAS workload pressures and to support compensation adjustments for new collective agreements.
• an increase of $136 million for the delivery of services on behalf of other Government Departments (spending of revenues pursuant to the Department of Employment and Social Development Act), mostly attributable to the increase in overall passport workforce during the 2022 passport surge including the post surge recovery period and support to modernization initiatives.

Offsetting these increases are decreases totalling $1,786 million, mainly related to:

• a decrease of $1,332 million in the Canada Student Financial Assistance Program and Canada Apprentice Loans authorities, mainly attributed to decreased Canada Student Grants following the temporary COVID-19 measure doubling grant amounts, which ended on July 31, 2023.
• a decrease of $300 million for statutory temporary recovery benefits: the Canada Recovery Benefit, which ended October 23, 2021, and the Canada Recovery Caregiving Benefit, the Canada Recovery Sickness Benefit and the Canada Worker Lockdown Benefit, which ended May 7, 2022.
• a decrease of $122 million in voted grants and contributions (Vote 5), mainly attributable to the sunsetting of the one-time, non-taxable payment to alleviate the financial hardship of GIS and Allowance recipients who received pandemic benefits in 2020 and funding decreases for the Community Services Recovery Fund and the Youth Employment and Skills Strategy. These decreases are partly offset by an increase to payments to provinces and territories, per the funding profile for Early Learning and Child Care and additional funding for the Sectoral Workforce Solutions Program and Indigenous Early Learning and Child Care.
• a decrease of $32 million in other statutory items.

With respect to non-budgetary authorities, the net increase of $367 million from the previous fiscal year is mainly due to the temporary measure raising the Canada Student Loan limit from $210 to $300 per week for the 2023 to 2024 academic year.

On a standard object perspective:

• the planned expenditures related to Transfer Payments (standard object 10) for the quarter ended December 31, 2023, increased by $6,384 million when compared to the previous fiscal year. This is in line with the above explanations for statutory items and voted grants and contributions (Vote 5).
• the variance in planned expenditures for Personnel (standard object 1) is mainly due to compensation adjustments for new collective agreements.
• the variance in planned expenditures for Other Subsidies and Payments (standard object 12) is due to a change in presentation. While authorities for the operating costs associated with the delivery of the multiple COVID-19 measures was presented under Professional and Special Services (standard object 4) in past years, those authorities are now presented under Other Subsidies and Payments to better align with expenditures.

2.2 Significant changes to expenditures

Overall, the proportion of ESDC's total budgetary expenditures as of December 31, 2023 is comparable to the usual spending reported in the third quarter, with approximately 72% of the authorities available for use expensed.

Compared to the previous fiscal year, total budgetary expenditures for the third quarter have increased by $2,852 million from $64,651 million as of December 31, 2022, to $67,503 million as of December 31, 2023 (Table 3).

This 4% increase is mostly explained by the increase in statutory expenditures from $57,284 million for the third quarter of last fiscal year to $62,380 million for the same period this fiscal year, representing an $5,096 million increase. This increase is primarily related to the OAS program, which has increased by $5,514 million. The main factors explaining this increase are the same as mentioned in section 2.1 above, such as the aging population and higher average monthly amounts paid to beneficiaries.

As well, an increase in expenditures for Vote 1 totalling $202 million is mostly explained by compensation adjustments for new collective agreements and continued investments to modernize information technology infrastructure supporting benefit delivery.

An increase of $48 million to contributions to employee benefit plans is mainly attributable to an increase in personnel expenditures.

Additionally, expenditures for the delivery of services on behalf of other Government Departments (spending of revenues pursuant to the Department of Employment and Skills Development Act) have increased by $46 million, which is explained by an increase related to the delivery of passport services and the new service delivery partnership with Health Canada for the recently announced Canadian Dental Care Plan.

An increase of $30 million to the Canada Education Savings Program's expenditures, which include the Canada Educations Savings Grant and the Canada Learning Bond, is mainly due to payments and the number of beneficiaries gradually returning to pre-pandemic levels in the fiscal year ending March 31, 2024.

Other minor changes totalling a net increase of $12 million also contribute to the variance.

Offsetting this increase is a decrease of $2,446 million in grants and contributions (Vote 5) expenditures compared to the spending at the end of the same quarter in the previous fiscal year. This decrease is mainly attributable to the one-time grant payment for GIS recipients who received pandemic benefits ending on March 31, 2023, as well as variances in the timing of payments to provinces and territories for Canada-wide Early Learning and Child Care Agreements and Workforce Development Agreements and a decrease for the Community Services Recovery Fund.

In addition, as expected, payments for the Canada Recovery Benefits (including Sickness and Caregiving) and Canada Worker Lockdown Benefit, have decreased by $300 million as of the third quarter of this fiscal year.

There is also a decrease of $254 million for the Canada Student Financial Assistance Program and Canada Apprentice Loans mainly attributed to the temporary COVID measure doubling Canada Student Grants ending July 31, 2023. This is offset partially by the new measure announced in Budget 2023 increasing the maximum Canada Student Grants amount by 40 per cent above pre-pandemic levels for the academic school year starting August 1, 2023.

With respect to non-budgetary expenditures, the net increase of $946 million from the previous fiscal year is primarily due to the increase in loans disbursed to students as enrolment returns to pre-pandemic levels.

On a standard object perspective:

• the YTD expenditures related to Transfer Payments (standard object 10) for the quarter ended December 31, 2023, increased by $2,634 million when compared to the previous fiscal year, which is in line with explanations provided above regarding the changes in statutory items and voted grants and contributions (Vote 5) expenditures.
• The YTD expenditures related to Personnel (standard object 1) have increased by $399 million, mainly for compensation adjustments for new collective agreements.
• the YTD expenditures related to Other Subsidies and Payments (standard object 12) decreased by $106 million compared to the spending at the end of the same quarter in last fiscal year. This can be attributed to the decrease of the Canada Recovery Benefits payments and the Federal Workers' Compensation for which costs are recovered from federal employers and timing of the recoveries can differ by quarter.