Quarterly Financial Report for the quarter ended September 30, 2024

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, and those used by ESDC, consistent with the Main Estimates and Supplementary Estimates (A) for the fiscal year ending March 31, 2025. 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 and Canada Apprentice Loan
• 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 Service
• 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 second quarter increased by $4,857 million, from $93,551 million as of September 30, 2023, to $98,408 million as of September 30, 2024.

This increase is primarily associated with statutory items, in particular forecasted OAS pension, Guaranteed Income Supplement (GIS) and Allowance payments representing an increase of $4,643 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.

Other factors contributing to the increase include:

• an increase of $393 million in voted grants and contributions (Vote 5), mainly attributable to the increase in payments to provinces and territories for Early Learning and Child Care. This increase is partially offset by a decrease in funding related to the Sectoral Workforce Solutions Program, the Apprenticeship Service and Skills for Success
• an increase of $188 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), which is mainly due to a 2-year agreement with Health Canada for the Canadian Dental Care Plan that started in the third quarter of fiscal year 2023 to 2024
• an increase or $70 million in statutory transfer payments as approved in the Budget Implementation Act 2024, for bilateral agreements with provincial and territorial governments respecting a national program for providing food in schools.
• an increase of $55 million in other budgetary authorities items

Offsetting these increases are decreases totalling $492 million, mainly related to:

• a decrease of $324 million for the Canada Student Financial Assistance Program and Canada Apprentice Loan, mainly due to a decrease in expected expenses for the Repayment Assistance Plan (RAP), following the permanent elimination of interest on Canada Student Loans announced in the 2022 Fall Economic Statement. Also, there is an expected decrease in the Canada Student Grants and in alternative payments to non-participating provinces and territories following the end of the temporary measure doubling the Canada Student Grants in July 2023, partially offset by a 40% increase to the grant amounts (compared to pre-pandemic levels), a temporary measure in place since August 1, 2023
• a decrease of $168 million for the Canada Disability Savings Program, mainly due to a reduction in average contributions from beneficiaries as well as a larger proportion of new Registered Disability Savings Plans being opened by beneficiaries with higher income, and therefore eligible for lower grant amounts and/or ineligible for bonds

With respect to non-budgetary authorities (see Table 4 for details), the net increase of $1,048 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, and to lower Canada Student Loans repayments, mainly due to the economic situation and the permanent elimination of interest.

On a standard object perspective (see Table 5 for details):

• the planned expenditures related to Transfer Payments (standard object 10) for the quarter ended September 30, 2024, increased by $4,652 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 01) is mainly due to compensation adjustments for new collective agreements

2.2 Significant changes to expenditures

Overall, the proportion of ESDC's total budgetary expenditures as of September 30, 2024 is comparable to the usual spending reported in the second quarter, with approximately 49% of the authorities available for use expensed.

Compared to the previous fiscal year, total budgetary expenditures for the second quarter have increased by $2,594 million from $45,332 million as of September 30, 2023, to $47,926 million as of September 30, 2024.

This 6% increase is mostly explained by the increase in statutory expenditures from $41,232 million for the second quarter of last fiscal year to $43,927 million for the same period this fiscal year, representing an $2,594 million increase. This increase is primarily related to the OAS program, which has increased by $2,678 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.

Additionally, the increase in voted operating expenditures (Vote 1) is primarily due to an increase in departmental salary expenditures, as a result of the signature of new collective agreements.

The 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 $64 million, which is explained by an increase related to the delivery of the service delivery partnership with Health Canada established in fiscal year 2023 to 2024 for the Canadian Dental Care Plan.

The increase of $48 million related to the Federal Workers' Compensation payments is mainly due to the outstanding recoveries from other government departments at the end of the second quarter of the fiscal year 2024 to 2025.

Offsetting these increases is a decrease in expenditures of $172 million in voted grants and contributions (Vote 5), mainly due to the timing of payments to provinces and territories for Workforce Development Agreements and a reduction in contribution payments for other programs, due to decreases in their funding authorities as mentioned in section 2.1. These decreases are partially offset by an increase in payments to provinces and territories for Early Learning and Child Care.

In addition, a decrease of $131 million for the Canada Student Financial Assistance Program and Canada Apprentice Loan is mainly due to a decrease of $133 million in Canada Student Grants, following the end of the temporary measure doubling Canada Student Grants in July 2023, partially offset by a 40% increase to the grant amounts (compared to pre-pandemic levels), a temporary measure in place since August 1, 2023.

Other minor changes in budgetary expenditures totalling a net increase of $36 million also contribute to the variance.

On a standard object perspective (see Table 5 for details):

• the YTD expenditures related to Transfer Payments (standard object 10) for the quarter ended September 30, 2024, increased by $2,445 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