Quarterly Financial Report for the quarter ended June 30, 2025

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 for the fiscal year ending March 31, 2026. 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)
• Vote 10 (Debt write-off - Canada Student Loans and Canada Apprentice Loans)

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 Disability Benefit
• 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 and Canada Dental Care Plan.

2.1 Significant changes to authorities

ESDC’s total budgetary authorities available for use in the first quarter increased by $7,510 million, from $98,225 million as of June 30, 2024, to $105,735 million as of June 30, 2025.

This increase is primarily associated with statutory items, in particular forecasted OAS pension, Guaranteed Income Supplement (GIS) and Allowance payments representing an increase of $4,921 million. This can be explained by an expected increase in the number of pensioners due to the aging of the population, and in the average monthly payments resulting mainly from the indexation.

Other factors contributing to the increase include:

• an increase of $1,441 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 and the new National School Food Program
• an increase of $750 million in statutory transfer payments for the Canada Disability Benefit by providing a payment of up to $200 per recipient per month starting in July 2025
• an increase of $215 million for the Canada Student Financial Assistance Program and Canada Apprentice Loan, mainly due to 2 Budget 2024 measures: increasing Canada Student Grants by 40% above pre-pandemic levels until July 31, 2025; and expanding the Canada Student Loan Forgiveness benefit to 10 new occupations, effective Fall 2025
• an increase of $197 million to write-off unrecoverable Canada Student Loans and Canada Apprentice Loans (Vote 10), mostly due to reaching the legislated statute of limitation, which occurs after 6 years have elapsed. The write-off represents less than 1% of the total direct loan portfolio

Offsetting these increases is a decrease of $14 million in other budgetary authorities items.

With respect to non-budgetary authorities (see Table 4 for details), the net increase of $18 million from the previous fiscal year is mainly due to 2 Budget 2024 measures: increasing the interest-free Canada Student Loan limit from $210 to $300 per week of study until July 31, 2025; which is partially offset by expanding the Canada Student Loan Forgiveness benefit to 10 new occupations, effective Fall 2025.

On a standard object perspective (see Table 5 for details), planned expenditures related to Transfer Payments (standard object 10) for the quarter ended June 30, 2025, increased by $7,365 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).

2.2 Significant changes to expenditures

Overall, the proportion of ESDC's total budgetary expenditures as of June 30, 2025, is comparable to the usual spending reported in the first quarter, with approximately 24% of the authorities available for use expensed.

Compared to the previous fiscal year, total budgetary expenditures for the first quarter have increased by $1,727 million from $23,207 million as of June 30, 2024, to $24,934 million as of June 30, 2025.

This 7% variance is mostly explained by the increase of $1,282 million in voted expenditures, from $1,597 million for the first quarter of last fiscal year to $2,879 million for the same period this fiscal year. This is primarily due to an increase of $1,300 million in voted grants and contributions (Vote 5) expenditures mainly due to higher payments to provinces and territories for Early Learning and Child Care as of the first quarter of this fiscal year, compared to the same period last fiscal year.

Additionally, the increase of $445 million in statutory expenditures is primarily due to the OAS program, which has increased by $558 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.

The expenditures for the Canada Student Financial Assistance Program and Canada Apprentice Loan have increased by $37 million, which is mainly explained by a growing number of Canada Student Grants being disbursed as more eligible students are enrolling in post-secondary education.

Offsetting these increases are decreases totalling $168 million, mainly related to:

• a decrease of $93 million for the Canada Education Savings Program, which include the Canada Education Savings Grant and the Canada Learning Bond, and a decrease of $63 million for the Canada Disability Savings Program which include Canada Disability Savings Grant and Canada Disability Savings Bond. These decreases reflect the adoption of an enhanced year-end accounting methodology, which resulted in a one-time increase in program-related expenditures for the fiscal year 2024 to 2025. The refined methodology improves the accuracy and timing of expense recognition, providing a clearer financial overview for that fiscal year
• a decrease of $24 million for the Wage Earner Protection Program (WEPP). The variance is mainly due to recoveries from estates in liquidation from previous years that were cashed in the first quarter of this year; namely, a $19 million recovery from Sears Canada insolvency. In addition, the number of applications approved in the first quarter of the fiscal year 2025 to 2026 is lower than in the same period last year, due to several applications being on hold because of their complexity and pending court decisions which may have impacts on WEPP eligibility

Other minor changes in budgetary expenditures totalling a net increase of $12 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 June 30, 2025, increased by $1,711 million when compared to the previous fiscal year, which is in line with explanations provided above regarding the changes in voted grants and contributions (Vote 5) and statutory items expenditures.