The federal department of Finance has released its latest fiscal update which shows that from April to August the budget surplus for 2006 is already 6.7 billion dollars. If this trend continues the year end surplus might be as large as 15 plus billion a huge amount beyond the budgeted 3.6 billion for the second straight year and a continuation of the Finance policy of consistently underestimating the structural surplus that is present at the current tax and expenditure regime whenever unemployment falls below 7 %. Imagine how large the surplus would be if unemployment were allowed to drop below 6 % or 5%. In the light of these fiscal facts and the reduction of the debt to GDP ratio to just over 30 % there is no excuse for the government not to provide adequate funding to health care, education , urban infrastructure and defense. Just adding the surpluses of the past three years and one has a total of over 23 billion dollars.If this year turns out as current trends suggest the total for the past four years will be close to 35 billion. One could have fixed a lot of problems with that amount of money.The finance report is reproduced below.
Highlights
August 2006: budgetary surplus of $6 million
There was a budgetary surplus of $6 million in August 2006, compared to a $0.6-billion deficit in August 2005. Revenues increased by $1.1 billion, driven by strong growth in income tax revenues, partially offset by a drop in goods and services tax (GST) revenues, reflecting the cut to the GST rate on July 1, 2006. Program expenses increased by $0.5 billion, or 3.6 per cent, reflecting increases in transfers to persons, which now include payments under the new Universal Child Care Benefit (UCCB) program. Public debt charges were down $17 million.
April to August 2006: budgetary surplus of $6.7 billion
For the first five months of the 2006–07 fiscal year, the budgetary surplus is estimated at $6.7 billion, up $2.0 billion from the $4.8-billion surplus in the same period of 2005–06. Revenues were up $5.2 billion, or 6.0 per cent, driven by strong growth in income tax revenues, slightly offset by declines in excise tax and employment insurance (EI) premium revenues. Program expenses were up $3.2 billion, or 4.6 per cent, due to both higher transfers and other program expenses. Public debt charges were up $0.1 billion.
The results to date are not representative of results expected for the fiscal year as a whole, as they do not yet reflect the full impact of the measures announced in Budget 2006. A full and complete update of the fiscal outlook will be provided in the upcoming Economic and Fiscal Update.
August 2006
There was a budgetary surplus of $6 million in August 2006, compared to a $0.6-billion deficit in August 2005.
Budgetary revenues increased by $1.1 billion, or 6.6 per cent, to $17.1 billion.
Personal income tax revenues were up $0.5 billion, or 6.6 per cent, reflecting growth in employment and wages and salaries.
Corporate income tax revenues increased by $0.7 billion, or 52.4 per cent, in part reflecting higher payments from the resource sector.
Other income tax revenues—withholdings from non-residents—rose $0.2 billion, or 61.2 per cent.
Excise taxes and duties were down $0.4 billion, driven by a $0.5-billion or 18.7-per-cent drop in GST revenues, reflecting the impact of the 1-percentage-point reduction in the GST rate effective July 1, 2006.
EI premiums declined by 6.7 per cent, reflecting the decline in the premium rate from $1.95 to $1.87 per $100 of insurable earnings, effective January 1, 2006.
Other revenues, consisting of net profits from enterprise Crown corporations, revenues of consolidated Crown corporations, sales of goods and services, returns on investments, foreign exchange revenues, revenues of certain foundations and miscellaneous revenues, were up $0.3 billion. This component of revenues is volatile.
Program expenses in August 2006 were $14.3 billion, up $0.5 billion or 3.6 per cent from August 2005, largely reflecting increases in transfers to persons and increased operating expenses of National Defence and other departments.
Transfer payments were up $0.3 billion, or 3.6 per cent.
Transfers to persons, consisting of elderly benefits, EI benefits and children’s benefits, were up $308 million, or 7.1 per cent. Elderly benefits increased by 4.9 per cent due to both higher average benefits, which are indexed to Consumer Price Index inflation, and an increase in the number of individuals eligible for benefits. EI benefit payments decreased by 1.7 per cent, reflecting declines in regular and maternity benefits. Children’s benefits consist of the Canada Child Tax Benefit and the new UCCB, which began on July 1, 2006. Children’s benefits were up $210 million, largely reflecting $197 million in transfers under the UCCB program.
Transfers to other levels of government, consisting of transfers in support of health and other social programs (Canada Health Transfer and Canada Social Transfer), fiscal transfers, transfers to provinces on behalf of Canada’s cities and communities, transfers for early learning and child care and Alternative Payments for Standing Programs, were down $39 million, or 1.2 per cent.
Subsidies and other transfers increased by $47 million, or 3.7 per cent.
Other program expenses consist of transfers to Crown corporations and operating expenses for departments and agencies, including National Defence. They also reflect the ongoing assessment of the Government’s liabilities. These expenses increased by $187 million, or 3.7 per cent.
Public debt charges decreased by $17 million.
April to August 2006
In the first five months of the 2006–07 fiscal year, there was a budgetary surplus of $6.7 billion, up $2.0 billion from the $4.8-billion surplus reported in the same period of 2005–06.
Budgetary revenues were up $5.2 billion, or 6.0 per cent, to $92.7 billion.
Personal income tax revenues rose $4.3 billion, or 10.8 per cent, reflecting solid growth in employment and wages and salaries combined with the progressivity of the personal income tax system.
Corporate income tax revenues were up $1.2 billion, or 11.2 per cent, reflecting a higher corporate instalment payment base and lower refunds to date, which in turn reflect profit growth in 2005 and ongoing gains in corporate profitability this year.
Other income tax revenues rose $0.3 billion, or 17.8 per cent.
Excise taxes and duties were down $0.5 billion, or 2.7 per cent, primarily due to a $0.6-billion drop in GST revenues, reflecting the impact of the GST rate reduction on July 1, 2006. Sales and excise tax revenues were also lower, declining by $0.1 billion, or 1.4 per cent. Customs import duties were up $0.1 billion while revenues from the Air Travellers Security Charge were up $6 million.
EI premium revenues decreased by 7.0 per cent, reflecting the decline in the premium rate from $1.95 to $1.87 per $100 of insurable earnings, effective January 1, 2006.
Other revenues rose $0.4 billion, or 5.8 per cent.
Program expenses in the April to August 2006 period were $71.8 billion, up $3.2 billion or 4.6 per cent from the same period of 2005–06, due to both higher transfers and increased operating costs of departments and agencies, including National Defence. Public debt charges increased by $0.1 billion.
Transfer payments, which account for about two-thirds of total program expenses, increased by $2.2 billion, or 5.0 per cent.
Transfers to persons advanced by 3.5 per cent. Elderly benefits were up 4.7 per cent while EI benefits were down 5.6 per cent. The year-to-date decline in EI benefits is mainly attributable to a decline in regular benefits, which is in turn due to improved labour market conditions compared to the same period in 2005–06. Maternity and parental benefits are also down year-to-date due to the implementation of the Quebec Parental Insurance Plan, effective January 1, 2006. Children’s benefits increased by 13.3 per cent, largely reflecting transfers under the new UCCB, which began on July 1, 2006.
Transfers to other levels of government were up $1.5 billion, or 9.3 per cent, largely due to the impact of the 2004 agreement on health care, as well as a $650-million transfer to provinces and territories in July 2006 for early learning and child care.
Subsidies and other transfers increased by $5 million, or 0.1 per cent.
Other program expenses increased by $1.0 billion, or 4.0 per cent, reflecting an increase in the operating costs of departments and agencies, including National Defence. Crown corporation expenses declined by $0.1 billion, or 4.1 per cent.
Public debt charges were up 0.6 per cent due to an increase in the average effective interest rate on the stock of interest-bearing debt.
Financial source of $4.1 billion for April to August 2006
The budgetary balance is presented on a full accrual basis of accounting, recording government assets and liabilities when they are receivable 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.
Non-budgetary transactions resulted in a net requirement of $2.6 billion in the April to August period, down from a $10.2-billion requirement in the same period of 2005–06. The decrease in the net requirement largely reflects a number of one-time payments, such as a $2.8-billion transfer under the Offshore Revenues Accords made in June 2005 upon passage of the Budget Implementation Act, 2005.
With a budgetary surplus of $6.7 billion and a net requirement of $2.6 billion from non-budgetary transactions, there was a financial source of $4.1 billion in the first five months of 2006–07 compared to a financial requirement of $5.4 billion in the same period of 2005–06.
Net financing activities down $17.8 billion
The Government used this financial source of $4.1 billion and a reduction in its cash balances of $13.7 billion to reduce its market debt by $17.8 billion by the end of August 2006, largely through a reduction of treasury bills. 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 August stood at $4.3 billion.
Table 1
Summary statement of transactions
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August April to August
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2005 2006 2005–06 2006–07
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($ millions)
Budgetary transactions
Revenues 16,048 17,115 87,522 92,747
Expenses
Program expenses -13,839 -14,342 -68,649 -71,828
Public debt charges -2,784 -2,767 -14,103 -14,192
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