Canadian Fiscal Monitor Reports On November

Mike Godfrey, Tax-News.com, Washington

31 January 2011

The Canadian Fiscal Monitor has just been released showing that there was a budgetary deficit of CAD4.5bn in November 2010, compared to a CAD4.4bn deficit in November 2009; and revenues increased by CAD2.6bn, or 15.4%, to CAD19.4bn.

Personal income tax revenues were up CAD1.2bn, or 14.5%, reflecting in part a one-time adjustment in November 2009 in respect of the Economic Action Plan's enhancement of the Working Income Tax Benefit. Absent this adjustment, personal income tax revenues would have increased by 9%. Corporate income tax revenues were up CAD0.3bn, or 18.4%. Non-resident income tax revenues were up CAD6m, or 1.6%.

Excise taxes and duties were down CAD0.2bn, or 4.1%, driven by lower GST revenues. GST revenues were down CAD0.3bn, or 9%. This decline reflects the pattern of GST revenues recorded last year, which declined year-over-year through the first half of the year before recording gains from November onward, particularly in February and March. Energy taxes were up CAD7 million. Customs import duties were up CAD0.1bn, or 34.3%. Other excise taxes and duties were up CAD13m. EI premium revenues were up CAD15m, or 1.9%.

Other revenues, consisting of net profits from enterprise Crown corporations, revenues of consolidated Crown corporations, revenues from sales of goods and services, returns on investments, net foreign exchange revenues and miscellaneous revenues, were up CAD1.3bn, or 72.7%. This increase largely reflects higher net profits of enterprise Crown corporations, due in part to unrealized gains resulting from fair value adjustments on financial instruments, as well as a CAD0.6bn gain recorded on the Government's sale of common equity in General Motors under the initial public offering in November 2010.

Program expenses in November 2010 were CAD21.2bn, up CAD2.4bn, or 12.9%, from November 2009, largely reflecting higher transfer payments.

Transfer payments increased by CAD2.2bn, or 17.6%. Major transfers to persons, consisting of elderly, EI and children's benefits, decreased by CAD0.2bn, or 3.0%. Elderly benefits increased by CAD0.1bn, or 3.6%. EI benefit payments decreased by CAD0.3bn, or 16.3%, primarily reflecting one less large processing day in November 2010 compared to November 2009. Children's benefits, which consist of the Canada Child Tax Benefit and the Universal Child Care Benefit, increased by CAD11 million, or 1.1%.

Major transfers to other levels of government, consisting of federal 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, and Alternative Payments for Standing Programs, increased by CAD0.3bn, or 5.8%, largely reflecting legislated growth in transfers.

Other transfer payments were up CAD2.1bn, due largely to an increase in infrastructure transfers and a CAD1.2bn expense resulting from the revaluation of the Government's liability to Ontario in respect of the province's one-third proportionate participation in the value of the Government's common shares in General Motors.

Other program expenses consist of operating expenses of Crown corporations, departments and agencies, including National Defence, and also reflect the ongoing assessment of the Government's liabilities. These expenses increased by CAD0.2bn, or 3.5%, over the prior year.

Public debt charges increased by CAD0.3bn, due in part to a one-time adjustment in November 2010 to reflect an under-accrual of interest expense on public sector pension liabilities in prior months, based on an updated estimate of benefit expenses for the 2010–11 fiscal year.

For the first eight months of the 2010–11 fiscal year, there was a budgetary deficit of CAD26.0bn, compared to a deficit of CAD36.3bn reported during the same period of 2009–10. Over CAD11bn of the CAD26.0bn deficit was attributable to actions taken under Canada's Economic Action Plan.

Revenues increased by CAD10.5bn, or 7.7 %, to CAD147.1bn. Personal income tax revenues were up CAD3.7bn, or 5.4%. Corporate income tax revenues were up CAD1.6bn, or 12.9%, reflecting a decline in receipts of about 3%, which was more than offset by a decrease of roughly 20% in refunds of taxes paid. Non-resident income tax revenues were down CAD0.1bn, or 3.9%.

Excise taxes and duties were up CAD2.8bn, or 10.9%. GST revenues were up CAD2.3bn, or 14.1%. Energy taxes were up CAD0.1bn, customs import duties were down CAD15m, and other excise taxes and duties were up CAD0.4bn.

EI premium revenues were up CAD0.5bn, or 5.1%, broadly in line with growth in insurable earnings. The premium rate was kept stable at CAD1.73 per CAD100 of insurable earnings for 2009 and 2010.

Other revenues were up CAD1.9bn, or 12.2%, largely reflecting an increase in the net profits of enterprise Crown corporations, as well as the gain realized on the Government's sale of common shares in General Motors.

Program expenses for April to November 2010 were CAD152.6bn, down CAD0.5bn, or 0.3%, from the same period the previous year.

Transfer payments for April to November 2010 decreased by CAD0.9bn, or 0.8%, from the same period the previous year. Major transfers to persons were down CAD0.1bn, or 0.2%. Elderly benefits increased by CAD0.6bn, or 2.7%, in line with growth in the elderly population and changes in consumer prices, to which benefits are fully indexed. EI benefit payments decreased by CAD1.0bn, or 6.9%, reflecting a decrease in regular benefits. Children's benefits were up CAD0.3bn, reflecting in part enhancements to the National Child Benefit supplement and the Canada Child Tax Benefit, which took effect in July 2009 as part of Canada's Economic Action Plan.

Major transfers to other levels of government were up CAD1.6bn, or 4.8%, largely reflecting legislated growth in transfers as well as one-time transfer protection payments to provinces in August 2010 to prevent declines in the Canada Health Transfer, the Canada Social Transfer and Equalization transfers between 2009–10 and 2010–11.

Other transfer payments were down CAD2.4bn, primarily reflecting one-time assistance to the automotive industry in 2009–10, partially offset by the impact of the revaluation of the Government's liability to Ontario for the province's one-third participation in the value of the Government's common shares in General Motors.

Other program expenses increased by CAD0.4bn, or 0.8%, from the previous year's level. Public debt charges increased by CAD0.6bn, or 3.3%.

With a budgetary deficit of CAD26.0bn and a requirement of CAD15.0bn from non-budgetary transactions, there was a financial requirement of CAD41.0bn in the April to November period of 2010–11, compared to a financial requirement of CAD58.5bn in the same period of 2009–10.

The decrease in the financial requirement in 2010–11 reflects the improvement in the budgetary balance, a reduction in the financing requirements of Canada Mortgage and Housing Corporation under the Insured Mortgage Purchase Program (IMPP) due to the winding down in March 2010 of purchases of insured mortgage pools under the IMPP, as well as one-time assistance provided to the automotive industry in 2009–10.

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