Making Sense out of Dollars 2007-2008
Federal Government
FEDERAL GOVERNMENT REVENUES, EXPENDITURES, DEFICITS AND SURPLUSES
During the period 1994-95 to 2007-08, annual revenues grew from $130.8B to an estimated $244.5B and annual expenditures from $167.4B to an estimated $234.3B. The annual deficit decreased from $36.6B in 1994-95 to $8.7B in 1996-97. FY1997-98 recorded the first Surplus in 28 years at $3.0B. From 1998-99 to 2006-07, nine additional surpluses were recorded: $5.8B, $14.3B, $19.9B, $8.0B, $6.6B, $9.1B, $1.5B, $13.2B and $13.7B. All of the aforementioned figures incorporate the effect of moving to full accrual accounting. For fiscal year (FY) 2007-08, a budgetary surplus of $10.2B is projected, attributable to stronger than expected economic growth. The entire surplus will be allocated to the planned debt reduction.
TREND IN SHARE OF FEDERAL GOVERNMENT REVENUES
This chart depicts the six federal revenue categories as a percentage of total Federal Government revenues. Budgetary revenues increased by 6.2% in FY 2006-07 and are forecasted to increase by 3.6% in FY 2007-08, both reflecting the stronger than expected economy.
Personal income tax revenue is the largest component of budgetary revenues. It is the component most affected by the switch to full accrual accounting due in part to the reclassification of repayments of the Old Age Security benefit, which are now netted against elderly benefits.
The Budget Plan 2008 average private sector projection breakdown is provided below:
| Billions | Percent | |
|---|---|---|
| Personal Income Tax | $112.5 | 46.0 |
| GST revenue | 30.7 | 12.5 |
| Corporate Income Tax | 42.4 | 17.3 |
| EI Contributions | 16.5 | 6.8 |
| Excise Tax and Duties | 14.1 | 5.7 |
| Other Revenues | 28.3 | 11.6 |
| TOTAL | $244.5 | 100.0 |
TREND IN SHARE OF FEDERAL GOVERNMENT EXPENDITURES
Federal Government expenditures have been categorized as:
- Defence;
- Transfers to Individuals - includes such items as Elderly Benefits and Employment Insurance;
- Transfers to Other Levels of Governments - includes such Items as Canada Health and Social Transfer (CHST), Medical Equipment Fund, Fiscal arrangements and alternative payments for standing programs;
- Public Debt Charges - the cost of financing the Federal Public Debt; and
- Other Expenditures - includes direct program spending such as operating cost of all government departments, payments to Crown Corporations and other transfers and subsidies, such as farm income assistance, transfers to Aboriginal communities and international assistance.
Due to high interest rates and servicing costs of the public debt, the expenditure category for public debt charges rose from 26.4% of expenditures in 1994-95 to 29.8% in 1996-97. It is forecasted to decrease to 14.1% for 2007-08. Defence spending has increased steadily since 2000-01. In 1996-97 Defence accounted for 5.6% of Federal Government expenditures while in 2007-08 it is expected to account for 7.9%. Transfers to Other Levels of Government have increased from 15.7% in 1994-95 to an estimated 19.4% in 2007-08. Transfers to Individuals have increased from 24.1% in FY 1994-95 to an estimated 24.8% in FY 2007-08.
The following information is calculated using the 2008 Budget Plan and the 2007-08 Supplementary Estimates. The table depicts the estimated expenditure levels (fiscal treatment) for the period 2007-08:
| Billions | Percent | |
|---|---|---|
| Defence | $18.5 | 7.9 |
| Transfers to Individuals | 58.2 | 24.8 |
| Transfers to Other Levels of Government | 45.5 | 19.4 |
| Public Debt Charges | 33.1 | 14.1 |
| Others | 79.0 | 33.7 |
| TOTAL | $234.3 | 100.0 |
FEDERAL GOVERNMENT SPENDING AS A PERCENTAGE OF GDP
The chart below shows that Federal Government expenditures, as a percentage of GDP, declined from 22% in 1994-95 to 15% in 2007-08. These declines are indicative of the shrinking impact of government spending on the economy. This change is most evident in the Transfers section, which has declined from 11.0% of GDP in FY 1994-95 to an estimated 8.6% in FY 2007-08. For the same period, Defence has experienced a decline of 0.2%.
FEDERAL GOVERNMENT BUDGETARY EXPENDITURES AS A PERCENTAGE OF TOTAL EXPENDITURES
This comparison of Federal Government spending patterns illustrates the major fluctuations within expenditure types between FY 1994-95 and FY 2006-2007.
As portrayed in this comparison, Defence spending remained relatively stable, as a percentage of total government spending. Meanwhile, expenditures in the “Other” category, which includes other departments, and in Transfers to Other Levels of Government have risen significantly.
Of particular note, Public Debt charges as a percentage of total expenditures have been reduced by more than 10% between FY 1994-95 and FY 2006-07 as a result of a decreasing federal debt level and lower interest rates.
COMPARISON OF FEDERAL GOVERNMENT REVENUES WITH FEDERAL PROGRAM EXPENDITURES PLUS DEBT CHARGES
For FY 2007-08, Budget 2008 forecasts total budgetary expenditures of $234.3B against revenues of $244.5B, with program spending totaling $201.2B (86%) and Public Debt Charges at $33.1B (14%). This will result in a budgetary surplus of $10.2B, which will be dedicated to debt reduction. This chart presents these figures in the perspective of relative percentage shares.
Of particular interest is that Public Debt charges, totalling $33.1B for FY 2007-08, remain a very significant drain on the federal fiscal position.
NOTE: These figures may not add up due to rounding.
TREND IN ANNUAL FEDERAL DEFICIT AND FEDERAL DEBT (ACCUMULATED DEFICIT)
The annual budgetary deficit peaked at $39.0B in 1992-93, and declined to $8.7B in 1996-97. The Federal Government recorded budgetary surpluses of $5.8B in 1998-99, $14.3B in 1999-2000, $19.9B in 2000-01, $8.0B in 2001-02, $6.6B in 2002-03, $9.1B in 2003-04, $1.5B in 2004-05, $13.2B in 2005-06, and $13.7B in 2006-07. A budgetary surplus of $10.2B is forecasted for 2007-08. All figures incorporate the effect of moving to full accrual accounting.
The federal debt increased from $449.0B in 1992-93 to $562.9B in 1996-97. As a result of nine consecutive surpluses, the Federal Debt has been reduced by $92.1B since 1997-98, to $467.8B at the end of FY 2006-07.
TREND IN FEDERAL GOVERNMENT DEBT (ACCUMULATED DEFICIT)
Since 1996-97 the Federal Debt has decreased steadily from about $563B to an estimated $457.1B in 2007-08. This chart portrays the size of Canada's federal debt and annual deficits/surpluses in relation to the economy, as measured by the Gross Domestic Product (GDP). The Federal Debt as a percentage of GDP peaked at 68.4% in 1995-96 before decreasing to an estimated 30% for 2007-08. This decrease is significant in that it represents a 35.7% cumulative decrease in the ten-year period leading up to the end of FY 2006-07.
Since FY 1997-1998, the Federal Government reported surpluses that varied between 0.11% and 1.85% of GDP.
TREND IN GOVERNMENT SPENDING BY LEVEL OF GOVERNMENT
Under Canada's multi-tiered government system, expenditures are undertaken at different levels. At each level the funds spent are either raised directly at that level, through taxation or borrowing, or are received as transfers from other levels of government. The expenditures as a percentage of GDP, as shown here, are after adjustment for transfers. Thus, the Federal spending amount shown here as a percentage of GDP is actually lower than the amount of total Federal spending when presented in isolation. The same logic applies to the provincial and local governments regarding these adjustments.
Federal spending fluctuated between 14.4% and 19.2% of GDP throughout the period 1977 to 1991. Since the peak in 1991, the share has been slowly decreasing to reach 11.2% in 2007. Provincial spending has displayed similar fluctuations, moving from 15.1% of GDP in 1977, to a peak of 21.4% in 1992 and then decreasing to 17.1% in 2007. Some of that increase is attributable to the costs of public health care introduced during the 1960s. Local government spending has remained relatively steady between 6% and 9% of GDP, with a downward trend in recent years.
It is particularly noteworthy that, for the past fifteen years, spending by all levels of government is declining (most sharply at the federal level) as share of GDP.
