The Budgetary Balance, Financial Requirements/Surplus and Debt
The budgetary balance is presented on a modified accrual basis of accounting, recording government liabilities when they are incurred, regardless of when the cash payment is made. The budgetary balance covers only those activities over which the government has legislative control.
In contrast, financial requirements/surplus measures the difference between cash coming in to the government and cash going out. It differs from the budgetary balance in that it includes transactions in loans, investments and advances, federal employees' pension accounts, other specified purpose accounts, and changes in other financial assets and liabilities. These activities are included as part of non-budgetary transactions. The conversion from accrual to cash accounting is also reflected in non-budgetary transactions.
Non-budgetary transactions in 1998-99 resulted in a net source of funds amounting to $8.6 billion, down $0.7 billion from 1997-98. Among the major components:
- Loans, investments and advances were down $1.5 billion, primarily reflecting the impact of the change in accounting in 1997-98 for assistance to international financial institutions.
- Pensions and other accounts were up $3.2 billion. Of this amount, $1.2 billion was attributable to plan enhancements to the various public sector pension plans as specified in the Budget Implementation Act, 1999. The amendments improved pension entitlements primarily by calculating pension benefits using the average of the best five consecutive years of earnings rather than the best six consecutive years. These changes were part of the overall reform of the public sector pension plans, as announced by the President of the Treasury Board in February 1999. The costs of this reform were charged to pension expenditures in 1998-99.
- Other transactions were down $2.3 billion. In the 1998 budget, a number of one-time initiatives were announced and charged to program spending in 1997-98. However, as no cash payments with respect to these initiatives were made in 1997-98, an offsetting adjustment was made in other transactions. Cash payments with respect to these initiatives were made in 1998-99, which dampened the effect of the initiatives announced in the 1999 budget, for which no cash payments were made in 1998-99.
With a budgetary surplus of $2.9 billion and a net source of funds from non-budgetary transactions of $8.6 billion, there was a financial surplus, excluding foreign exchange transactions, of $11.5 billion in 1998-99, down slightly from the financial surplus of $12.7 billion in 1997-98. This marks the third consecutive year in which a financial surplus was recorded.
Foreign exchange transactions represent all transactions in international reserves held in the Exchange Fund Account. The purpose of the Exchange Fund Account is to promote order and stability of the Canadian dollar in the foreign exchange market. It fulfills this function by buying foreign exchange (selling Canadian dollars) when there is upward pressure on the value of the Canadian dollar and selling foreign exchange (buying Canadian dollars) when there is downward pressure. The buying of Canadian dollars represents a source of funds from exchange fund transactions, while the selling of Canadian dollars represents a requirement. Changes in foreign currency liabilities, which are undertaken to change the level of Canada's foreign exchange reserves, also impact on foreign exchange transactions. During 1998-99, foreign exchange transactions resulted in a net requirement of funds amounting to $5.7 billion, compared to a net requirement of $2.2 billion in 1997-98.
Table 4
Budgetary balance and financial requirements/surplus
1993-94 1994-95 1995-96 1996-97 1997-98 1998-99
(billions of dollars)
Budgetary balance -42.0 -37.5 -28.6 -8.9 3.5 2.9 Non-budgetary transactions Loans, investments and advances
0.6 0.3 2.7 0.3 2.0 0.5 Pensions and other accounts
Public sector pensions
6.2 6.9 6.8 6.3 3.3 5.0 Canada Pension Plan
-0.1 0.7 0.2 0.1 0.5 1.2 Other
0.2 1.0 0.6 0.5 0.1 0.9 Total
6.2 8.7 7.6 6.9 3.8 7.0 Other transactions
5.4 2.6 1.1 3.0 3.4 1.1 Total
12.2 11.6 11.4 10.2 9.3 8.6 Financial requirements/surplus (excluding foreign exchange transactions) -29.8 -25.9 -17.2 1.3 12.7 11.5 Foreign exchange transactions -2.1 -1.4 -4.7 -7.8 -2.2 -5.7 Net financial balance -32.0 -27.3 -21.9 -6.5 10.6 5.8 Net change in borrowings 31.2 27.0 28.5 7.3 -9.6 -6.9 Change in cash balances -0.7 -0.2 6.7 0.8 1.0 -1.1 Cash in bank (March 31) 2.1 1.9 8.6 9.4 10.4 9.3
As a result, there was a net financial surplus – the budgetary surplus plus non-budgetary and foreign exchange transactions – of $5.8 billion in 1998-99, compared to a net financial surplus of $10.6 billion in 1997-98.
With this net financial surplus and a reduction in its cash balances of $1.1 billion, the government was able to retire $6.9 billion of its market debt. Cash balances at March 31, 1999 stood at $9.3 billion.
Total liabilities consist of interest-bearing debt and other liabilities. Interest-bearing debt includes unmatured debt and liabilities for pension and other accounts. At March 31, 1999, interest-bearing debt amounted to $595.0 billion, up slightly from a year earlier. Other liabilities, which include accounts payable and accrued liabilities, increased by $1.6 billion. As a result, total liabilities, or gross debt, stood at $640.3 billion.
Financial assets consist of cash and accounts receivable, foreign exchange accounts and loans, investments and advances. Capital assets, inventories and net receivables for tax revenues are not included. Capital assets and inventories are fully charged to expenditures at the time of acquisition or construction while tax revenues are reported on a cash basis. Financial assets totalled $63.5 billion at March 31, 1999, up $4.7 billion from March 31, 1998, attributable to increased assets in the foreign exchange accounts as the government continues to increase foreign exchange reserves to be more in line with other comparable countries.
Table 5
Outstanding debt at year-end
1993-94 1994-95 1995-96 1996-97 1997-98 1998-99
(billions of dollars)
Interest-bearing debt Unmatured debt 414.0 441.0 469.5 476.9 467.3 460.4 Pension and other accounts 100.5 109.2 116.9 123.7 127.5 134.6 Total 514.5 550.2 586.4 600.6 594.8 595.0 Other liabilities 31.9 34.6 38.3 40.1 43.7 45.3 Total liabilities (gross debt) 546.4 584.8 624.7 640.7 638.5 640.3 Financial assets 38.2 39.1 50.4 57.5 58.8 63.5 Accumulated deficit (net public debt) 508.2 545.7 574.3 583.2 579.7 576.8
As a result, the accumulated deficit, or net public debt, stood at $576.8 billion at March 31, 1999, down $2.9 billion from March 31, 1998 and $6.4 billion below the peak of $583.2 billion at March 31, 1997.
Foreign holdings of the Government of Canada's outstanding market debt are estimated at $107.5 billion at the end of March 1999. This represented 23.3 per cent of the government's total market debt – the lowest ratio since 1990-91.
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