Finance Canada
Annual Financial Report 1999-2000: 2
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Budgetary Revenues

Table 2 on page 10 shows budgetary revenues on both a budget, or "net", basis and on a "gross" basis. The net figures reflect the way in which revenues and expenditures are presented to Parliament and in the Government’s annual budget. On a gross basis, the tax expenditures netted against revenues are included as part of spending, while the items netted against spending are included as part of revenues, thereby increasing both revenues and spending with no impact on the budgetary balance.

Tax expenditures netted against revenues are:

• the Canada Child Tax Benefit (CCTB);

• the quarterly goods and services tax (GST) credit; and

• repayments of Old Age Security benefits.

Departmental revenues netted against spending are:

• revenues of consolidated Crown corporations; and

• revenues levied by departments for specific services, such as the costs of policing services in provinces.

On a net basis, revenues grew strongly in 1999-2000 to $165.7 billion, an increase of $10.0 billion, or 6.4 per cent, from the 1998-99 level. In 1998-99, revenues increased by only $2.5 billion.

The revenue ratio – net budgetary revenues as a percentage of GDP – represents an approximate measure of the overall "tax burden" in that it compares the total of all revenues collected to the size of the economy. The revenue ratio stood at 17.3 per cent in 1999-2000, unchanged from 1998-99. However, as some important components of income subject to taxation are excluded from the Statistics Canada measure of GDP, such as capital gains and income from trusteed pension plans, this ratio overstates the tax burden. Therefore, caution should be exercised in interpreting this ratio.

Net personal income tax revenues, the largest component of budgetary revenues, were up $6.9 billion, or 9.5 per cent, in 1999-2000, accounting for more than two-thirds of the overall growth in revenues. This is in sharp contrast to the increase of only 2.4 per cent reported in 1998-99.

• Of this increase, about $3 billion, or about 40 per cent, reflected the impact of prior-year adjustments. Gross remittances received include not only federal personal income tax liabilities but also provincial income tax liabilities, as set out under the tax collection agreements with participating provinces, and employee and employer premium contributions for employment insurance and the Canada Pension Plan. On a monthly basis, deductions for these liabilities are based on estimates, with adjustments made once either preliminary or final data become available from the Canada Customs and Revenue Agency. In 1998-99, there were large transfers from personal income tax revenues, pertaining to under-estimations of these deductions during the course of the fiscal year. The reverse occurred in 1999-2000.

• Most of the remaining increase is attributable to the growth in the underlying tax base. According to Statistics Canada, wages and salaries, the largest component of the tax base, increased by 5.1 per cent in 1999, up from an increase of 4.7 per cent in 1998. This increase reflected both a strong gain in the number of people employed, up 2.8 per cent from 1998, and increases in average wages and salaries. In addition, Statistics Canada’s definition of personal income excludes some important income components subject to taxation, such as capital gains and income from trusteed pension plans, which have outpaced the growth in personal income in recent years.

• Dampening the impact of these factors were higher refunds pertaining to the 1998 taxation year, up $1.9 billion from 1998-99, in part reflecting fewer refunds processed in March 1999, and the impact of tax reduction initiatives introduced in the 1998 and 1999 budgets. General tax relief measures, such as an increase in the amount of income that Canadians can receive on a tax-free basis, the elimination of the general federal surtax and increases in the CCTB are estimated to have reduced personal income tax revenues by an incremental $3.0 billion in 1999-2000.

Corporate income tax revenues increased $1.6 billion in 1999-2000, or 7.4 per cent, reversing the decline of 4.1 per cent in 1998-99. After declining 5.6 per cent in 1998, corporate profits rebounded strongly in 1999, increasing by nearly 24 per cent. However, the application of prior-year losses and higher refunds pertaining to the lower profits in 1998 restrained the net increase in corporate income tax revenues in 1999-2000. Other income tax revenues, which closely mirror the performance of corporate profits, were up $0.6 billion, or 20.6 per cent.

Employment insurance premium revenues declined $0.9 billion, or 4.4 per cent, in 1999-2000.

• The employee premium rate (per $100 of insurable earnings) was reduced from $2.70 for 1998 to $2.55 for 1999 and to $2.40 for 2000 (with a corresponding decline in the employer rate). The net impact of these rate reductions was to lower revenues by about $1.5 billion in 1999-2000.

• Net transfers relating to prior-year adjustments were lower in 1999-2000 than in 1998-99, resulting in an incremental decline of about $0.4 billion.

• Significantly dampening the effect of these factors was the strong increase in the number of people employed.

Net excise taxes and duties increased $1.5 billion, or 4.7 per cent, up from a gain of only 1.7 per cent recorded in 1998-99. However, there were significant variations among the various components.

• Virtually all of the year-over-year increase occurred in net GST revenues, up $2.1 billion, or 10.2 per cent. Consumer expenditures on durable goods and new homes were up sharply in 1999.

• Customs import duties declined 10.8 per cent, reflecting the reductions in tariffs, as specified under international agreements.

• Other excise taxes and duties were down 4.4 per cent, due primarily to the elimination of the air transportation tax effective November 1, 1998.

Net non-tax revenues increased $0.3 billion, or 4.0 per cent, in 1999-2000, primarily reflecting gains from the foreign exchange accounts, increased recoveries and higher revenues from the sale of broadcasting licences.

Gross budgetary revenues in 1999-2000 were $12.4 billion higher than net budgetary revenues of which: $6.0 billion was for the CCTB, $2.9 billion for the quarterly GST tax credit, $1.4 billion for revenues of consolidated Crown corporations and $2.6 billion for revenues levied by departments, which are credited back to the programs giving rise to these revenues. The increase in the CCTB payments was attributable to the increase in benefits announced in the 1998 budget.

Table 2
Budgetary Revenues

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