Annual Financial Report 2000-2001: 2
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Budgetary Revenues

Table 2 on page 11 shows budgetary revenues on both a budget, or "net," basis and "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;

• 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.

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 16.9 per cent in 2000-01, down slightly from 1999-2000. It should be noted that 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. In addition, the sharp rise in capital gains and the growth in income from trusteed pension plans due to the aging of the population distort year-to-year changes in the ratio. Therefore, caution should be exercised in interpreting this ratio.

On a net basis revenues grew strongly in 2000-01 to $178.6 billion, an increase of $12.9 billion, or 7.8 per cent, from 1999-2000. Corporate income taxes accounted for about 40 per cent of this increase.

Personal income tax revenues, the largest component of budgetary revenues, were up $2.9 billion, or 3.7 per cent, in 2000-01, primarily reflecting the growth in the economy. This increase was substantially below the increase of $6.9 billion recorded in the previous fiscal year and the increase of 6.1 per cent in personal income – the proxy tax base for personal income tax revenues – recorded in 2000.

• However, about $3 billion of the increase reported in 1999-2000 was due to 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, estimates are made, with adjustments once either preliminary or final data become available from the Canada Customs and Revenue Agency. In 1999-2000 there were large transfers to personal income tax revenues, pertaining to over-estimations of these liabilities for previous fiscal years. There were no significant prior-year adjustments affecting the 2000-01 results.

• Another factor dampening the growth in personal income tax revenues in 2000-01 was an increase of $0.8 billion in the Canada Child Tax Benefit, reflecting enrichments announced in previous budgets.

• Adjusting for the impact of these factors, the underlying increase in personal income tax revenues was 5.3 per cent, slightly below the estimated increase in personal income. Normally, the growth in personal income tax revenues would somewhat exceed the increase in personal income. However, tax reductions announced in the February 2000 budget and October 2000 Economic Statement and Budget Update, as part of the Government’s Five-Year Tax Reduction Plan, served to reduce the overall increase in personal income tax revenues. These measures included reductions in the tax rates, increases in income thresholds, full restoration of indexation and elimination of the 5-per-cent surtax.

Corporate income tax revenues increased $5.0 billion in 2000-01, or 21.8 per cent. This reflected the continued strong increase in corporate profits, up about 22 per cent in 2000. Other income tax revenues, which closely mirror corporate profits, were up $0.8 billion, or 23.2 per cent.

Employment insurance premium revenues increased by $0.2 billion, or 1.2 per cent, in 2000-01. This reflected the effect of the strong increase in the number of people employed, largely offset by the reductions in premium rates. The employee premium rate (per $100 of insurable earnings) was reduced from $2.55 for 1999 to $2.40 for 2000 and to $2.25 for 2001 (with a corresponding decline in the employer rate).

Net excise taxes and duties increased $3.2 billion, or 9.8 per cent. However, there were significant variations among the various components.

• GST revenues were up $2.2 billion, or 9.7 per cent, virtually identical to the increase reported in the previous fiscal year. Consumer expenditures continued to grow strongly in 2000.

• Customs import duties increased $0.7 billion, or 33.3 per cent, following two years of decline. This increase reflected the strong advance in imports while the declines in each of the previous two years were primarily due to the reductions in tariffs, as specified under international agreements.

• Other excise taxes and duties were up 4.1 per cent.

Net non-tax revenues increased $0.7 billion, or 7.9 per cent, in 2000-01, primarily reflecting gains from the foreign exchange accounts, Bank of Canada profits and interest on bank balances.

Gross budgetary revenues in 2000-01 were $13.8 billion higher than net budgetary revenues, an increase of $1.5 billion from 1999-2000. This primarily reflected higher Canada Child Tax Benefit payments, attributable to the increase in benefits announced in recent budgets.

Table 2
Budgetary Revenues