Annex 4

Canada's Fiscal Progress in an International Context

Introduction and Overview

This annex compares Canada's fiscal situation to that of the other Group of Seven (G-7) countries.

Two factors tend to complicate international fiscal comparisons. First, accounting practices vary from one country to another, reducing comparability between countries. Second, fiscal responsibilities in each country are shared differently among the various levels of government. For these reasons, international comparisons are made using national accounts data for the total government sector. The Organization for Economic Co-operation and Development (OECD) presents a comprehensive set of national accounts estimates. The figures presented in this annex relate to the OECD's December 1997 forecast and, as such, do not include any new policy initiatives.

Overall, Canada's fiscal performance compares very favourably with that of other G-7 countries.

Growing Budgetary Surpluses in Canada

On a national accounts basis, the total Canadian deficit stood at 7.4 per cent of gross domestic product (GDP) in 1992 -- nearly twice the G-7 average of 3.8 per cent.

However, as a result of deficit reduction efforts by all levels of government, the total government sector in Canada has closed the gap with respect to other G-7 countries. In 1996, Canada's total government deficit fell below the G-7 average. According to OECD projections, Canada's overall government sector will show a budgetary surplus in 1997, compared to an average deficit of 1.5 per cent of GDP in the G-7 countries. Furthermore, Canada's surpluses are expected to grow through 1999 (Chart A4.1).

Chart A4.1 (See BPA4-1E.WMF or .WPG)

According to OECD estimates, Canada was the only G-7 country to post a surplus in 1997. In 1998 and 1999, Canada is expected to further consolidate its leading position. For those two years, the OECD expects the Canadian total government sector to post surpluses of 1.0 per cent and 1.5 per cent of GDP, respectively, again the best performance of the G-7 countries (Chart A4.2).

Chart A4.2 (See BPA4-2E.WMF or .WPG)

Program Spending is Declining Faster

This rapid turnaround in Canada's public finances can be traced back to a sharp reduction in program spending. Since 1992, program spending has fallen much faster in Canada than in other G-7 countries. Between 1992 and 1997, Canada's total government program spending has been reduced from 42.3 per cent to 34.9 per cent of GDP -- a 7.4 percentage point decline -- while, over the same period, program spending in the G-7 countries declined by only 0.9 per cent of GDP. Canada's program spending as a percentage of GDP is lower than the G-7 average and is projected to remain lower (Chart A4.3).

Chart A4.3 (See BPA4-3E.WMF or .WPG)

In 1998 and 1999, Canada's program spending as a percentage of GDP is projected to be the third lowest among the G-7 countries, behind the United States and Japan (Chart A4.4).

Chart A4.4 (See BPA4-4E.WMF or .WPG)

Canadian Net Debt-to-GDP

Ratio Declining More Rapidly

Between 1997 and 1999, the Canadian net debt-to-GDP ratio is expected to decline by almost 9 percentage points, the largest decline among the G-7 countries. While declining, Canada's debt burden will remain high by international standards (Chart A4.5).

Chart A4.5 (See BPA4-5E.WMF or .WPG)