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Annex 4
Canada’s Financial Performance in an International Context
Introduction
- This annex compares Canada’s financial position with that of the
other Group of Seven (G7) countries (United States, United Kingdom,
France, Germany, Japan and Italy).
- Two important factors need to be taken into account in making
international comparisons: differences in accounting methods among
countries, which affect the comparability of data, and differences in
financial responsibilities among levels of government within countries.
- For these reasons, the standardized System of National Accounts
definitions and data are used, and the focus is the total government sector
rather than distinguishing between the national and subnational level. These
data are fairly uniform among countries, and hence are used for
international comparisons. The Organisation for Economic Co-operation and
Development (OECD) produces a complete series of estimates based on this
system. The data presented in this annex are based on the
December 2002 OECD Economic Outlook and, as such, do not include
any data revisions since then. On this basis:
- Canada has had the largest improvement in its budgetary situation among
the G7 countries over the last decade. In 2002 Canada was the only G7
country to record a surplus.
- Canada has achieved the sharpest decline in the debt burden among the G7
countries since the mid-1990s. In 2002 Canada’s debt burden declined to
41.1 per cent of gross domestic product (GDP), below the G7 average.
This year only the UK and the U.S. are expected to have lower debt burdens
than Canada.
- Financial comparisons at the federal government level between Canada and
the United States also require caution, given differences in accounting
practices and the treatment of public sector pension funds. The most
appropriate way to compare the federal financial situation of the two
countries is to use a cash basis of accounting. On this basis:
- The Canadian federal government posted a surplus of 0.4 per cent
of GDP in 2001–02, whereas the U.S. federal government ran a
deficit of 1.5 per cent of GDP.
- The difference between the federal market debt-to-GDP ratios in Canada
and the U.S. has been nearly halved since 1999–2000, to
6.2 percentage points in 2001–02.
Canada was the only G7 country to record a surplus in 2002
![Total Government Financial Balances, 2002 (OECD Estimates) (National Accounts Basis)](bpan4_1e.gif)
- Canada was the only G7 country to record a surplus in 2002, according to
OECD estimates of Canada’s total government sector financial position.[1]
Canada’s financial balance has shown the most improvement of all G7
countries
![Total Government Financial Balances (National Accounts Basis)](bpan4_2e.gif)
- Canada’s total government sector financial balance has improved
substantially over the last decade. The total government deficit peaked at
9.1 per cent of GDP in 1992, which was almost double the G7 average
deficit-to-GDP ratio that year.
- By 1997, however, fiscal improvements at all levels of government enabled
Canada’s total government sector to post a surplus. Canada has recorded
six consecutive surpluses since that time.
- In 2002 Canada recorded a surplus estimated at 0.6 per cent of GDP,
compared to an average deficit of 3.7 per cent in the G7 countries.
Canada was the only G7 country to record a surplus in 2002, according
to OECD estimates.
Canada is the only G7 country to maintain a financial surplus despite the
global slowdown
![Total Government Financial Balances (National Accounts Basis)](bpan4_3e.gif)
- Canada made the greatest fiscal improvement of the G7 countries
from 1992 to 2002. In 1992 Canada had the second highest deficit of the
G7 countries in relation to GDP.
- All of the G7 countries have experienced pressure on government finances
over the past couple of years, largely due to the global economic slowdown.
However, according to OECD estimates, Canada was the only G7 country to
record a surplus in 2002.
Canada’s program spending as a share of GDP is now below the G7
average
![Total Government Program Spending (National Accounts Basis)](bpan4_4e.gif)
- The rapid turnaround in Canada’s financial position, as a percentage of
GDP, is attributable in large part to a sharp reduction in program
spending, that is, all expenditures less gross debt charges.
- Between 1992 and 2002, Canada’s total government program spending as a
share of GDP was reduced by 9.1 percentage points, a far greater reduction
than in any other G7 country.
- As a result, Canada’s program spending relative to GDP is now below
the G7 average, whereas in 1992 it was well above the G7 average.
- In fact, in 2002 Canada’s program spending, as a percentage of GDP,
was lower than in all other G7 countries except the U.S.
Canada has achieved the largest decline in the debt burden among the G7
countries
![Total Government Net Financial Liabilities (National Accounts Basis)](bpan4_5e.gif)
- Since the mid-1990s Canada’s total government sector has achieved the
largest decline in its debt burden of all the G7 countries. Between 1995 and
2002 the net debt-to-GDP ratio was reduced by 26.8 percentage points.
- As a result, Canada’s total government debt burden moved below the G7
average in 2001, and only the UK and the U.S. are expected to have lower
debt burdens than Canada in 2003.
- Based on OECD projections of continuing fiscal surpluses in Canada and
large deficits in the U.S., Canadian and U.S. total government debt burdens
are expected to converge by 2004.
Canada–United States Federal Comparisons
- This section compares the financial situation of the Canadian federal
government with that of the U.S. federal government.
- In making such comparisons, it is important to note that there are
fundamental differences in the accounting practices and responsibilities of
the Canadian and U.S. federal governments. For example, in the U.S. the
Social Security system, which is the equivalent of the Canada Pension Plan (CPP)
and Quebec Pension Plan (QPP), is considered part of the federal sector,
whereas in Canada the CPP and QPP are not part of the federal government
sector. As a result, U.S. federal financial balance and market debt figures
reflect the substantial surpluses in the Social Security system, whereas
such surpluses are not included in Canadian federal figures.
- However, a reasonable comparison of the two countries’ fiscal situations
can be made using the financial requirements/source of the Canadian federal
government (rather than the budgetary balance) and the U.S. federal unified
budget balance. This primarily compares the financial situation in both
countries on a cash basis of accounting.
- On this basis, the Canadian federal government posted a surplus of
0.4 per cent of GDP in 2001–02. By contrast, the U.S. federal
government moved into a deficit position in 2001–02, recording a deficit
of 1.5 per cent of GDP. In 2002–03 the Canadian federal government is
forecast to have a slight surplus, while the U.S. federal deficit is
expected to increase to 2.8 per cent of GDP.
- Similarly, Canadian federal market debt (rather than federal debt or the
accumulated deficit) is the most appropriate measure of debt to be
compared with U.S. federal debt held by the public. As a result of continued
surpluses at the federal level in Canada and the recent deterioration
in U.S. federal finances, the difference between the federal market
debt-to-GDP ratios in Canada and the U.S. has been nearly halved since
1999–2000, to 6.2 percentage points in 2001–02. In 2002–03
Canadian federal market debt is expected to decline to 38.8 per cent of
GDP, while U.S. federal debt held by the public is forecast to rise to
36.1 per cent of GDP, further narrowing the gap to 2.7 percentage
points.
While Canada has maintained a financial surplus since 1996–97, the U.S.
fell back into deficit in 2001–02
![Federal Government Financial Balances (Public Accounts Basis)](bpan4_6e.gif)
- Both countries achieved a significant turnaround in the financial balance
over the last decade, moving from large deficits in the first half of the
1990s to a surplus position in the latter half of the 1990s. The Canadian
federal government achieved a financial surplus in 1996–97, one year
earlier than the U.S. federal government.
- The Canadian federal government has maintained a financial surplus since
that time, posting a surplus of 0.4 per cent of GDP in 2001–02
despite the economic slowdown. By contrast, the U.S. federal fiscal
situation has deteriorated markedly: the U.S. returned to a deficit position
in 2001–02, recording a deficit of 1.5 per cent of GDP.
- Moreover, the Canadian federal government is expected to record a balanced
budget or better in 2002–03, while the U.S. federal deficit is expected to
increase to 2.8 per cent of GDP.
The difference between federal market debt-to-GDP ratios in Canada and the
U.S. has been nearly halved over the past two years
![Federal Government Market Debt (Public Accounts Basis)](bpan4_7e.gif)
- For debt comparisons, the appropriate measures are market debt for Canada
and publicly held debt for the U.S.
- Both countries have achieved a significant decline in the debt-to-GDP
ratio since the mid-1990s. Moreover, due to continued surpluses at the
federal level in Canada and the deterioration in U.S. federal finances, the
difference between the federal market debt-to-GDP ratios in the two
countries has been nearly halved since 1999–2000, to 6.2 percentage points
in 2001–02.
- In 2002–03 Canadian federal market debt is expected to decline
to 38.8 per cent of GDP, while U.S. federal debt held by the
public is forecast to rise to 36.1 per cent of GDP, further
narrowing the gap to 2.7 percentage points.
1 Measured on a National Accounts basis (the
measure commonly used to make comparisons between countries). Includes federal,
provincial-territorial and local governments as well as the Canada Pension Plan
and Quebec Pension Plan. [return]
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