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Annex 1:
Canada’s Financial Performance in an International Context
Introduction
This annex reviews Canada’s financial position on a comparable basis with those of the other Group of
Seven (G7) countries (United States, United Kingdom, France, Germany, Japan and Italy). For Canada, the relevant
measure is the total government financial position, which consists of the federal, provincial-territorial and
local government sectors, as well as the Canada Pension Plan and the Quebec Pension Plan.
On a total government, National Accounts basis:
- Canada was the only G7 country to record a surplus in 2003, 2004 and 2005.
- The Organisation for Economic Co-operation and Development (OECD) projects that Canada will be the only G7
country to record a surplus in both 2006 and 2007.
- Canada’s total government sector net debt burden declined to an estimated 26.4 per cent of gross
domestic product (GDP) in 2005, and has been the lowest in the G7 since 2004.
Looking at the fiscal positions of the federal governments in Canada and the United States:
- In 2004–05 the Canadian federal government posted a surplus of C$1.5 billion or 0.1 per cent of GDP,
while the U.S. federal government incurred an "on-budget" deficit of US$494 billion or
4.0 per cent of GDP.
- For 2005–06, the federal government in Canada is forecasting a surplus of C$8 billion or 0.6 per
cent of GDP, while the U.S. Administration is projecting an on-budget deficit of US$602 billion or
4.6 per cent of GDP.
- As a result of continued surpluses in Canada and the deterioration in U.S. federal finances, the federal
market debt-to-GDP ratio in Canada fell below the U.S. figure in 2003–04 for the first time since 1977–78,
with the gap expected to widen in 2005–06.
Comparing Fiscal Results Across Countries
- Two important factors need to be taken into account in making international comparisons: differences
in accounting practices among countries, and differences in financial responsibilities among levels of
government within countries.
- For these reasons, international comparisons rely on the standardized System of National Accounts
estimates for the total government sector (i.e. the combined national and subnational levels). The OECD
produces a complete series of estimates based on this system. Unless otherwise indicated, the data
presented in this annex are based on the December 2005 OECD Economic Outlook.
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Comparing Fiscal Results Between the Canadian and the U.S. Federal
Governments
- It is important to note that there are certain fundamental differences in the accounting practices and
expenditure responsibilities of the Canadian and U.S. federal governments. The U.S. federal budgetary
balance includes the substantial surpluses in the Social Security system, whereas surpluses in the
Canada Pension Plan are not included in the Canadian federal figures. For this reason, the Canadian
federal balance is more comparable with the "on-budget" balance in the U.S. (excluding Social
Security), while U.S. government debt is more comparable with federal market debt in Canada.
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Canada is expected to be the only G7 country to record a surplus in 2006 and 2007
- Canada was the only G7 country to record a surplus in 2005, according to OECD estimates of the total
government sector financial position. This was the third consecutive year in which Canada was the only G7
country in surplus. Canada’s surplus for 2005 was estimated at 1.3 per cent of GDP, compared to an average
deficit of 3.9 per cent in the G7 countries.
- The OECD expects that Canada will continue to be the only G7 country to post a total government surplus
again in 2006 and in 2007.
Canada has the lowest net debt burden in the G7
- Canada currently has the lowest ratio of total government net financial liabilities[1]
to GDP among G7 countries. Canada’s ratio was estimated at 26.4 per cent of GDP in 2005, a significant
decline from the peak in 1995. The OECD estimates that Canada will continue to have the lowest net debt burden
in both 2006 and 2007. In contrast, the debt burdens of all other G7 countries are projected to continue to
increase.
The federal government in Canada has maintained a budgetary surplus since 1997–98, unlike the U.S.
- Like the Canadian federal government, the U.S. federal government moved from large deficits to surpluses in
the latter half of the 1990s. However, since 2000–01 the U.S. has returned to deficits whereas Canada has
recorded successive surpluses.
- The Canadian federal government posted a surplus of C$1.5 billion or 0.1 per cent of GDP in 2004–05,
while the U.S. federal government incurred an "on-budget" deficit of US$494 billion or
4.0 per cent of GDP. Even when Social Security surpluses are included, the U.S. "unified
budget" deficit was US$318 billion or 2.6 per cent of GDP in 2004–05.
- While the Canadian federal government is expecting a surplus of C$8 billion in 2005–06, the U.S. on-budget
deficit is expected to increase to US$602 billion or 4.6 per cent of GDP (with a unified budget
deficit of US$423 billion). The U.S. Administration does not project a return to balanced budgets for at
least the next five years.
The federal market debt-to-GDP ratio in Canada fell below that of the U.S. in 2003–04
- As a result of continued surpluses at the federal level in Canada and the deterioration in U.S. federal
finances, the federal market debt-to-GDP ratio in Canada fell below the U.S. figure in 2003–04 for the first
time since 1977–78.
- The Canadian federal market debt-to-GDP ratio fell to 33.8 per cent in 2004–05 while the U.S. figure
rose for the fourth consecutive year to 37.4 per cent. This gap is expected to widen in 2005–06 as the
Canadian ratio is expected to fall to 31.5 per cent while the U.S. ratio is expected to rise to
38.5 per cent.
1 The OECD uses the term "net financial liabilities" to mean "net
debt" of the total government sector.[Return]
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