FEDERAL GOVERNMENT REVENUES AND EXPENDITURES

Transcription

1 FEDERAL GOVERNMENT REVENUES AND EXPENDITURES Library of Parliament Topical Information for Parliamentarians TIPS-7E 23 March 25 Overview According to the Annual Financial Report of the Government of Canada, net federal government revenues totalled $186.2 billion in (the most recent year for which final data are available), while expenditures reached $177.1 billion (see Figure 1; please note that all data in this document are presented on a Public Accounts basis). The resulting budgetary surplus of $9.1 billion is the seventh consecutive federal surplus. An eighth is expected for Expressed in proportion to the size of the Canadian economy, federal government revenues were about 15.3% of annual Gross Domestic Product (GDP) in Revenues have grown more or less in line with the Canadian economy since the early 198s. For example, in , revenues were equivalent to 15.5% of GDP (see Figure 2). By contrast, government expenditures have grown more slowly than the economy over the same period. As a result, federal spending has fallen as a proportion of GDP. In , federal expenditures were equivalent to 23.4% of GDP, but in they stood at about 14.5%. As Figure 2 shows, much of that decline took place over the 199s. From the early 197s until , the federal government ran consistent budgetary deficits. As a result, the federal debt the accumulated deficit grew steadily, peaking at $562.9 billion in (Figure 3) equivalent to 67.3% of GDP. At that time, Canada was the second most indebted nation in the G7, behind only Italy. Since then, however, consistent budget surpluses and solid economic growth have combined to lower Canada s debt-to- GDP ratio considerably. In 23-24, the debt-to- GDP ratio stood at 41.1%, its lowest level since Canada is now one of the least indebted of the G7 countries. Major Federal Government Revenue Sources Personal Income Taxes (PIT): These are the federal government s single largest source of revenues. PIT receipts totalled $84.9 billion in 23-24, accounting for close to half (46%) of total budgetary revenues that year. Although PIT revenues grew by 3.9% in 23-24, they remain below 2-21 levels. Tax cuts announced in the February 2 budget and the October 2 Economic Statement and Budget Update contributed to a 7.4% decline in PIT revenues in Goods and Services Tax (GST): The GST is the federal government s second-largest source of revenues, at $28.3 billion in A little over 15% of the Government of Canada s budgetary revenue comes from the GST, up slightly compared to levels. Corporate Income Taxes (CIT): The federal government s third-largest income source, CIT revenues totalled $27.4 billion in representing almost 15% of total budgetary revenues. CIT revenues are up sharply (by 23%) over levels, ending a two-year period of declining corporate tax revenues brought about by lower profits and reductions in the corporate tax rate in 22 and 23. Nevertheless, corporate income taxes have been the federal government s fastest-growing source of revenue, averaging 11.7% growth per year since This rapid growth reflects the overall strong increase in corporate profits throughout the mid- to late 199s. Employment Insurance (EI) Premiums: While they are notionally included in a specified purpose account, EI premiums and benefits are included in the financial reporting of the federal government. Ten years ago, these were the second-largest income source, accounting for 16.6% of total federal budgetary revenues. However, EI revenues were flat through the 199s and have This is the paper version of a Web document that is available on-line at

2 LIBRARY OF PARLIAMENT BIBLIOTHÈQUE DU PARLEMENT 2 more recently begun to fall as the federal government has been reducing employee premium rates from $2.25 per $1 of insurable earnings in 21 to $1.98 in 24 (in 25, EI rates were cut again and now stand at $1.95). EI revenues in were $17.5 billion, $1.8 billion below levels. EI premiums make up 9.4% of total federal government budgetary income. Other Revenues: The federal government also collects revenues from a number of other sources. The most significant of these are excise taxes and duties (other than the GST), including energy taxes and import tariffs. These revenue sources yielded $13.1 billion in The government also earns some revenues from the activities of its departments and Crown corporations, as well as in the foreign exchange market. In 23-24, these sources provided the government with $11.8 billion. Federal Government Expenditures Over half of Government of Canada expenses are not, in fact, spent by the federal government, but transferred elsewhere to meet a wide range of policy objectives. Federal transfers can be divided into three broad categories: transfers to persons, transfers to other levels of government, and subsidies and other transfers. Transfers to Persons: Major transfer payments include Old Age Security, EI benefits and the Guaranteed Income Supplement (GIS). Transfers to persons were valued at $42. billion in making up just under 24% of total spending that year. This proportion is slightly lower than in , as declines in EI claims have outweighed higher transfers elsewhere. Transfers to Provinces/Territories: Equalization payments and the Canada Health and Social Transfer (CHST) split into the Canada Health Transfer (CHT) and the Canada Social Transfer (CST) in 24 are the major federal transfers to other levels of government. CHST transfers were about $22.3 billion in 23-24, while equalization payments were about $9.4 billion. This represented 12.6% and 5.3% of federal expenditures, respectively. The share of total federal expenditures going to these transfers has fallen below levels, largely due to a substantial drop in equalization payments in Subsidies and Other Transfers: In 23-24, the federal government also transferred $23. billion to Canadians through its various departments and agencies. These transfers include monies for agricultural support, regional and industrial development initiatives, human resources development, the Canada Foundation for Innovation, and the Canada Health Infoway, to name a few. Aside from transfer payments, which accounted for 53.2% of federal expenditures, the federal government also spent $47. billion through its various departments, agencies and Crown corporations in about 26.5% of total spending that year. Crown Corporations: Federal Crown corporations such as Canada Post, VIA Rail and the Canadian Broadcasting Corporation accounted for $5.4 billion in federal spending (3% of total expenditures) in When revenues from those corporations are taken into account, the net cost of government enterprises was $646 million, down about half from levels. Defence: Defence spending totalled $12.4 billion in 23-24, equivalent to 7.% of total federal expenses. Defence spending has risen steadily since , but only recently returned to levels. After having fallen through the early to mid-199s, defence spending has risen by an average of 1.2% per year since Other Departments and Agencies: The rest of federal government program spending is spread across all other departments and agencies. These expenditures were valued at $29.2 billion in and have been among the fastest-growing federal expenditures since As a result, the proportion of total federal spending in this area has risen from 12% that year to 16.5% in The final major category of federal expenditure is the interest payments the government must make on the public debt. The federal government paid an average

3 LIBRARY OF PARLIAMENT BIBLIOTHÈQUE DU PARLEMENT 3 effective interest rate of 5.8% in 23-24, down from 6.% the previous year. The proportion of total expenditures that goes to debt servicing has fallen considerably since the mid-199s. In , of every dollar spent by the federal government, 31.6 cents went to interest payments on the national debt. Since that time, consecutive budget surpluses have lowered the debt and interest rates have fallen. As a result, debt-servicing costs have fallen to 2.2 cents of every dollar spent. In 23-24, Canada spent $11.5 billion less on debt servicing compared to $35.8 billion compared to $47.3 billion. Expenditure Review In July 24, the federal government created the Expenditure Review Subcommittee in support of its commitment to greater oversight of federal spending. The Subcommittee was mandated to review all federal programs and expenditures and recommend to the Treasury Board opportunities for reallocation from lower to higher spending priorities. The Subcommittee released its report concurrently with the 25 federal Budget. It identified about $1.9 billion in government savings over the next five years, mostly through improved efficiencies. prepared by Michael Holden Stephen Laurent Parliamentary Information and Research Service For more information Please see the bibliography as well as the internal and external links of the Web version of this document at: or dial (613)

4 APPENDICES 2 18 Figure 1 Net Budgetary Revenues and Expenditures for the Government of Canada $billion Revenues Expenditures Source: Public Accounts of Canada % Figure 2 Net Budgetary Revenues and Expenditures as a % of GDP Revenues Expenditures Source: Department of Finance.

5 ii Figure 3 Federal Government Debt (Accumulated Deficit) 6 $billion % Value (left axis) % of GDP (right axis) Source: Department of Finance, Public Accounts of Canada. Table 1 Federal Government Budgetary Revenues Tax Revenues Value: $billions Share of Total (%) Growth: $billions % per year Income Taxes Personal Income Tax Corporate Income Tax Other Income Tax Other Taxes and Duties Goods and Services Tax (GST) Energy Taxes Customs Import Duties Other Excise Taxes and Duties Total Tax Revenues Employment Insurance Premiums Other Non-Tax Revenues BUDGETARY REVENUES Note: Totals may not add due to rounding. Source: Public Accounts of Canada, Annual Financial Report of the Government of Canada.

6 iii Figure 4 Composition of Revenues Other revenues 6% Personal income tax 46% Other excise taxes and duties 7% EI premiums 9% Other income tax 2% GST 15% Source: Public Accounts of Canada. Corporate income tax 15% Table 2 Federal Government Budgetary Expenditures Transfer Payments Value: $billions Share of Total (%) Growth: $billions % per year Transfers to Persons Elderly Benefits (1) Employment Insurance Benefits Transfers to Provinces/Territories Canada Health and Social Transfer (2) (3) Equalization Payments (4) Other Subsidies and Other Transfers Total Transfers Other Program Expenses Crown Corporations Defence All Other Departments and Agencies Total Other Program Expenses Total Program Expenses Public Debt Charges BUDGETARY EXPENDITURES (1) Includes Old Age Security (OAS), Guaranteed Income Supplement (GIS) and spouse s allowance. (2) For , this figure refers to the combined total for the Canada Assistance Plan (CAP) and the Established Programs Financing (EPF) the predecessor programs to the CHST. (3) Beginning in 24, the CHST was split into two programs the Canada Health Transfer (CHT) and the Canada Social Transfer (CST). (4) This also includes federal Territorial Financing. Note: Totals may not add due to rounding. Source: Public Accounts of Canada, Annual Financial Report of the Government of Canada, Department of Finance.

7 iv Figure 5 Composition of Expenses Defence 7% Subsidies and other transfers 13% Other program spending 17% Public debt interest 2% Crown corporations 3% Transfers to provinces 17% Transfers to persons 23% Source: Public Accounts of Canada. Figure 6 Federal Debt-Servicing Costs 6 $billion % Value (left axis) 1 1 % of total expenses (right axis) Source: Department of Finance, Public Accounts of Canada.