What Does Budget 2018 Tell Us about Projected Federal Revenues, Expenditures, Budgetary Balance and Debt?

(Disponible en français : Que nous apprend le budget fédéral de 2018 sur les projections relatives aux recettes, aux dépenses, au solde budgétaire et à l’endettement?)

One of Parliament’s fundamental roles is to review and approve the government’s spending and taxation proposals. This HillNote analyzes the projected federal revenues, expenditures, budgetary balance and debt presented in Budget 2018 to help parliamentarians assess the government’s spending and taxation proposals.

Projected Federal Revenues

The government projects an $80.4 billion (27.4%) increase in annual federal revenues between 2016–2017 and 2022–2023. Personal income tax revenues – the largest component of federal revenues – are expected to account for 57.6% of this projected increase, reflecting the progressive nature of the income tax system combined with projected real income gains.

Corporate income tax revenues are expected to account for 12.4% of the projected increase. This percentage is smaller than would otherwise have been the case due to the gradual reduction of the small business tax rate from 10.5% in 2017 to 9% in 2019, and the anticipated use of loss carry-forwards following a projected dampening of corporate profits in 2018–2019.

Goods and services tax revenues are expected to account for 11.3% of the projected increase. The seven other revenue sources are expected to account for 18.7% of the projected increase in federal revenues.[1]

Figure 1 – Breakdown of the $80.4 Billion Projected Increase in Federal Revenues by Revenue Source, 2016–2017 to 2022–2023 (%)

fig1-e

Note: Since Budget 2018 provides actual data for 2016–2017 and projections for the fiscal years 2017–2018 to 2022–2023, 2016–2017 was used for the base fiscal year.

Source: Figure prepared by the authors using data obtained from the Government of Canada, Equality + Growth: A Strong Middle Class, Budget 2018, 27 February 2018, p. 320.

Projected Federal Expenditures

Overall, the government projects a $71.8 billion (23.1%) increase in annual federal expenditures between 2016–2017 and 2022–2023.

Benefits such as Old Age Security, the Guaranteed Income Supplement and the Allowance are fully indexed to consumer price inflation. The increase in the number of seniors qualifying for these benefits, combined with inflation, is expected to account for 26.2% of the projected increase in federal expenditures.

Operating expenses, the cost of doing business for more than 100 government departments, agencies and Crown corporations, account for 15.7% of the projected increase.

Transfer payments administered by departments, including infrastructure-related transfers to provincial, municipal and Indigenous governments, as well as post-secondary institutions, are expected to account for 14.5% of the projected increase.

Public debt charges and the Canada Health Transfer are respectively expected to account for 12.5% and 12.3% of the projected increase. The eight other types of expenditures are expected to account for 18.8% of the projected increase.[2]

Figure 2 – Breakdown of the $71.8 Billion Projected Increase in Federal Expenditures by Type of Expenditure, 2016–2017 to 2022–2023 (%)

fig2-e

Note: Since Budget 2018 provides actual data for 2016–2017 and projections for the fiscal years 2017–2018 to 2022–2023, 2016–2017 was used for the base fiscal year.

Source: Figure prepared by the authors using data obtained from the Government of Canada, Equality + Growth: A Strong Middle Class, Budget 2018, 27 February 2018, p. 320.

Projected Federal Budgetary Balance

One approach to evaluating the government’s annual financial performance is to look at its budgetary balance, which is the difference between government revenues and expenses, including public debt charges, over a fiscal year. To ensure the comparability of financial results over time, the budgetary balance is often presented as a percentage of a country’s gross domestic product (GDP).

In 2016–2017, Canada’s budgetary balance-to-GDP ratio stood at -0.9%. Between 2003–2004 and 2015–2016, the budgetary balance was balanced or in surplus seven years, and in deficit six years. Gradually declining budgetary deficits are projected every year during the 2017–2018 to 2022–2023 projection period.

Figure 3 – Budgetary Balance as a Percentage of Gross Domestic Product (GDP), 2003–2004 to 2022–2023 (%)

fig3-e

Note: Budget 2018 provides actual data for fiscal year 2016–2017 and projections for the fiscal years 2017–2018 to 2022–2023. Projections are denoted with an asterisk. Fiscal Reference Tables – September 2017 provides actual data for fiscal years 2003–2004 to 2015–2016.

Source: Figure prepared by the authors using data obtained from Department of Finance Canada, Fiscal Reference Tables – September 2017, 3 October 2017, p. 10, and Government of Canada, Equality + Growth: A Strong Middle Class, Budget 2018, 27 February 2018, p. 302.

Projected Federal Debt

The federal debt-to-GDP ratio is one of the main measures of the sustainability of federal finances. A stable or declining federal debt-to-GDP ratio over time means that the federal debt is sustainable because GDP, the broadest measure of the tax base, grows at the same pace or more rapidly than the federal debt.[3]

Between 2016–2017 and 2022–2023, the federal debt-to-GDP ratio is expected to decrease from 31.0% to 28.4%. This means that GDP is expected to grow more rapidly than the federal debt.

Figure 4 – Federal Debt as a Percentage of Gross Domestic Product (GDP), 2003–2004 to 2022–2023 (%)

fig4-e

Note: Budget 2018 provides actual data for fiscal year 2016–2017 and projections for the fiscal years 2017–2018 to 2022–2023. Projections are denoted with an asterisk. Fiscal Reference Tables – September 2017 provides actual data for fiscal years 2003–2004 to 2015–2016.

Source: Figure prepared by the authors using data obtained from Department of Finance Canada, Fiscal Reference Tables – September 2017, 3 October 2017, p. 10, and Government of Canada, Equality + Growth: A Strong Middle Class, Budget 2018, 27 February 2018, p. 319.

[1] Government of Canada, Equality + Growth: A Strong Middle Class, Budget 2018, 27 February 2018, pp. 320-322.

[2] Ibid., pp. 324-325.

[3] Office of the Parliamentary Budget Office, Fiscal Sustainability Report 2017, p. 2.

Authors: Andrew Barton and Shaowei Pu, Library of Parliament