What Does Budget 2019 Tell Us about Projected Federal Revenues, Expenditures, Budgetary Balance and Debt?

(Disponible en français : Que nous apprend le budget fédéral de 2019 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 2019 to help parliamentarians assess the government’s spending and taxation proposals.

Projected Federal Revenues

The government projects an $84.3 billion (27.1%) increase in annual federal revenues between 2017–2018 and 2023–2024. Personal income tax revenues – the largest component of federal revenues – are expected to account for 56.6% of this projected increase, reflecting the progressive nature of the income tax system combined with projected real income gains.

Goods and services tax revenues are expected to account for 12.1% of the projected increase, which is in line with the projection of taxable consumption.

Fuel charge proceeds, a new item in the 2019-2020 revenue outlook, are an estimate of revenues that are collected from provinces and territories under the federal carbon pollution pricing system. The majority of the direct proceeds are to be returned to the residents of the provinces and territories from which they were collected, while the remaining proceeds will support affected sectors in these provinces and territories.[1] Fuel charge proceeds are expected to make up 6.8% of the projected increase in federal revenues.

Corporate income tax revenues are expected to account for 5.9% of the projected increase. This percentage is smaller than would otherwise have been the case due to a projected slowdown in corporate profits and the projected reduction in revenues in 2019–2020 as a result of the new tax measures announced in the 2018 Fall Economic Statement to promote business investment.[2]

The seven other revenue sources are expected to account for 18.6% of the projected increase in federal revenues.

Figure 1 – Breakdown of the $84.3 Billion Projected Increase in Federal Revenues by Revenue Source, 2017–2018 to 2023–2024 (%)

Personal income tax = 56.6%, Goods and Services Tax = 12.1%, Fuel charge proceeds = 6.8%, Corporate income tax = 5.9%, Employment Insurance premium revenues = 5.0%, Other Programs = 4.7%, Enterprise Crown corporations = 2.7%, Non-resident income tax = 2.5%, Net foreign exchange = 1.4%, Other excise taxes/duties =1.2%, Customs import duties = 1.1% Note: Since Budget 2019 provides actual data for 2017–2018 and projections for the fiscal years 2018–2019 to 2023–2024, 2017–2018 was used for the base fiscal year.
Source:   Figure prepared by the author using data obtained from the Government of Canada, Investing in the Middle Class, Budget 2019, 19 March 2019, p. 285.

Projected Federal Expenditures

Overall, the government projects a $72.2 billion (21.9%) increase in annual federal expenditures between 2017–2018 and 2023–2024.

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 27.7% of the projected increase in federal expenditures.

Public debt charges, which are the Government’s borrowing costs, are expected to account for 15.7% of the projected federal expenditure increase, due to the projected increase of the interest rate on federal debt.[3]

Canada Health Transfer is expected to account for 13.2% of the projected increase, with its funding guaranteed to increase by at least 3.0% per year, the growth of Canada Health Transfer is in line with a three-year moving average of nominal gross domestic product (GDP) growth.[4]

Other 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 12.9% of the projected increase.

Fuel charge proceeds returned are revenues returned to the residents and affected sectors of the provinces and territories from which they were collected under the federal carbon pollution pricing system. Therefore, the increase in expenditures related to this item is expected to be offset by the increase in revenues collected. Fuel charge proceeds returned are projected to account for 7.9% of the projected increase.

The nine other types of expenditures are expected to account for 22.7% of the projected increase in federal expenditures.

Figure 2 – Breakdown of the $72.2 Billion Projected Increase in Federal Expenditures by Type of Expenditure, 2017–2018 and 2023–2024 (%)

Elderly benefits = 27.7%, Public debt charges = 15.7%, Canada Health Transfer = 13.2%, Other transfer payments = 12.9%, Fuel charge proceeds returned = 7.9%, Employment Insurance benefits = 7.1%, Equalization = 6.4%, Children's benefits = 3.7%, Canada Social Transfer = 3.7%, Home care and mental health = 1.2%, Territorial Formula Financing = 1.2%, Operating expenses = 0.7%, Gas Tax Fund = 0.4%, Other fiscal arrangements = -1.8%

Note: Since Budget 2019 provides actual data for 2017–2018 and projections for the fiscal years 2018–2019 to 2023–2024, 2017–2018 was used for the base fiscal year.
Source: Figure prepared by the author using data obtained from the Government of Canada, Investing in the Middle Class, Budget 2019, 19 March 2019, p. 289.

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 expenditures, 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 GDP.

In 2017–2018, Canada’s budgetary balance-to-GDP ratio stood at -0.9%. Between 2003–2004 and 2016–2017, the budgetary balance was balanced or in surplus six years, and in deficit eight years. After a slight projected decrease in 2018-2019 and a projected increase in 2019-2020, budgetary deficits are projected to gradually decline from -0.9% to -0.4% over the 2019–2020 to 2023–2024 projection period.[5]

Figure 3 – Budgetary Balance as a Percentage of Gross Domestic Product (GDP), 2003–2004 to 2023–2024 (%)

2006–2007 = 0.9%, 2007–2008 = 0.6%, 2008–2009 = -0.6%, 2009–2010 = -3.6%, 2010–2011 = 2.1%, 2011–2012 = -1.6%, 2012–2013 = -1.2%, 2013–2014 = -0.4%, 2014–2015 = 0.0%, 2015–2016 = -0.1%, 2016–2017 = -0.9%, 2017–2018 = -0.9%, 2018–2019* = -0.7%, 2019–2020* = -0.9%, 2020–2021* = -0.8%, 2021–2022* = -0.6%, 2022–2023* = -0.5%, 2023-2024* = -0.4%

Note: Budget 2019 provides actual data for fiscal year 2017–2018 and projections for the fiscal years 2018–2019 to 2023–2024. Projections are denoted with an asterisk. Fiscal Reference Tables – October 2018 provides actual data for fiscal years 2003–2004 to 2016–2017.
Source:   Figure prepared by the author using data obtained from the Department of Finance Canada, Fiscal Reference Tables – October 2018, 19 September 2018, p. 10, and Government of Canada, Investing in the Middle Class, Budget 2019, 19 March 2019, p. 284.

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.[6]

Between 2017–2018 and 2023–2024, the federal debt-to-GDP ratio is expected to decrease from 31.3% to 28.6%. 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 2023–2024 (%)

2003–2004 = 39.7%, 2004–2005 = 37.2%, 2005–2006 = 34.0%, 2006–2007 = 31.3%, 2007–2008 = 29.1%, 2008–2009 = 28.3%, 2009–2010 = 33.4%, 2010–2011 = 33.5%, 2011–2012 = 33.4%, 2012–2013 = 34.0%, 2013–2014 = 33.0%, 2014–2015 = 31.6%, 2015–2016 = 31.8%, 2016–2017 = 32.0%, 2017–2018 = 31.3%, 2018–2019* = 30.8%, 2019–2020* = 30.7%, 2020–2021* = 30.5%, 2021–2022* = 30.0%, 2022–2023* = 29.3%, 2023–2024* = 28.6%

Note: Budget 2019 provides actual data for fiscal year 2017–2018 and projections for the fiscal years 2018–2019 to 2023–2024. Projections are denoted with an asterisk. Fiscal Reference Tables – October 2018 provides actual data for fiscal years 2003–2004 to 2016–2017.
Source:   Figure prepared by the author using data obtained from the Department of Finance Canada, Fiscal Reference Tables – October 2018, 19 September 2018, p. 10, and Government of Canada, Investing in the Middle Class, Budget 2019, 19 March 2019, p. 284.

Author: Shaowei Pu, Library of Parliament 

[1] Government of Canada, Investing in the Middle Class, Budget 2019, 19 March 2019, pp. 285-287. This is for jurisdictions that do not meet the Canada-wide federal standard for reducing carbon pollution – Ontario, New Brunswick, Manitoba and Saskatchewan. For jurisdictions that voluntarily adopted the federal system – Yukon and Nunavut – all direct proceeds will be returned to the territorial governments.

[2] Ibid.

[3] Government of Canada, Update of Long-Term Economic and Fiscal Projections 2018, p. 8.

[4] Government of Canada, Investing in the Middle Class, Budget 2019, 19 March 2019, pp. 289-291.

[5] In 2017-2018, the Government implemented, on a retroactive basis, a change in its methodology for the determination of the discount rate for unfunded future benefits. Fiscal results for 2008-2009 to 2016-2017 have been restated to reflect this change. As a result, the deficit figures presented in this publication are different than the figures in the previous year’s publication.

[6] Office of the Parliamentary Budget Office, Fiscal Sustainability Report 2018, p. 5.

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