The federal budget outlines the government’s revenue estimates and expenditure priorities for the fiscal year. It is a key component of the financial cycle. The outlook for budgetary revenues and expenses can be found in the 2022 Budget in tables A1.4 to A1.6.
Figure 1 illustrates 2022 Budget revenues and expenses in the form of a Sankey flow diagram. This diagram shows the flow of dollars where the width of each flow is based upon quantity. Revenue flows into the diagram from the left in the form of taxes and other revenues. Expenses flow out on the right side of the diagram in the form of transfers, program expenses, debt charges and actuarial losses.
Figure 1 – Revenues and Expenses of the Federal Government, 2022–2023 ($ billions)
Note: Numbers may not add up. Figures have been rounded or approximated to their original value and adjusted to account for negative expenses (other fiscal arrangements).
Source: Figure prepared by the Library of Parliament using data obtained from Department of Finance Canada, A Plan to Grow Our Economy and Make Life More Affordable, Budget 2022.
Budgetary Revenues
The first step in putting Budget 2022 together is estimating total revenues from income tax, excise tax and duties. These estimates are reflected in the light-blue section of the diagram. The breakdown of these revenue sources by component can be seen in the dark-blue section of the diagram. Personal income tax revenues are the largest component, accounting for about 70% of total income tax revenues and roughly 48% of total budgetary revenues for 2022–2023 (shown in the grey section). Corporate income tax accounts for about 17% of total budgetary revenues for the fiscal year.
Goods and Services taxes (GST) are the largest source of revenue from excise taxes and duties, accounting for about 74% of the total in 2022–2023. The GST accounts for around 12% of total budgetary revenues for the fiscal year.
The federal government then estimates revenue from additional sources, including pollution pricing, Employment Insurance premiums, revenue from programs and Crown corporations, as well as foreign exchange reserves. These revenue sources are reflected in the light-blue section of the diagram.
Budgetary Expenses
Budget 2022 breaks down federal expenses into five main components: direct program expenses, transfers to persons, transfers to other levels of government, public debt charges and actuarial losses. These expenses are illustrated in the dark-beige section of the diagram.
The light-beige section of the diagram provides greater detail on the government’s expenditure estimates. Operating expenses, which include the expenditures of departments, agencies and Crown corporations, are the largest component of direct program expenses, accounting for about 25% of total budgetary expenses for 2022–2023 (see the grey section of the diagram). Transfers to persons (the elderly, families with children and workers) are around 27% of all budgetary expenses. Health transfers represent around 10% of total budgetary expenses.
Budgetary Balance
Total budgetary revenues and expenses for 2022–2023 are shown in the grey section of the diagram. The federal government estimates that total budgetary revenues will be $409 billion for the fiscal year, and total budgetary expenses will be $462 billion. Thus, total budgetary expenses will need to be financed by a $53-billion deficit. This deficit represents about 11% of the total budget.
By Emmanuel Preville, Library of Parliament
Categories: Economics and finance