Final audited financial results for 2016-17 were released on September 19th by the Department of Finance in the Annual Financial Report.  The deficit for 2016-17 was reported at $17.8 billion (about 0.8% of GDP)  $11.6 billion lower than that forecast in the March 2016 Budget and $5.3 billion lower than the revised estimate contained in the March 2017 Budget. Over half of the better-than-expected outcome relative to the March 2016 Budget was attributable to the inclusion of a $6 billion Contingency Reserve, which was not required.

The outcome for 2016-17, along with the much stronger than expected economic growth for 2017, suggests that the deficit outcome for 2017-18 could also be much lower than currently forecast at $28.5 billion. The current forecast for 2017-18 includes a $3 billion Contingency Reserve, which likely will not be required. The deficit for 2017-18  could be as low as $20 billion. The Minister of Finance will be presenting revised forecasts in the upcoming Economic Statement, scheduled for late October/early November.

Compared to 2015-16, the deficit for 2016-17 was $16.8 billion higher, primarily reflecting the impact of the March 2016 Budget measures and one-time factors which impacted positively on the outcome for 2015-16. Budgetary revenues declined by $2.0 billion (0.7%), while program expenses increased by $16.2 billion (6.0%).  Public debt charged were $1.3 billion (5.2%) lower.
Within budgetary revenues, personal income tax revenues declined by $1.2 billion (0.8%), largely reflecting the impact of tax planning by high-income individuals, which recognized tax liabilities in the 2015 taxation year before the new 33 per cent tax rate came into effect in 2016.  This resulted in a one-time increase in revenues in 2015-16.  Employment insurance premium revenues declined by $945 million (4.1%), attributable to the decline in premium rates in 2017, from $1.88 per $100 of insurable earnings in 2016 to $1.63 in 2017 (employee rate). Other revenues declined by $2.7 billion (9.0, largely attributable to the one-time gain of $2.1 billion in 2015-16 on the sale of the Government’s remaining holdings of General Motors common shares.
In contrast, corporate income tax revenues increased by $772 million (1.9%), reflecting higher profits in a number of sectors. Non-resident income tax revenues were up $566 million (8.7%), reflecting strong growth in corporate earnings and dividends. Sales and excise tax revenues increased by $1.5 billion (3.1%), primarily due to strong growth in GST revenues, which were up $1.4 billion (4.3%) due to higher retail sales.

Within program expenses, all of the major components were higher with the exception of expenses related to Crown corporations and defence. Expenses related to Crown corporations declined by $66 million (0.8%), while defence expenses declined by $2.9 billion (10.3%), due primarily to the one-time accrual adjustment of amendments amounting to $3.7 billion to veterans future benefit plans in 2015-16. 

Major transfers to persons increased by $2.7 billion (5.9%), due to growth in the elderly population and increases in benefits which are indexed to quarterly changes in the Consumer Price Index.  Employment insurance benefits increased by $1.3 billion (6.7%), primarily reflecting the impact of new measures to expand coverage as announced in the 2016 Budget. Children’s benefits were up $4.0 billion (22.4%), reflecting the new Canada Child Benefit, which came into effect July 2016, replacing the Canada Child Tax Benefit and the Universal Child Care Benefit.

Major transfers to other levels of government advanced $2.8 billion (4.3%). The increases in the various programs within this component were attributable to legislative growth.

Other transfer payments increased by $6.7 billion (19.2%). This was primarily due to accelerated repayments of contributions by Pratt & Whitney Canada In 2015-16, which decreased transfers in that year, along with the impact of measures contained in Budget 2016 to foster economic growth. All other department and agency expenses increased by $1.6 billion (3.2%), largely reflecting an increase in actuarial liabilities for claims and employees’ pension and other future benefit costs, the latter reflecting the impact of low interest rates on plan assets.

The Public Sector Accounting Board (PSAB) recommends that for accountability purposes governments compare the final audited financial results to the forecasts contained in the first budget for that year.  Typically that budget would be tabled in Parliament in February/March of the preceding fiscal year. However, the first budget for 2016-17 (the March 2016 Budget) included a risk adjustment factor of $6.0 billion, which was distributed among the major revenue components. The Department of Finance has not published how this risk adjustment factor affected the revenue components.  This makes it difficult to assess the underlying differences.  The March 2017 Budget did not include a risk adjustment factor (now called the Contingency Reserve). In addition, the March 2016 Budget forecasts were updated twice during the course of the 2016-17 fiscal year – in the November 2016 Economic Update and again in the March 2017 Budget.  The latter would serve as a better basis to assess the impact of the better-than-expected results on 2017-18 and beyond. 

The final deficit outcome for 2016-17 was $5.3 billion lower than that forecast in the March 2017 Budget.  Budget revenues were $1.5 billion higher, while program expenses were $3.7 billion lower and public debt charges were $0.2 billion lower. Within budgetary revenues, personal income and non-resident tax revenues were each up by $0.5 billion; sales and excise tax revenues were up by $0.6 billion, while other revenues were $0.4 billion higher. In contrast, corporate income tax revenues were $0.3 billion lower and employment insurance premium revenues were $0.2 billion lower.  On balance one would expect that most of these changes would be carried forward.

Most of the lower outcome for program expenses was due to lower direct program expenses, down $3.3 billion from the March 2017 Budget forecast. Other transfers were $1.1 billion lower, while other direct program expenses were $2.2 billon lower. The March 2017 Budget did not provide forecasts for the components of other direct program expenses. The classification of expenses in budget documents is not the same as that used in Annual Financial Report, the Public Accounts or the Fiscal Monitor. It appears that lapse for 2016-17 was higher than that included in the March 2017 Budget. Part of this under spending may be re-profiled to 2017-18 and future years. However, given previous years’ experience, the lapse in 2017-18 and outer years will be increased accordingly, thereby lowering program expenses in those years as well.

On balance, the better-than-expected outcome for 2016-17 could lower the current deficit forecast for 2017-18 by $4 to $5 billion (to about $20 billion. In addition, private sector forecasts have been revising upwards their forecasts of real and nominal GDP growth. This should result in somewhat higher revenues and lower employment insurance benefits. Interest rates, however, have also been revised upwards, given the Bank of Canada’s recent increases in the overnight rate.  This would result in somewhat higher public debt charges.  The Minister of Finance will be presenting his fall update in late October or early November.
Final audited financial results for 2016-17 were released on September 19th by the Department of Finance in the Annual Financial Report.  The deficit for 2016-17 was reported at $17.8 billion (about 0.8% of GDP)  $11.6 billion lower than that forecast in the March 2016 Budget and $5.3 billion lower than the revised estimate contained in the March 2017 Budget. Over half of the better-than-expected outcome relative to the March 2016 Budget was attributable to the inclusion of a $6 billion Contingency Reserve, which was not required.

The outcome for 2016-17, along with the much stronger than expected economic growth for 2017, suggests that the deficit outcome for 2017-18 could also be much lower than currently forecast at $28.5 billion. The current forecast for 2017-18 includes a $3 billion Contingency Reserve, which likely will not be required. The deficit for 2017-18  could be as low as $20 billion. The Minister of Finance will be presenting revised forecasts in the upcoming Economic Statement, scheduled for late October/early November.

Compared to 2015-16, the deficit for 2016-17 was $16.8 billion higher, primarily reflecting the impact of the March 2016 Budget measures and one-time factors which impacted positively on the outcome for 2015-16. Budgetary revenues declined by $2.0 billion (0.7%), while program expenses increased by $16.2 billion (6.0%).  Public debt charged were $1.3 billion (5.2%) lower.
Within budgetary revenues, personal income tax revenues declined by $1.2 billion (0.8%), largely reflecting the impact of tax planning by high-income individuals, which recognized tax liabilities in the 2015 taxation year before the new 33 per cent tax rate came into effect in 2016.  This resulted in a one-time increase in revenues in 2015-16.  Employment insurance premium revenues declined by $945 million (4.1%), attributable to the decline in premium rates in 2017, from $1.88 per $100 of insurable earnings in 2016 to $1.63 in 2017 (employee rate). Other revenues declined by $2.7 billion (9.0, largely attributable to the one-time gain of $2.1 billion in 2015-16 on the sale of the Government’s remaining holdings of General Motors common shares.
In contrast, corporate income tax revenues increased by $772 million (1.9%), reflecting higher profits in a number of sectors. Non-resident income tax revenues were up $566 million (8.7%), reflecting strong growth in corporate earnings and dividends. Sales and excise tax revenues increased by $1.5 billion (3.1%), primarily due to strong growth in GST revenues, which were up $1.4 billion (4.3%) due to higher retail sales.

Within program expenses, all of the major components were higher with the exception of expenses related to Crown corporations and defence. Expenses related to Crown corporations declined by $66 million (0.8%), while defence expenses declined by $2.9 billion (10.3%), due primarily to the one-time accrual adjustment of amendments amounting to $3.7 billion to veterans future benefit plans in 2015-16. 

Major transfers to persons increased by $2.7 billion (5.9%), due to growth in the elderly population and increases in benefits which are indexed to quarterly changes in the Consumer Price Index.  Employment insurance benefits increased by $1.3 billion (6.7%), primarily reflecting the impact of new measures to expand coverage as announced in the 2016 Budget. Children’s benefits were up $4.0 billion (22.4%), reflecting the new Canada Child Benefit, which came into effect July 2016, replacing the Canada Child Tax Benefit and the Universal Child Care Benefit.

Major transfers to other levels of government advanced $2.8 billion (4.3%). The increases in the various programs within this component were attributable to legislative growth.

Other transfer payments increased by $6.7 billion (19.2%). This was primarily due to accelerated repayments of contributions by Pratt & Whitney Canada In 2015-16, which decreased transfers in that year, along with the impact of measures contained in Budget 2016 to foster economic growth. All other department and agency expenses increased by $1.6 billion (3.2%), largely reflecting an increase in actuarial liabilities for claims and employees’ pension and other future benefit costs, the latter reflecting the impact of low interest rates on plan assets.

The Public Sector Accounting Board (PSAB) recommends that for accountability purposes governments compare the final audited financial results to the forecasts contained in the first budget for that year.  Typically that budget would be tabled in Parliament in February/March of the preceding fiscal year. However, the first budget for 2016-17 (the March 2016 Budget) included a risk adjustment factor of $6.0 billion, which was distributed among the major revenue components. The Department of Finance has not published how this risk adjustment factor affected the revenue components.  This makes it difficult to assess the underlying differences.  The March 2017 Budget did not include a risk adjustment factor (now called the Contingency Reserve). In addition, the March 2016 Budget forecasts were updated twice during the course of the 2016-17 fiscal year – in the November 2016 Economic Update and again in the March 2017 Budget.  The latter would serve as a better basis to assess the impact of the better-than-expected results on 2017-18 and beyond. 

The final deficit outcome for 2016-17 was $5.3 billion lower than that forecast in the March 2017 Budget.  Budget revenues were $1.5 billion higher, while program expenses were $3.7 billion lower and public debt charges were $0.2 billion lower. Within budgetary revenues, personal income and non-resident tax revenues were each up by $0.5 billion; sales and excise tax revenues were up by $0.6 billion, while other revenues were $0.4 billion higher. In contrast, corporate income tax revenues were $0.3 billion lower and employment insurance premium revenues were $0.2 billion lower.  On balance one would expect that most of these changes would be carried forward.

Most of the lower outcome for program expenses was due to lower direct program expenses, down $3.3 billion from the March 2017 Budget forecast. Other transfers were $1.1 billion lower, while other direct program expenses were $2.2 billon lower. The March 2017 Budget did not provide forecasts for the components of other direct program expenses. The classification of expenses in budget documents is not the same as that used in Annual Financial Report, the Public Accounts or the Fiscal Monitor. It appears that lapse for 2016-17 was higher than that included in the March 2017 Budget. Part of this under spending may be re-profiled to 2017-18 and future years. However, given previous years’ experience, the lapse in 2017-18 and outer years will be increased accordingly, thereby lowering program expenses in those years as well.

On balance, the better-than-expected outcome for 2016-17 could lower the current deficit forecast for 2017-18 by $4 to $5 billion (to about $20 billion. In addition, private sector forecasts have been revising upwards their forecasts of real and nominal GDP growth. This should result in somewhat higher revenues and lower employment insurance benefits. Interest rates, however, have also been revised upwards, given the Bank of Canada’s recent increases in the overnight rate.  This would result in somewhat higher public debt charges.  The Minister of Finance will be presenting his fall update in late October or early November.