Financial statements discussion and analysis

Public Accounts of Canada 2016 Volume I—Top of the page Navigation

Introduction

The Public Accounts of Canada is a major accountability report of the Government of Canada. This section, together with the other sections in this volume, in Volume II and in Volume III of the Public Accounts of Canada, provides detailed supplementary information in respect of matters reported in the audited consolidated financial statements in Section 2 of this volume. Supplementary discussion and analysis of the Government's financial results can be found in the Annual Financial Report of the Government of Canada—Fiscal Year 2015–2016, available on the Department of Finance Canada's website.

The consolidated financial statements have been prepared under the joint direction of the Minister of Finance, the President of the Treasury Board and the Receiver General for Canada. Responsibility for the integrity and objectivity of the consolidated financial statements rests with the Government. A glossary of terms used in this financial statements discussion and analysis is provided at the end of this section.

2015–2016 financial highlights

Discussion and analysis

Economic developmentsLink to footnote 1

The performance of the world economy was disappointing in 2015, as global growth slowed to its weakest pace since the 2008–2009 Great Recession. Slowing economic activity in emerging markets weighed on global demand and maintained downward pressure on commodity prices, particularly oil prices. In the first quarter of 2016, momentum in the global economy remained weak, dampened by an ongoing slowdown in China, while the price of crude oil reached its lowest level since 2002 and volatility spiked in financial markets.

For Canada, as a producer and net exporter of crude oil, persistent weak global demand and low oil prices throughout 2015 and early in 2016 had negative implications for the economy. In particular, the oil and gas sector is estimated to have cut capital spending by between 30 and 40 per cent in 2015 to consolidate profit margins, in addition to significant personnel reductions made during the year. In the non-energy sector, economic activity grew at a fairly strong pace in 2015, although at a slower pace than in 2014. Overall, real GDP growth in Canada declined from 2.5 per cent in 2014 to 1.1 per cent in 2015, the slowest pace since the Great Recession.

At the same time, nominal GDP, the broadest measure of the tax base, grew by just 0.5 per cent in 2015, the slowest growth since 1981 excluding the Great RecessionLink to footnote 2. This reflected the additional impact of lower oil prices on Canada's terms of trade—the prices of Canadian exports relative to Canadian imports. Both real and nominal GDP growth in 2015 were significantly lower than anticipated in Budget 2015.

In response to weak economic conditions, short- and long-term interest rates remained at historically low levels in 2015. The Bank of Canada cut its target for the overnight rate twice in 2015, from 1.0 per cent to 0.75 per cent in January and to 0.5 per cent in July. As a result, interest rates for 2015 came in slightly below Budget 2015 projections.

The unemployment rate was 6.9 per cent in both 2014 and 2015. In line with slower GDP growth and job creation, the unemployment rate for 2015 came in slightly higher than expected at the time of Budget 2015.

Reflecting lower commodity prices, consumer price index (CPI) inflation slowed from 1.9 per cent in 2014 to 1.1 per cent in 2015. While the 2015 CPI inflation rate was below the mid-point of the Bank of Canada's target range, it was slightly higher than projected in Budget 2015.

Table summary

The table presents a four-year comparative of the expected private sector indicator rates. It consists of five columns: the listing of private sector indicators; 2014; 2015; 2016; and 2017.

Average private sector forecasts
(in percentage)

  2014 2015 2016 2017
Real GDP growth
Budget 2015Link to footnote 3 2.5 2.1 2.2 2.3
Budget 2016 2.5 1.1 1.4 2.2
Actual 2.5 1.1
Nominal GDP growth
Budget 2015Link to footnote 3 4.3 1.8 4.9 4.7
Budget 2016 4.3 0.5 2.3 4.6
Actual 4.3 0.5
3-month Treasury bill rate
Budget 2015Link to footnote 3 0.9 0.6 1.0 2.0
Budget 2016 0.9 0.5 0.5 0.7
Actual 0.9 0.5
10-year government bond rate
Budget 2015Link to footnote 3 2.2 1.7 2.5 3.2
Budget 2016 2.2 1.5 1.6 2.3
Actual 2.2 1.5
Unemployment rate
Budget 2015Link to footnote 3 6.9 6.7 6.6 6.3
Budget 2016 6.9 6.9 7.1 6.9
Actual 6.9 6.9
Consumer price index inflation
Budget 2015Link to footnote 3 1.9 0.9 2.2 2.0
Budget 2016 1.9 1.1 1.6 2.0
Actual 1.9 1.1

The budgetary balance

The Government posted a budgetary deficit of $1.0 billion in 2015–2016, compared to a surplus of $1.9 billion in 2014–2015.

The following graph shows the Government's budgetary balance since 1991–1992. To enhance the comparability of results over time and across jurisdictions, the budgetary balance and its components are presented as a percentage of GDP. In 2015–2016, the budgetary deficit was 0.0 per cent of GDP, compared to a surplus of 0.1 per cent of GDP a year earlier.

Annual surplus/deficit

(percentage of GDP)

Annual Surplus/Deficit. Refer to the text description following the image.

Image description

The graph "Annual surplus/deficit" illustrates the Government's budgetary balance since 1991–1992. To enhance the comparability of results over time and across jurisdictions, the budgetary balance and its components are presented as a percentage of GDP. The GDP percentage for 1991–1992 is −4.62; 1992–1993 is −5.45; 1993–1994 is −5.17; 1994–1995 is −4.64; 1995–1996 is −3.62; 1996–1997 is −1.02; 1997–1998 is 0.33; 1998–1999 is 0.62; 1999–2000 is 1.42; 2000–2001 is 1.80; 2001–2002 is 0.71; 2002–2003 is 0.56; 2003–2004 is 0.73; 2004–2005 is 0.11; 2005–2006 is 0.93; 2006–2007 is 0.92; 2007–2008 is 0.61; 2008–2009 is −0.35; 2009–2010 is −3.55; 2010–2011 is −2.01; 2011–2012 is −1.48; 2012–2013 is −1.01; 2013–2014 is −0.27; 2014–2015 is 0.10; and 2015–2016 is −0.05.

Revenues were up $13.1 billion, or 4.6 per cent, from the prior year, largely reflecting increases in income tax revenues and other taxes and duties.

Expenses were up $16.0 billion, or 5.7 per cent, from the prior year. Program expenses increased by $17.0 billion, reflecting increases in major transfers to persons and other levels of government and other program expenses. Public debt charges decreased by $1.0 billion, or 3.8 per cent, from the prior year, reflecting a lower average effective interest rate on the stock of interest-bearing debt.

Table summary

The table presents, in millions of dollars, a two-year comparative of the financial highlights. It consists of three columns: the list of financial reporting accounts; current year; previous year. The first series of rows presents the Consolidated statement of operations. The second series of rows presents the Consolidated statement of financial position.

2015–2016 financial highlights
(in millions of dollars)

  2015–2016 2014–2015
Consolidated statement of operations
Revenues 295,453 282,346
Expenses
Program expenses 270,845 253,841
Public debt charges 25,595 26,594
Total expenses 296,440 280,435
Annual (deficit) surplus (negative 987) 1,911
Percentage of GDP 0.0% 0.1%
Consolidated statement of financial position
Liabilities
Interest-bearing debt 931,721 899,986
Other 127,853 123,631
Total liabilities 1,059,574 1,023,617
Financial assets 365,823 336,658
Net debt 693,751 686,959
Non-financial assets 77,765 74,629
Accumulated deficit 615,986 612,330
Percentage of GDP 31.1% 31.0%

Revenues

Federal revenues can be broken down into four main categories: income tax revenues, other taxes and duties, Employment Insurance (EI) premium revenues and other revenues. Within the income tax revenue category, personal income tax revenues are the largest source of federal revenues, and accounted for 49.0 per cent of total revenues in 2015–2016 (up from 48.1 per cent in 2014–2015). Corporate income tax revenues are the second largest source of revenues, and accounted for 14.0 per cent of total revenues in 2015–2016 (the same percentage as in 2014–2015). Non-resident income tax revenues are a comparatively smaller source of revenues, accounting for only 2.2 per cent of total revenues in 2015–2016 (unchanged from 2014–2015).

Other taxes and duties consist of revenues from the Goods and Services Tax (GST), energy taxes, customs import duties and other excise taxes and duties. The largest component of this category—GST revenues—accounted for 11.2 per cent of all federal revenues in 2015–2016 (up from 11.1 per cent in 2014–2015). The share of the remaining components was at 5.7 per cent of total federal revenues in 2015–2016 (up from 5.6 per cent in 2014–2015).

The last two categories of federal revenues are EI premium revenues and other revenues. EI premium revenues accounted for 7.8 per cent of total federal revenues in 2015–2016 (down from 8.0 per cent in 2014–2015). Other revenues are made up of three broad components: Crown corporation revenues from consolidated Crown corporations and net income from enterprise Crown corporations; other program revenues from returns on investments, revenues from the sales of goods and services, and other miscellaneous revenues; and foreign exchange revenues. Other revenues accounted for 10.1 per cent of total federal revenues in 2015–2016 (down from 11.0 per cent in 2014–2015).

Composition of revenues for 2015–2016

Composition of revenues for 2015–2016. Refer to the text description following the image.

Image description

The graph "Composition of revenues for 2015–2016" illustrates the sources of revenues for the current year and the relative percentage to the total. The percentage by component is: Personal income tax 49.0%; Corporate income tax 14.0%; Non-resident income tax 2.2%; GST 11.2%; Other taxes and duties (GST excluded) 5.7%; Employment insurance premiums 7.8%; and Other revenues 10.1%.

The revenue ratio—revenues as a percentage of GDP—compares the total of all federal revenues to the size of the economy. This ratio is influenced by changes in statutory tax rates and by economic developments. The ratio stood at 14.9 per cent in 2015–2016 (up from 14.3 per cent in 2014–2015). This increase was attributable in part to strong growth in the Government's major tax revenue streams (personal income tax, corporate income tax and GST revenues). Overall, the revenue ratio has declined since 2001–2002, due primarily to tax reduction measures.

Revenue ratio

(revenues as a percentage of GDP)

Revenue ratio. Refer to the text description following the image.

Image description

The Graph "Revenue ratio" illustrates the revenues as a percentage of GDP since 1991–1992. The ratio for 1991–1992 is 18.0; 1992–1993 is 17.4; 1993–1994 is 16.6; 1994–1995 is 16.6; 1995–1996 is 16.9; 1996–1997 is 17.5; 1997–1998 is 17.8; 1998–1999 is 17.7; 1999–2000 is 17.6; 2000–2001 is 17.6; 2001–2002 is 16.1; 2002–2003 is 16.0; 2003–2004 is 15.9; 2004–2005 is 15.9; 2005–2006 is 15.7; 2006–2007 is 15.8; 2007–2008 is 15.4; 2008–2009 is 14.1; 2009–2010 is 13.9; 2010–2011 is 14.3; 2011–2012 is 14.1; 2012–2013 is 14.1; 2013–2014 is 14.4; 2014–2015 is 14.3; and 2015–2016 is 14.9.

Revenues compared to 2014–2015

The following table compares revenues for 2015–2016 to 2014–2015.

Table summary

The table presents, in millions of dollars, a two-year comparative of revenues. It consists of four columns: the listing of the category of revenues; current year; previous year; Change, divided into two columns—Absolute and Per cent (%). The first series of rows presents the Income tax revenues. The second series of rows presents Other taxes and duties. The third series of rows contains three rows: Employment Insurance premiums; Other revenues; and Total revenues.

Revenues
(in millions of dollars)

  2015–2016 2014–2015 Change
$ %
Income tax revenues
Personal 144,897 135,743 9,154 6.7
Corporate 41,444 39,447 1,997 5.1
Non-resident 6,505 6,216 289 4.6
Total 192,846 181,406 11,440 6.3
Other taxes and duties
Goods and services tax 32,952 31,349 1,603 5.1
Energy taxes 5,565 5,528 37 0.7
Customs import duties 5,372 4,581 791 17.3
Other excise taxes and duties 5,916 5,724 192 3.4
Total 49,805 47,182 2,623 5.6
Employment insurance premiums 23,070 22,564 506 2.2
Other revenues 29,732 31,194 (negative 1,462) (negative 4.7)
Total revenues 295,453 282,346 13,107 4.6

Total revenues increased by $13.1 billion in 2015–2016, reflecting growth in all revenue streams except other revenues.

Personal income tax revenues increased by $9.2 billion, or 6.7 per cent, reflecting gains in personal income and tax planning by high-income individuals to recognize income in the 2015 tax year before the new 33 per cent tax rate came into effect in 2016.

Corporate income tax revenues increased by $2.0 billion, or 5.1 per cent, as weakness in the resource sector was more than offset by growth in corporate taxable income in other sectors of the economy.

Non-resident income tax revenues increased by $0.3 billion, or 4.6 per cent, reflecting growth in corporate earnings.

Other taxes and duties increased by $2.6 billion, or 5.6 per cent. GST revenues grew by $1.6 billion in 2015–2016, or 5.1 per cent. Energy taxes grew by $37 million, or 0.7 per cent. Customs import duties increased by $0.8 billion, or 17.3 per cent, reflecting strong import growth and the removal of benefits for certain countries under Canada's General Preferential Tariff regime, effective January 1, 2015. Other excise taxes and duties were up $0.2 billion or 3.4 per cent.

EI premium revenues increased by $0.5 billion, or 2.2 per cent, reflecting growth in insurable earnings.

Other revenues decreased by $1.5 billion, or 4.7 per cent, in 2015–2016, due in large part to lower Crown corporation revenues, including decreases in the net income of Canada Mortgage and Housing Corporation (CMHC), Export Development Canada and Farm Credit Canada, which reflect, in part, the fact that revenues in the previous year were elevated due to one-time events (e.g., gains on the sale of investments within CMHC's mortgage loan insurance investment portfolio). These decreases more than offset the $2.1-billion gain recorded in 2015–2016 on the sale of the Government's remaining holdings of General Motors common shares.

Expenses

Federal expenses can be broken down into three main categories: transfer payments, which account for over half of all federal spending, other program expenses and public debt charges. Within these three main categories, the largest major component of expenses in 2015–2016 was major transfers to persons, which made up 28.0 per cent of total expenses. This category consists of elderly benefits, EI benefits, the Canada Child Tax Benefit and the Universal Child Care Benefit. The second largest component of expenses was ministries expenses, which accounted for 26.6 per cent of total expenses. Ministries expenses represent the operating expenses of more than 100 government departments and agencies, including National Defence. Major transfers to other levels of government—which include the Canada Health Transfer, the Canada Social Transfer, fiscal arrangements (Equalization, transfers to the territories, a number of smaller transfer programs and the Quebec Abatement), transfers to provinces on behalf of Canada's cities and communities, and other transfers—made up 22.2 per cent of total expenses in 2015–2016. Other transfer payments, which include transfers to Aboriginal peoples, assistance to farmers, students and businesses, support for research and development, and foreign aid, made up 11.8 per cent of expenses. Crown corporations accounted for 2.8 per cent of total expenses, while public debt charges made up the remaining 8.6 per cent of total expenses in 2015–2016.

Composition of expenses for 2015–2016

Composition of expenses for 2015–2016. Refer to the text description following the image.

Image description

The graph "Composition of expenses for 2015–2016" illustrates the composition of expenses for the current year and the relative percentage to the total. The percentage by component is: Major transfers to persons 28.0%; Major transfers to other levels of government 22.2%; Other transfer payments 11.8%; Ministries 26.6%; Crown corporations 2.8%; and Public debt charges 8.6%.

There has been a large shift in the composition of total expenses since the early 1990s. Public debt charges were the largest component for most of the 1990s, given the large and increasing stock of interest-bearing debt and high average effective interest rates on that stock of debt. Since reaching a high of nearly 30 per cent of total expenses in 1996–1997, the share of public debt charges in total expenses has fallen by more than two-thirds.

Public debt charges

(public debt charges as a percentage of total expenses)

Public debt charges. Refer to the text description following the image.

Image description

The graph "Public debt charges" illustrates the public debt charges as a percentage of total expenses since 1991–1992. The percentage for 1991–1992 is 27.69; 1992–1993 is 25.28; 1993–1994 is 24.69; 1994–1995 is 26.39; 1995–1996 is 29.02; 1996–1997 is 29.81; 1997–1998 is 27.31; 1998–1999 is 27.11; 1999–2000 is 26.76; 2000–2001 is 25.16; 2001–2002 is 22.54; 2002–2003 is 20.26; 2003–2004 is 18.88; 2004–2005 is 16.21; 2005–2006 is 16.16; 2006–2007 is 15.28; 2007–2008 is 14.31; 2008–2009 is 12.97; 2009–2010 is 10.73; 2010–2011 is 11.41; 2011–2012 is 11.27; 2012–2013 is 10.50; 2013–2014 is 10.19; 2014–2015 is 9.48; and 2015–2016 is 8.63.

The interest ratio (public debt charges as a percentage of revenues) has been decreasing in recent years, falling from a peak of 37.6 per cent in 1990–1991 to 9.4 per cent in 2014–2015. The ratio continued to fall in 2015–2016, reaching 8.7 per cent. This means that, in 2015–2016, the Government spent approximately 9 cents of every revenue dollar on interest on public debt.

Interest ratio

(public debt charges as a percentage of revenues)

Interest ratio. Refer to the text description following the image.

Image description

The graph "Interest ratio" illustrates the public debt charges as a percentage of revenues since 1991–1992. The percentage for 1991–1992 is 34.8; 1992–1993 is 33.2; 1993–1994 is 32.4; 1994–1995 is 33.8; 1995–1996 is 35.2; 1996–1997 is 31.5; 1997–1998 is 26.8; 1998–1999 is 26.2; 1999–2000 is 24.6; 2000–2001 is 22.6; 2001–2002 is 21.6; 2002–2003 is 19.6; 2003–2004 is 18.0; 2004–2005 is 16.1; 2005–2006 is 15.2; 2006–2007 is 14.4; 2007–2008 is 13.7; 2008–2009 is 13.3; 2009–2010 is 13.5; 2010–2011 is 13.0; 2011–2012 is 12.5; 2012–2013 is 11.2; 2013–2014 is 10.4; 2014–2015 is 9.4; and 2015–2016 is 8.7.

Expenses compared to 2014–2015

Total expenses amounted to $296.4 billion in 2015–2016, up $16.0 billion, or 5.7 per cent, from 2014–2015.

The following table compares total expenses for 2015–2016 to 2014–2015.

Table summary

The table presents, in millions of dollars, a two-year comparative of expenses. It consists of four columns: the listing of expenses; current year; previous year; Change, divided into two columns—Absolute and Per cent (%). The first series of rows presents transfer payments. The second series of rows presents other program expenses. The third series of rows contains three rows: Program expenses; Public debt charges; and Total expenses.

Expenses
(in millions of dollars)

  2015–2016 2014–2015 Change
$ %
Transfer payments
Major transfers to persons
Elderly benefitsLink to footnote 4 45,461 44,103 1,358 3.1
Employment insurance benefits 19,419 18,052 1,367 7.6
Children's benefits 18,025 14,303 3,722 26.0
Total 82,905 76,458 6,447 8.4
Major transfers to other levels of government
Federal transfer support for health and other social programs 46,984 44,696 2,288 5.1
Fiscal arrangements and other transfers 18,866 18,413 453 2.5
Total 65,850 63,109 2,741 4.3
Other transfer payments 34,874 35,126 (negative 252) (negative 0.7)
Total transfer payments 183,629 174,693 8,936 5.1
Other program expenses
Crown corporations 8,358 7,590 768 10.1
Ministries 78,858 71,558 7,300 10.2
Total other program expenses 87,216 79,148 8,068 10.2
Program expenses 270,845 253,841 17,004 6.7
Public debt charges 25,595 26,594 (negative 999) (negative 3.8)
Total expenses 296,440 280,435 16,005 5.7

Major transfers to persons increased by $6.4 billion in 2015–2016, reflecting increases in elderly, children's and EI benefits. Elderly benefits increased by $1.4 billion, or 3.1 per cent, reflecting growth in the elderly population and changes in consumer prices, to which benefits are fully indexed. EI benefits increased by $1.4 billion in 2015–2016, reflecting higher average regular benefits due to a worsening in labour market conditions.

Children's benefits, which consisted of the Canada Child Tax Benefit and the Universal Child Care Benefit, increased by $3.7 billion, or 26.0 per cent, due mainly to the expansion and enhancement of the Universal Child Care Benefit in 2015.

Major transfers to other levels of government increased by $2.7 billion in 2015–2016, primarily reflecting legislated growth in the Canada Health Transfer, the Canada Social Transfer, Equalization transfers and transfers to the territories.

Other transfer payments decreased by $0.3 billion, or 0.7 per cent, in 2015–2016.

Other program expenses increased from $79.1 billion in 2014–2015 to $87.2 billion in 2015–2016, up $8.1 billion, or 10.2 per cent. Within other program expenses, Crown corporation expenses increased by $0.8 billion, or 10.1 per cent, due in large part to an increase in commercial trading transactions of the Canadian Commercial Corporation. Ministries expenses increased by $7.3 billion, or 10.2 per cent, to $78.9 billion. This increase is largely attributable to a $5.5-billion increase in pension and other future benefit costs, including the impact of amendments to veterans future benefits, based on the Government's latest actuarial valuations, as well as an increase in operating expenses of National Defence and a one-time expense recorded in 2015–2016 related to the write-down of taxes receivable.

Public debt charges decreased by $1.0 billion, or 3.8 per cent, reflecting a lower average effective interest rate on the stock of interest-bearing debt.

Comparison of actual results to budget projections

Comparison to March 2016 budget plan

The $1.0-billion deficit recorded in 2015–2016 represents a $4.5-billion improvement over the $5.4-billion deficit projected in the March 2016 budget. Revenues were $4.2 billion (1.5 per cent) higher than expected, primarily reflecting better-than-expected personal and corporate income tax revenues.

Program expenses and public debt charges were each $0.1 billion lower than forecast.

Table summary

The table presents, in millions of dollars, a comparison of the current year's actual results to the March 2016 budget projections. It consists of four columns: the listing of main items; Projection; Actual; and Difference. A final row presents the annual surplus or (deficit).

Comparison of 2015–2016 outcomes to March 2016 budget
(in millions of dollars)

  Projection Actual Difference
Revenues 291,208 295,453 4,245
Expenses
Program expenses 270,933 270,845 (negative 88)
Public debt charges 25,713 25,595 (negative 118)
Total expenses 296,646 296,440 (negative 206)
Annual deficit (negative 5,438) (negative 987) 4,451

Comparison to April 2015 budget plan

The 2015–2016 budgetary deficit of $1.0 billion represents a $2.4 billion deterioration relative to the $1.4-billion surplus projected for 2015–2016 in the April 2015 budget. This deterioration is due to higher-than-forecast expenses exceeding higher-than-forecast revenues.

Revenues were $5.2 billion, or 1.8 per cent, higher than forecast in the April 2015 budget, primarily reflecting stronger-than-expected growth in income tax revenues and other taxes and duties. These gains were partially offset by other revenues which were $2.0 billion lower than projected.

Total expenses were $7.5 billion higher than projected in the April 2015 budget, with program expenses $7.6 billion higher than forecast and public debt charges $0.1 billion lower than forecast.

Major transfers to persons were $0.9 billion higher than forecast, largely due to higher-than-expected EI benefits, reflecting a worsening in labour market conditions.

Major transfers to other levels of government were $0.4 billion higher than forecast, largely reflecting advance fiscal stabilization payments to the provinces of Alberta and Newfoundland and Labrador made in 2015–2016 that were not anticipated at the time of Budget 2015.

Direct program expenses, which are comprised of other transfer payments, Crown corporation expenses and ministries expenses, were $6.3 billion higher than projected in the April 2015 budget. Higher-than-expected direct program expenses were largely due to higher ministries expenses, in particular pension and other future benefit costs, reflecting financial support for veterans announced in Budget 2016, as well as a reduction in the long-term interest rates used for valuing pension and other future benefits, which caused more of the costs to be recognized in the near term rather than the future.

Public debt charges in 2015–2016 were $0.1 billion lower than forecast in the April 2015 budget, largely reflecting a lower-than-expected average effective interest rate on the stock of interest-bearing debt.

Table summary

The table presents, in millions of dollars, a comparison of the current year's actual results to the April 2015 budget projections. It consists of four columns: the listing of main items; Budget; Actual; and Difference. A final row presents the annual surplus or (deficit).

Comparison of 2015–2016 outcomes to April 2015 budget
(in millions of dollars)

  Budget Actual Difference
Revenues
Income tax revenues 186,396 192,846 6,450
Other taxes and duties 49,023 49,805 782
Employment insurance premiums 23,125 23,070 (negative 55)
Other revenues 31,742 29,732 (negative 2,010)
Total revenues 290,286 295,453 5,167
Expenses
Program expenses
Major transfers to persons 82,012 82,905 893
Major transfers to other levels of government 65,436 65,850 414
Other transfer payments 33,987 34,874 887
Other program expenses 81,777 87,216 5,439
Total program expenses 263,212 270,845 7,633
Public debt charges 25,704 25,595 (negative 109)
Total expenses 288,916 296,440 7,524
Annual surplus (deficit) 1,370 (negative 987) (negative 2,357)

Accumulated deficit

The accumulated deficit is the difference between the Government's total liabilities and total assets. The annual change in the accumulated deficit represents the annual budgetary balance plus other comprehensive income or loss. Other comprehensive income or loss is comprised of certain unrealized gains and losses on financial instruments and certain actuarial gains and losses related to pensions and other employee future benefits reported by enterprise Crown corporations and other government business enterprises. Based on the recommendations of the Public Sector Accounting Board, other comprehensive income or loss is not included in the Government's annual budgetary balance, but is instead recorded directly to the Government's Consolidated statement of accumulated deficit and Consolidated statement of change in net debt.

Table summary

The table presents, in millions of dollars, a two-year comparative of the accumulated deficit. It consists of four columns: the listing of the accumulated deficit items; current year; previous year; and Difference. A final row presents the accumulated deficit at end of year.

Accumulated deficit
(in millions of dollars)

  2015–2016 2014–2015 Difference
Accumulated deficit at beginning of year 612,330 611,881 449
Annual deficit (surplus) 987 (negative 1,911) 2,898
Other comprehensive loss 2,669 2,360 309
Accumulated deficit at end of year 615,986 612,330 3,656

The accumulated deficit increased by $3.7 billion in 2015–2016, reflecting the $1.0-billion budgetary deficit and a $2.7-billion other comprehensive loss. The $2.7-billion other comprehensive loss reflects $2.6 billion in net unrealized losses on available-for-sale financial instruments and $0.1 billion in net actuarial losses on pension and other employee future benefits recorded by enterprise Crown corporations and other government business enterprises.

As a percentage of GDP, the accumulated deficit has fallen from a post-World War II peak of 66.8 per cent at March 31, 1996 to 31.1 per cent at March 31, 2016.

Graph - Accumulated deficit

(as a percentage of GDP)

Accumulated deficit. Refer to the text description following the image.

Image description

The graph "Accumulated deficit" illustrates the accumulated deficit since 1991–1992. The percentage for 1991–1992 is 58.6; 1992–1993 is 62.7; 1993–1994 is 65.5; 1994–1995 is 66.4; 1995–1996 is 66.8; 1996–1997 is 65.7; 1997–1998 is 61.9; 1998–1999 is 59.1; 1999–2000 is 53.7; 2000–2001 is 47.2; 2001–2002 is 44.9; 2002–2003 is 42.5; 2003–2004 is 39.7; 2004–2005 is 37.2; 2005–2006 is 34.0; 2006–2007 is 31.3; 2007–2008 is 29.1; 2008–2009 is 28.1; 2009–2010 is 33.1; 2010–2011 is 33.1; 2011–2012 is 33.0; 2012–2013 is 33.4; 2013–2014 is 32.3; 2014–2015 is 31.0; and 2015–2016 is 31.1.

As noted above, the accumulated deficit is the difference between the Government's total liabilities and total assets. Total liabilities include interest-bearing debt and accounts payable and accrued liabilities. Total assets include both financial and non-financial assets, the latter consisting primarily of tangible capital assets. The following sections provide more details on each of these components.

Table summary

The table presents, in millions of dollars, a two-year comparative of the Consolidated statement of financial position. It consists of four columns: the listing of the financial position items; current year; previous year; and Difference. The first series of rows presents the liabilities. The second series of rows presents the financial assets. The third series of rows contains three rows: Net debt—result obtained by subtracting financial assets from liability; Non-financial assets; and Accumulated deficit—result obtained by subtracting non-financial assets from net debt.

Statement of financial position
(in millions of dollars)

  2015–2016 2014–2015 Difference
Liabilities
Accounts payable and accrued liabilities 127,853 123,631 4,222
Interest-bearing debt
Unmatured debt 688,211 665,180 23,031
Pensions and other future benefits 237,908 228,804 9,104
Other liabilities 5,602 6,002 (negative 400)
Total 931,721 899,986 31,735
Total liabilities 1,059,574 1,023,617 35,957
Financial assets
Cash and accounts receivable 154,688 136,696 17,992
Foreign exchange accounts 93,539 85,018 8,521
Loans, investments and advances 115,957 113,681 2,276
Public sector pension assets 1,639 1,263 376
Total financial assets 365,823 336,658 29,165
Net debt 693,751 686,959 6,792
Non-financial assets 77,765 74,629 3,136
Accumulated deficit 615,986 612,330 3,656

Interest-bearing debt

Interest-bearing debt includes unmatured debt, or debt issued on the credit markets, pension and other future benefit liabilities, and other liabilities. Unmatured debt, which includes fixed-coupon marketable bonds, Real Return Bonds, treasury bills, retail debt (Canada Savings Bonds and Canada Premium Bonds), foreign-currency-denominated debt, and obligations related to capital leases, amounted to 73.8 per cent of interest-bearing debt at March 31, 2016. Pension and other future benefit liabilities include obligations for: public sector pensions sponsored by the Government; disability and associated benefits available to war veterans, current and retired members of the Canadian Forces and the Royal Canadian Mounted Police, their survivors and dependants; health care and dental benefits available to retired employees and their dependants; accumulated sick leave entitlements; severance benefits; workers' compensation benefits; and other future benefits sponsored by some consolidated Crown corporations and other entities. Liabilities for public sector pensions made up 16.4 per cent of interest-bearing debt and other employee and veteran future benefits accounted for an additional 9.2 per cent of interest-bearing debt. The remaining 0.6 per cent of interest-bearing debt represents other interest-bearing liabilities of the Government, which include deposit and trust accounts and other specified purpose accounts.

The share of total interest-bearing debt represented by unmatured debt had been declining since the mid-1990s, as the Government was able to retire some of this debt. This trend reversed in 2008–2009 due to the increase in financial requirements stemming from the recession and stimulus measures introduced to mitigate its impacts, as well as an increase in borrowings under the consolidated borrowing framework introduced in 2008. Under the consolidated borrowing framework, the Government finances all of the borrowing needs of Canada Mortgage and Housing Corporation, the Business Development Bank of Canada and Farm Credit Canada through direct lending in order to reduce overall borrowing costs and improve the liquidity of the government securities market.

Graph - Interest-bearing debt by category for 2015–2016

Interest-bearing debt by category for 2015–2016. Refer to the text description following the image.

Image description

The graph "Interest-bearing debt by category for 2015–2016" illustrates the composition of interest-bearing debt for the current year and the relative percentage to the total. The preceding text provides complementary information to the graph. The components are: Marketable bonds (Canadian currency) 54.1%; Treasury bills 14.8%; Other unmatured debt 4.9%; Pensions 16.4%; Other future benefits 9.2%; and Other liabilities 0.6%.

At March 31, 2016, interest-bearing debt totalled $931.7 billion, up $31.7 billion from March 31, 2015. Within interest-bearing debt, unmatured debt increased by $23.0 billion, liabilities for pensions decreased by $0.4 billion, liabilities for other employee and veteran future benefits increased by $9.5 billion, and other liabilities decreased by $0.4 billion.

The $23.0-billion increase in unmatured debt largely reflects a $20.2-billion increase in market debt, mainly in marketable bonds and treasury bills, required to meet the financial needs of the Government. The remaining increase was due in large part to a $1.7-billion increase in the value of cross-currency swaps due to exchange rate movements and a $0.8-billion increase in unamortized discounts and premiums on market debt.

The Bank of Canada and the Department of Finance Canada manage the Government's unmatured debt and associated risks. The fundamental objective of the debt management strategy is to provide stable, low-cost funding to meet the Government's financial obligations and liquidity needs. Details on the Government's debt management objectives and principles are tabled annually in Parliament through the Department of Finance Canada's Debt Management Strategy.

Foreign holdings of the Government's unmatured debt are estimated at $198.8 billion, representing approximately 28.9 per cent of the Government's total unmatured debt.

Foreign holdings of Government of Canada unmatured debt

(as a percentage of unmatured debt)

Foreign holdings of Government of Canada unmatured debt. Refer to the text description following the image.

Image description

The graph "Foreign holdings of Government of Canada unmatured debt" illustrates foreign holdings of the Government's unmatured debt as a percentage of unmatured debt since 1991–1992. The percentage for 1991–1992 is 24.3; 1992–1993 is 27.9; 1993–1994 is 27.7; 1994–1995 is 26.6; 1995–1996 is 26.6; 1996–1997 is 26.1; 1997–1998 is 25.4; 1998–1999 is 23.3; 1999–2000 is 21.8; 2000–2001 is 20.8; 2001–2002 is 17.0; 2002–2003 is 19.5; 2003–2004 is 13.9; 2004–2005 is 13.4; 2005–2006 is 14.2; 2006–2007 is 13.3; 2007–2008 is 13.0; 2008–2009 is 14.1; 2009–2010 is 16.3; 2010–2011 is 21.7; 2011–2012 is 25.3; 2012–2013 is 28.9; 2013–2014 is 25.9; 2014–2015 is 26.8; and 2015–2016 is 28.3.

The Government's liabilities for pensions and other future benefits stood at $237.9 billion at March 31, 2016, up $9.1 billion from the prior year. These liabilities represent the estimated present value of pensions and other future benefits earned to March 31, 2016 by current and former employees, as measured annually on an actuarial basis, net of the value of assets set aside for funding purposes. Liabilities for pensions and other future benefits do not include benefits payable under the Canada Pension Plan (CPP). The CPP is not consolidated in the Government's financial statements because changes to the CPP require the agreement of two thirds of participating provinces and it is therefore not controlled by the Government. Further information regarding the CPP can be found in Section 6 of this volume.

The following table illustrates the change in the Government's liabilities for pensions and other future benefits, net of public sector pension assets, in 2015–2016.

Table summary

The table presents, in millions of dollars, the change in the total liabilities for pensions and other future benefits in the current year and its presentation on the Consolidated statement of financial position. It consists of four columns: the listing of liability items; Pensions; Other future benefits; and Total. The first series of rows presents the net future benefit liabilities at beginning of year, followed by the related items to be added and the subtotal. The second series of rows presents the related items to be deducted and the subtotal. The third series of rows contains two rows: Net (decrease) or increase—result obtained by adding the first set of elements from which the second set of elements is subtracted; and Net future benefit liabilities at end of year—result obtained by additing the liabilities at beginning of year and the net (decrease) or increase in liabilities. The last series of rows presents the items presented on the Consolidated statement of financial position. A final row presents the net future benefit liabilities.

Net future benefit liabilities
(in millions of dollars)

  Pensions Other future benefits Total
Net future benefit liabilities at beginning of year 151,401 76,140 227,541
Add:
Benefits earned during the year 6,807 4,452 11,259
Interest on accrued benefit obligations, net of the expected return on investments 7,294 2,549 9,843
Net actuarial losses recognized during the year 1,143 3,454 4,597
Plan amendments, curtailments and settlementsLink to footnote 5 2 3,772 3,774
Subtotal 15,246 14,227 29,473
Deduct:
Benefits paid by employer during the year 10,974 4,615 15,589
Transfers to the PSPIB and external trustsLink to footnote 6 4,206 1 4,207
Transfers to other plans and administrative expenses 879 70 949
Subtotal 16,059 4,686 20,745
Net (decrease) or increase (negative 813) 9,541 8,728
Net future benefit liabilities at end of year 150,588 85,681 236,269
Presented on the Consolidated statement of financial position as:
Public sector pension liabilities 152,227
Other employee and veteran future benefit liabilities 85,681
Total pension and other future benefit liabilities 237,908
Public sector pension assets 1,639
Net future benefit liabilities 236,269

The increase in net liabilities for pensions and other future benefits in 2015–2016 reflects the addition of $11.3 billion in future benefits earned by employees and members during the year as well as $9.8 billion in net interest charges on the liabilities. Accounting standards require that liabilities due a long time into the future be recorded at their estimated present, or discounted, value. For the Government's funded pension benefits, which relate to post-March 2000 service that falls within Income Tax Act limits under its three main pension plans—the public service, Canadian Forces–Regular Force, and Royal Canadian Mounted Police pension plans—as well as benefits under the Canadian Forces–Reserve Force pension plan, the discount rate is based on the streamed expected rates of return on invested funds. For benefits related to pre-April 2000 service and post-March service that falls above Income Tax Act limits under these main plans, as well as benefits under several smaller plans sponsored by the Government, which are unfunded, the discount rate is based on the streamed weighted average of long-term bond rates. For the Government's other future benefit plans, the discount rate reflects the expected long-term bond rate. For consolidated Crown corporations' and other entities' future benefit plans, the discount rates are based on a variety of methodologies. Interest is recorded on the accrued obligations for pensions and other future benefits each year, net of the expected return on investments associated with funded benefits, to reflect the passage of time as the liabilities are one year closer to settlement. Net interest expense is recorded as part of public debt charges while benefit expense is recorded as part of ministries expenses on the Consolidated statement of operations and accumulated deficit. Benefit and interest expenses related to consolidated Crown corporations' and other entities' future benefit plans are recorded as part of Crown corporations expense.

Liabilities for pensions and other future benefits increased by an additional $4.6 billion in 2015–2016 due to the amortization of actuarial gains and losses. Actuarial gains and losses represent year-over-year increases or decreases in the estimated value of pension and other future benefit obligations and the value of related assets due to changes in actuarial assumptions or actual experience different from that previously estimated. Actuarial assumptions include future inflation, interest rates, return on investments, general wage increases, workforce composition, retirement rates and mortality rates. Under Canadian public sector accounting standards, which are set independently by the Public Sector Accounting Board, actuarial gains and losses are not recognized in the liabilities immediately but instead are amortized over the expected average remaining service life of plan contributors, or for some benefits, the average remaining life expectancy of the benefit recipients, which represents periods ranging from 4 to 23 years, according to the plan in question. As of March 31, 2016, net unamortized losses amounted to $45.8 billion. These losses will be reflected over time in the liabilities and recorded as part of ministries expenses or Crown corporation expenses, as applicable.

The Government also recorded a $3.8-billion increase in liabilities for pensions and other future benefits to reflect the net impact of plan amendments, curtailments and settlements during the year. The largest of these amendments relates to improvements made to and the expansion of eligibility for certain benefits under the Government's veterans future benefit plans.

These increases were offset in part by reductions in the liabilities for benefits paid during the year ($15.6 billion) and for net transfers to the Public Sector Pension Investment Board and funds held in external trusts for investment ($4.2 billion).

Further details on public sector pensions and other employee and veteran future benefits are contained in Section 6 of this volume.

Interest-bearing debt stood at 47.0 per cent of GDP in 2015–2016 (up from 45.6 per cent in 2014–2015). This ratio is down over 27 percentage points from its high of 74.4 per cent in 1995–1996.

Graph - Interest-bearing debt

(as a percentage of GDP)

Interest-bearing debt. Refer to the text description following the image.

Image description

The graph "Interest-bearing debt" illustrates the percentage of interest-bearing debt on GDP since 1991–1992. The percentage for 1991–1992 is 67.0; 1992–1993 is 70.5; 1993–1994 is 73.0; 1994–1995 is 73.1; 1995–1996 is 74.4; 1996–1997 is 73.9; 1997–1998 is 69.6; 1998–1999 is 67.1; 1999–2000 is 62.7; 2000–2001 is 56.7; 2001–2002 is 54.3; 2002–2003 is 51.8; 2003–2004 is 49.2; 2004–2005 is 45.6; 2005–2006 is 42.4; 2006–2007 is 40.2; 2007–2008 is 37.0; 2008–2009 is 43.0; 2009–2010 is 48.7; 2010–2011 is 48.2; 2011–2012 is 47.7; 2012–2013 is 49.2; 2013–2014 is 47.0; 2014–2015 is 45.6; and 2015–2016 is 46.5.

The average effective interest rate on the Government's interest-bearing debt in 2015–2016 was 2.8 per cent (down from 3.0 per cent in 2014–2015). The average effective interest rate on unmatured debt in 2015–2016 was 2.3 per cent, while the average effective interest rate on pension and other liabilities was 4.3 per cent. The average effective interest rate was higher on pension and other liabilities than on unmatured debt because the Government's unfunded pension liabilities are primarily credited with interest at rates that are calculated as though the amounts in the plans were invested in a notional portfolio of Government of Canada 20-year bonds held to maturity, whereas unmatured debt includes both short- and long-term securities.

Average effective interest rate on interest-bearing debt

(in percentage)

Average effective interest rate on interest-bearing debt. Refer to the text description following the image.

Image description

The graph "Average effective interest rate on interest-bearing debt" illustrates the percentage of the average effective interest rate on interest-bearing debt, unmatured debt, and pension and other liabilities since 1991–1992. The percentage for interest-bearing debt for 1991–1992 is 9.7; 1992–1993 is 8.5; 1993–1994 is 7.7; 1994–1995 is 7.9; 1995–1996 is 8.3; 1996–1997 is 7.6; 1997–1998 is 6.8; 1998–1999 is 6.9; 1999–2000 is 6.9; 2000–2001 is 7.0; 2001–2002 is 6.4; 2002–2003 is 6.0; 2003–2004 is 5.8; 2004–2005 is 5.6; 2005–2006 is 5.6; 2006–2007 is 5.7; 2007–2008 is 5.6; 2008–2009 is 4.8; 2009–2010 is 4.0; 2010–2011 is 3.9; 2011–2012 is 3.8; 2012–2013 is 3.3; 2013–2014 is 3.1; 2014–2015 is 3.0; and 2015–2016 is 2.8. For unmatured debt, the percentage for 1991–1992 is 9.8; 1992–1993 is 8.3; 1993–1994 is 7.2; 1994–1995 is 7.5; 1995–1996 is 7.9; 1996–1997 is 7.6; 1997–1998 is 7.1; 1998–1999 is 7.1; 1999–2000 is 6.8; 2000–2001 is 6.9; 2001–2002 is 6.2; 2002–2003 is 5.7; 2003–2004 is 5.4; 2004–2005 is 5.0; 2005–2006 is 5.0; 2006–2007 is 5.1; 2007–2008 is 5.1; 2008–2009 is 4.1; 2009–2010 is 3.1; 2010–2011 is 3.1; 2011–2012 is 3.1; 2012–2013 is 2.6; 2013–2014 is 2.5; 2014–2015 is 2.4; and 2015–2016 is 2.3. For pension and other liabilities, the percentage for 1991–1992 is 9.6; 1992–1993 is 9.0; 1993–1994 is 9.1; 1994–1995 is 9.2; 1995–1996 is 9.5; 1996–1997 is 7.6; 1997–1998 is 6.0; 1998–1999 is 6.2; 1999–2000 is 7.2; 2000–2001 is 7.2; 2001–2002 is 6.9; 2002–2003 is 6.8; 2003–2004 is 6.9; 2004–2005 is 6.9; 2005–2006 is 6.9; 2006–2007 is 6.8; 2007–2008 is 6.7; 2008–2009 is 6.4; 2009–2010 is 6.3; 2010–2011 is 6.3; 2011–2012 is 5.8; 2012–2013 is 5.3; 2013–2014 is 5.0; 2014–2015 is 4.6; and 2015–2016 is 4.3.

Accounts payable and accrued liabilities

The following chart shows accounts payable and accrued liabilities by category for 2015–2016.

Accounts payable and accrued liabilities by category for 2015–2016

Accounts payable and accrued liabilities by category for 2015–2016. Refer to the text description following the image.

Image description

The Graph "Accounts payable and accrued liabilities by category for 2015–2016" illustrates the composition of accounts payable and accrued liabilities for the current year and the relative percentage to the total. The percentage by component is: Amounts payable to taxpayers 42.0%; Deferred revenues 7.8%; Environmental liabilities 10.4%; Interest and matured debt 3.8%; and Other accounts payable and accrued liabilities 36.0%.

The Government's accounts payable and accrued liabilities consist of amounts payable to taxpayers based on assessments and estimates of refunds owing for tax assessments not completed by year end; environmental liabilities, which include estimated costs related to the remediation of contaminated sites and the future restoration of certain tangible capital assets; deferred revenue; interest due and matured debt, as well as accrued interest at year end; and other accounts payable and accrued liabilities. Other accounts payable and accrued liabilities include items such as accrued salaries and benefits, amounts payable to provinces, territories and Aboriginal governments for taxes collected and administered on their behalf in accordance with tax collection agreements, and amounts owing at year end pursuant to contractual arrangements or for work performed or goods received.

At March 31, 2016, accounts payable and accrued liabilities totalled $127.9 billion, up $4.2 billion from March 31, 2015. This increase is mainly due to growth in other accounts payable and accrued liabilities, environmental liabilities and deferred revenue, partially offset by decreases in amounts payable to taxpayers.

Other accounts payable and accrued liabilities increased by $5.2 billion in 2015–2016. Within this component, accrued salaries and benefits increased by $0.9 billion. Liabilities under provincial, territorial and Aboriginal tax agreements increased by $2.8 billion in 2015–2016 due to settlements of prior years' tax assessments and timing differences. Accounts payable of consolidated Crown corporations increased by $1.5 billion, largely relating to growth in progress payments from foreign customers received by the Canadian Commercial Corporation.

Deferred revenue increased by $0.8 billion in 2015–2016, largely reflecting proceeds received from spectrum licence auctions during the year, partially offset by a $0.7-billion decrease in advances from foreign customers received by the Canadian Commercial Corporation.

Environmental liabilities increased by $1.0 billion in 2015–2016, primarily reflecting an increase in estimated future costs related to the remediation of contaminated sites.

Amounts payable to taxpayers decreased by $2.5 billion in 2015–2016, from $56.2 billion at March 31, 2015 to $53.7 billion at March 31, 2016.

Liabilities for interest and matured debt decreased by $0.3 billion from the prior year, reflecting lower interest rates.

Financial assets

Financial assets include cash on deposit with the Bank of Canada, chartered banks and other financial institutions, accounts receivable, foreign exchange accounts, loans, investments and advances, and public sector pension assets of consolidated Crown corporations and other entities. The Government's foreign exchange accounts include foreign currency deposits, investments in gold, and subscriptions and loans to the International Monetary Fund. Proceeds of the Government's foreign currency borrowings are held in the Exchange Fund Account to provide foreign currency liquidity and provide funds needed to promote orderly conditions for the Canadian dollar in the foreign exchange markets. Further details on the management of international reserves are available in the annual Report on the Management of Canada's Official International Reserves. The Government's loans, investments and advances include its investments in and loans to enterprise Crown corporations, loans to national governments mainly for financial assistance and development of export trade, and loans under the Canada Student Loans Program.

Financial assets by category for 2015–2016

Financial assets by category for 2015–2016. Refer to the text description following the image.

Image description

The Graph "Financial assets by category for 2015–2016" illustrates the composition of financial assets for the current year and the relative percentage to the total. The percentage by component is: Cash and cash equivalents 10.5%; Taxes receivable 28.9%; Other accounts receivable 2.8%; Foreign exchange accounts 25.6%; Loans, investments and advances 31.7%; and Public sector pension assets 0.5%.

At March 31, 2016, financial assets amounted to $365.8 billion, up $29.2 billion from March 31, 2015. The increase in financial assets reflects increases in cash and accounts receivable, foreign exchange accounts, and loans, investments and advances.

At March 31, 2016, cash and accounts receivable totalled $154.7 billion, up $18.0 billion from March 31, 2015. Within this component, cash and cash equivalents increased by $3.6 billion. Included in the March 31, 2016 balance of cash and cash equivalents is $20 billion which has been designated as a deposit held with respect to prudential liquidity management. The Government's overall liquidity is maintained at a level sufficient to cover at least one month of net projected cash flows, including coupon payments and debt refinancing needs. Taxes receivable increased by $7.3 billion during 2015–2016 to $105.8 billion while other accounts receivable increased by $7.1 billion due mainly to collateral posted by the Government under new International Swaps and Derivatives Association agreements.

Foreign exchange accounts increased by $8.5 billion in 2015–2016, totalling $93.5 billion at March 31, 2016. The increase in foreign exchange accounts is due mainly to growth in foreign exchange reserves held in the Exchange Fund Account, primarily reflecting $4.6 billion in net additional advances to the Account during the year and $2.6 billion in foreign exchange gains. Under the Government's prudential liquidity plan, liquid foreign exchange reserves will continue to rise sufficiently to maintain their level at or above 3 per cent of GDP.

Loans, investments and advances in enterprise Crown corporations and other government business enterprises increased by $1.7 billion in 2015–2016. Net loans and advances increased by $2.1 billion due to an increase in loans to Crown corporations under the consolidated borrowing framework. Investments in enterprise Crown corporations and other government business enterprises decreased by $0.3 billion, as the $7.3 billion in net profits recorded by these entities during 2015–2016 was more than offset by $2.7 billion in other comprehensive losses and $5.0 billion in dividends paid to the Government and other equity transactions.

Other loans, investments and advances increased by $0.5 billion in 2015–2016, and public sector pension assets increased by $0.4 billion.

Since the accumulated deficit reached its post-World War II peak of 66.8 per cent of GDP at March 31, 1996, financial assets have increased by $273.2 billion, mainly reflecting higher levels of cash and cash equivalents and accounts receivable (up $102.1 billion), an increase in the foreign exchange accounts (up $74.5 billion), and an increase in loans, investments and advances (up $94.9 billion). The increase in cash and cash equivalents and accounts receivable is largely attributable to growth in taxes receivable, broadly in line with the growth in the applicable tax bases. The increase in the foreign exchange accounts reflects a decision by the Government in the late 1990s and more recently in the 2011–2012 Debt Management Strategy to increase liquidity in these accounts. The increase in loans, investments and advances is attributable to several factors including the accumulation of net profits from enterprise Crown corporations, the Government taking over the financing of the Canada Student Loans Program from the chartered banks in 2000, and the issuance of direct loans to Crown corporations under the Government's consolidated borrowing framework implemented in 2008.

Net debt

The Government's net debt—its total liabilities less financial assets—stood at $693.8 billion at March 31, 2016. Net debt was 35.0 per cent of GDP, up 0.2 percentage points from a year earlier, and 37.2 percentage points below its peak of 72.2 per cent at March 31, 1996.

This ratio measures debt relative to the ability of the country's taxpayers to finance it. Total liabilities are reduced only by financial assets as non-financial assets cannot normally be converted to cash to pay off the debt without disrupting government operations.

Graph - Net debt

(as a percentage of GDP)

Net debt. Refer to the text description following the image.

Image description

The Graph "Net debt" illustrates the net debt as a percentage of GDP since 1991–1992. The percentage for 1991–1992 is 63.7; 1992–1993 is 68.0; 1993–1994 is 70.9; 1994–1995 is 71.9; 1995–1996 is 72.2; 1996–1997 is 71.1; 1997–1998 is 67.2; 1998–1999 is 64.3; 1999–2000 is 58.7; 2000–2001 is 51.9; 2001–2002 is 49.6; 2002–2003 is 47.0; 2003–2004 is 44.1; 2004–2005 is 41.3; 2005–2006 is 37.9; 2006–2007 is 35.1; 2007–2008 is 32.8; 2008–2009 is 31.8; 2009–2010 is 37.2; 2010–2011 is 37.1; 2011–2012 is 36.8; 2012–2013 is 37.2; 2013–2014 is 36.1; 2014–2015 is 34.8; and 2015–2016 is 35.0.

Canada has the lowest total government net debt burden among G7 countries

G7 total Government net debt, 2015

(as a percentage of GDP)

G-7 total Government net debt, 2014. Refer to the text description following the image.

Image description

The Graph "G7 total Government net debt for 2015" illustrates the G7 net debt-to-GDP ratio as a percentage of GDP by country. The percentage by component is: Canada is 26.7; Germany is 48.8; United States is 80.6; United Kingdom is 80.7; France is 89.1; Italy is 111.4; and Japan is 128.1. The G7 average is 83.0.

Footnote *Weighted by GDP converted to U.S. dollars at average market exchange rates.
Source: IMF, Fiscal Monitor (April 2016).

Canada's total government net debt-to-GDP ratio stood at 26.7 per cent in 2015, according to the IMF. This is the lowest level among G7 countries, which the IMF estimates will record an average net debt of 83.0 per cent of GDP in that same year.

International comparisons of net debt are made on a total government, National Accounts basis, which for Canada includes the net debt of federal, provincial/territorial and local governments, as well as the net assets held in the Canada Pension Plan and Quebec Pension Plan.

Non-financial assets

Non-financial assets include the net book value of the Government's tangible capital assets, which include land, buildings, works and infrastructure such as roads and bridges, machinery and equipment, ships, aircraft and other vehicles. Non-financial assets also include inventories and prepaid expenses and other non-financial assets.

Non-financial assets by category for 2015–2016

Non-financial assets by category for 2015–2016. Refer to the text description following the image.

Image description

The Graph "Non-financial assets by category for 2015–2016" illustrates the composition of non-financial assets for the current year and the relative percentage to the total. The percentage by component is: Prepaid expenses 6.1%; Inventories 9.3%; Land 2.1%; Buildings 19.2%; Works and infrastructure 8.3%; Machinery and equipment 12.7%; Vehicles 21.0%; Assets under construction 16.2%; and Other capital assets 5.1%.

At March 31, 2016, non-financial assets stood at $77.8 billion, up $3.1 billion from a year earlier. Of this growth, $2.5 billion relates to an increase in tangible capital assets while $0.6 billion relates to an increase in other non-financial assets. This latter increase is due mainly to growth in progress payments, partially offset by decrease in advances to Canadian exporters by the Canadian Commercial Corporation.

At March 31, 2016, roughly 60 per cent of the original cost of the Government's depreciable tangible capital assets had been amortized, unchanged from a year earlier. Depreciable tangible capital assets exclude land, and assets under construction, which are not yet available for use.

Tangible capital asset cost and accumulated amortization

(in billions of dollars)

Tangible capital asset cost and accumulated amortization. Refer to the text description following the image.

Image description

The Graph "Tangible capital asset cost and accumulated amortization" illustrates, in billions of dollars, the tangible capital asset cost and accumulated amortization for the current year. The amount per component is: Land—Cost 1,665 and Accumulated Amortization 0; Buildings—Cost 30,578 and Accumulated Amortization 15,629; Works and Infrastructure—Cost of 15,072 and Accumulated Amortization 8,638; Machinery and equipment—Cost 35,585 and Accumulated Amortization 25,734; Vehicles—Cost 41,031 and Accumulated Amortization 24,664; Leasehold improvements—Cost 3,124 and Accumulated Amortization 1,953; Assets under construction—Cost 12,574 and Accumulated Amortization 0; Assets under capital leases—Cost of 4,965 and Accumulated Amortization 2,138.

Cash flow

The annual surplus or deficit is presented on an accrual basis of accounting, recognizing revenue in the period it is earned and expenses when incurred, regardless of when the associated cash is received or paid. In contrast, the Government's net cash flow measures the difference between cash coming in to the Government and cash going out.

In 2015–2016, the Government had a total cash requirement of $16.4 billion before financing activities, compared to a total cash source of $3.2 billion before financing activities in 2014–2015. Operating activities resulted in a net cash requirement of $11.1 billion in 2015–2016, compared to a net cash requirement of $0.1 billion in 2014–2015. $6.6 billion of this increase relates to cash collateral pledged by the Government under new master agreements for swaps and derivatives in 2015–2016. Cash used by capital investment activities totalled $6.7 billion in 2015–2016, up from $5.9 billion in 2014–2015. Cash provided by investing activities decreased by $7.6 billion, from $9.2 billion in 2014–2015 to $1.5 billion in 2015–2016, largely reflecting the repayment in 2014–2015 of principal on assets maturing under the Insured Mortgage Purchase Program administered by Canada Mortgage and Housing Corporation.

Table summary

The table presents, in millions of dollars, a two-year comparative of cash flow by major components related to cash coming in to the Government and cash going out. It consists of three columns: the listing of components; current year; previous year. The first series of rows presents the cash used before financing activities, followed by the total. The second series of rows contains two rows: Cash provided or (used) by financing activities; Net increase in cash—result obtained by adding the total of the first series of rows and Cash provided or (used) by financing activities. The third and last series of rows presents the cash and cash equivalents at beginning of year and the cash and cash equivalents at end of year—result obtained by adding the cash and cash equivalents at beginning of year and the net increase in cash.

Cash flow
(in millions of dollars)

  2015–2016 2014–2015
Cash used by operating activities (negative 11,132) (negative 103)
Cash used by capital investment activities (negative 6,747) (negative 5,850)
Cash provided by investing activities 1,528 9,156
Total cash (used) provided before financing activities (negative 16,351) 3,203
Cash provided by financing activities 19,922 367
Net increase in cash and cash equivalents 3,571 3,570
Cash and cash equivalents at beginning of year 34,999 31,429
Cash and cash equivalents at end of year 38,570 34,999

Financing activities generated an additional $19.9-billion source of cash in 2015–2016, resulting in an overall net increase in cash of $3.6 billion. The level of cash and cash equivalents stood at $38.6 billion at March 31, 2016.

Risks and uncertainties

As noted in the budget and related documents, the Government's revenues and expenses are highly sensitive to changes in economic conditions—particularly to changes in economic growth, inflation and interest rates.

To illustrate the impact of changes in economic conditions, the Department of Finance Canada publishes, on a regular basis, sensitivity impacts on the budgetary balance. These are "rules of thumb" as the actual impact will depend on many other factors as well. As published in the March 22, 2016 budget, these show, for example, that:

While these generalized rules of thumb provide good estimates of the sensitivity of the budgetary balance to small economic changes, it is important to note that some of the estimated relationships would change in response to large economic changes.

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