Financial statements discussion and analysis

Public Accounts of Canada 2017 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 and in Volumes II and 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 2016–2017, available on the Department of Finance Canada's website.

The consolidated financial statements and financial statements discussion and analysis 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 and financial statements discussion and analysis rests with the Government. A glossary of terms used in this financial statements discussion and analysis is provided at the end of this section.

2016–2017 financial highlights

Discussion and analysis

Economic developmentsLink to footnote 1

The global economy underwent another year of restrained growth in 2016, held back by a series of headwinds and adjustments. While the vote in the United Kingdom to exit the European Union added a layer of uncertainty, the ongoing rebalancing of growth in China, still-fragile banking systems in certain European countries, and continued adjustments in commodity-exporting countries, among other factors, resulted in subdued global growth. However, as the impact of the global oil price shock appeared to have bottomed out, and supported by extraordinarily accommodative monetary policy conditions, global economic activity strengthened in the second half of 2016, driving up consumer and business confidence worldwide.

In Canada, real GDP growth remained subdued in 2016 (1.5 per cent), after posting its weakest pace since the 2008–2009 Great Recession in 2015 (0.9 per cent). However, economic growth accelerated sharply during the second half of 2016 due to a rebound from the Fort McMurray wildfires, the dissipating effects of lower oil prices, and monetary and fiscal policy support. Notably, the price of West Texas Intermediate crude oil recovered, rising to above US$50 per barrel by the end of 2016, after declining to its lowest level since 2002 at the beginning of the year (below US$30 per barrel).

Canada's nominal GDP, the broadest measure of the tax base, grew 2.1 per cent, up from 0.2 per cent in 2015, which marked the slowest growth since 1981 excluding the 2008–2009 recession. Higher nominal GDP growth in 2016 was predominantly due to stronger GDP inflation, reflecting the waning impact of the oil price shock on Canada's terms of trade, and higher real GDP growth.

Interest rates across the yield curve in Canada continued to remain historically low in 2016. However, long-term interest rates increased in the second half of the year, along with higher U.S. interest rates, as expectations for further monetary policy tightening and forward-looking inflation expectations in the U.S. strengthened.

The unemployment rate was 7.0 per cent in 2016, up slightly from 6.9 per cent in 2015, reflecting the lagged impact of the oil price shock on the oil-producing provinces' labour markets. Consumer Price Index inflation accelerated from 1.1 per cent in 2015 to 1.4 per cent in 2016, below the mid-point of the Bank of Canada's target band (2.0 per cent).

Going forward, there remain important uncertainties and risks in the global and domestic economies. For Canada, principally, there remains uncertainty around key elements of U.S. economic, fiscal and trade policy. Further, elevated levels of household debt could pose a risk in the event of a negative economic shock, while oil prices could disappoint in the near term should supply continue to increase. The Government regularly surveys private sector economists on their views on the economy to assess and manage economic risks.

Average private sector forecasts
(in percentage)

  2015 2016 2017 2018
Real GDP growth
Budget 2016 0.9 1.4 2.2 2.2
Budget 2017 0.9 1.3 1.9 2.0
Actual 0.9 1.5
Nominal GDP growth
Budget 2016 0.2 2.3 4.6 4.3
Budget 2017 0.2 2.0 4.1 4.0
Actual 0.2 2.1
3-month Treasury bill rate
Budget 2016 0.5 0.5 0.7 1.6
Budget 2017 0.5 0.5 0.6 0.9
Actual 0.5 0.5
10-year government bond rate
Budget 2016 1.5 1.6 2.3 3.0
Budget 2017 1.5 1.3 1.8 2.3
Actual 1.5 1.3
Unemployment rate
Budget 2016 6.9 7.1 6.9 6.5
Budget 2017 6.9 7.0 6.9 6.7
Actual 6.9 7.0
Consumer price index inflation
Budget 2016 1.1 1.6 2.0 2.0
Budget 2017 1.1 1.5 2.0 2.0
Actual 1.1 1.4

The budgetary balance

The budgetary balance is the difference between the Government's revenues and expenses over a fiscal year. It is one of the key measures of the Government's annual financial performance. The Government posted a budgetary deficit of $17.8 billion in 2016–2017, compared to a deficit of $1.0 billion in 2015–2016.

The following graph shows the Government's budgetary balance since 1992–1993. 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 2016–2017, the budgetary deficit was 0.9 per cent of GDP, compared to a deficit of 0.0 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 1992–1993. 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 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; 2015–2016 is −0.05; 2016–2017 is −0.88.

Revenues were down $2.0 billion, or 0.7 per cent, from the prior year, primarily reflecting declines in personal income tax revenues, Employment Insurance (EI) premium revenues and other revenues, partially offset by an increase in Goods and Services Tax (GST) revenues.

Expenses were up $14.8 billion, or 5.0 per cent, from the prior year. Program expenses increased by $16.2 billion, or 6.0 per cent, reflecting increases in major transfers to persons, major transfers to other levels of government and other transfer payments. Public debt charges decreased by $1.3 billion, or 5.2 per cent, from the prior year, reflecting a lower average effective interest rate on the stock of interest-bearing debt.

2016–2017 financial highlights
(in millions of dollars)

  2016–2017 2015–2016
Consolidated Statement of Operations
Revenues 293,495 295,453
Expenses
Program expenses 287,156 270,997
Public debt charges 24,109 25,443
Total expenses 311,265 296,440
Annual deficit (negative 17,770) (negative 987)
Percentage of GDP (negative 0.9%) 0.0%
Consolidated Statement of Financial Position
Liabilities
Accounts payable and accrued liabilities 132,519 127,853
Interest-bearing debt 964,696 931,721
Total liabilities 1,097,215 1,059,574
Financial assets 382,758 365,823
Net debt (negative 714,457) (negative 693,751)
Non-financial assets 82,558 77,765
Accumulated deficit (negative 631,899) (negative 615,986)
Percentage of GDP 31.2% 31.0%

Revenues

Federal revenues can be broken down into four main categories: income tax revenues, other taxes and duties, EI premium revenues and other revenues. Within the income tax category, personal income tax revenues are the largest source of federal revenues, and accounted for 49.0 per cent of total revenues in 2016–2017 (unchanged from 2015–2016). Corporate income tax revenues are the second largest source of revenues, and accounted for 14.4 per cent of total revenues in 2016–2017 (up from 14.0 per cent in 2015–2016). Non-resident income tax revenues are a comparatively smaller source of revenues, accounting for only 2.4 per cent of total revenues in 2016–2017 (up from 2.2 per cent in 2015–2016).

Other taxes and duties consist of revenues from the GST, energy taxes, customs import duties and other excise taxes and duties. The largest component of this category—GST revenues—accounted for 11.7 per cent of all federal revenues in 2016–2017 (up from 11.2 per cent in 2015–2016). The share of the remaining components of other taxes and duties stood at 5.8 per cent of total federal revenues (up from 5.7 per cent in 2015–2016).

The last two categories of federal revenues are EI premium revenues and other revenues. EI premium revenues accounted for 7.5 per cent of total federal revenues in 2016–2017 (down from 7.8 per cent in 2015–2016). Other revenues are made up of three broad components: net income from enterprise Crown corporations and other government business enterprises; other program revenues from returns on investments, proceeds from the sales of goods and services, and other miscellaneous revenues; and foreign exchange revenues. Other revenues accounted for 9.2 per cent of total federal revenues in 2016–2017 (down from 10.1 per cent in 2015–2016).

Composition of revenues for 2016–2017

Composition of revenues for 2016–2017. Refer to the text description following the image.

Image description

The graph "Composition of revenues for 2016–2017" 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 14.4%; Non-resident income tax 2.4%; GST 11.7%; Other taxes and duties (GST excluded) 5.8%; Employment insurance premiums 7.5%; and Other revenues 9.2%.

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 14.5 per cent in 2016–2017 (down from 14.9 per cent in 2015–2016). This decrease primarily reflects a year-over-year decline in EI premium revenues due to a reduction in the premium rate and a return of other revenues to more normal levels following a one-time increase in 2015–2016 due to the sale of the Government's remaining holdings of General Motors common shares. Overall, the revenue ratio has declined since 2001–2002, due primarily to tax reduction measures in personal and corporate income taxes and the GST.

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 1992–1993. The ratio for 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 15.6; 2008–2009 is 14.4; 2009–2010 is 14.2; 2010–2011 is 14.5; 2011–2012 is 14.1; 2012–2013 is 14.1; 2013–2014 is 14.3; 2014–2015 is 14.2; 2015–2016 is 14.9; and 2016–2017 is 14.5.

Revenues compared to 2015–2016

Total revenues amounted to $293.5 billion in 2016–2017, down $2.0 billion, or 0.7 per cent, from 2015–2016. The following table compares revenues for 2016–2017 to 2015–2016.

Revenues
(in millions of dollars)

  2016–2017 2015–2016 Change
$ %
Income tax revenues
Personal 143,680 144,897 (negative 1,217) (negative 0.8)
Corporate 42,216 41,444 772 1.9
Non-resident 7,071 6,505 566 8.7
Total 192,967 192,846 121 0.1
Other taxes and duties
Goods and services tax 34,368 32,952 1,416 4.3
Energy taxes 5,634 5,565 69 1.2
Customs import duties 5,478 5,372 106 2.0
Other excise taxes and duties 5,868 5,916 (negative 48) (negative 0.8)
Total 51,348 49,805 1,543 3.1
Employment insurance premiums 22,125 23,070 (negative 945) (negative 4.1)
Other revenues 27,055 29,732 (negative 2,677) (negative 9.0)
Total revenues 293,495 295,453 (negative 1,958) (negative 0.7)

Personal income tax revenues decreased by $1.2 billion, or 0.8 per cent, largely reflecting the impact of 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. This behaviour raised revenues in 2015–2016 but lowered them in 2016–2017.

Corporate income tax revenues increased by $0.8 billion, or 1.9 per cent, reflecting economic growth leading to growth in corporate taxable income. The increase reflects strong earnings in the financial, retail and information/cultural sectors.

Non-resident income tax revenues are paid by non-residents on Canadian-sourced income. These revenues increased by $0.6 billion, or 8.7 per cent, reflecting growth in corporate earnings and dividends.

Other taxes and duties increased by $1.5 billion, or 3.1 per cent. GST revenues grew by $1.4 billion in 2016–2017, or 4.3 per cent, reflecting growth in retail sales. Energy taxes grew by $0.1 billion, or 1.2 per cent, due to slightly higher gasoline consumption in 2016–2017. Customs import duties increased by $0.1 billion, or 2.0 per cent. Other excise taxes and duties were down $48 million, or 0.8 per cent, largely reflecting lower softwood lumber export charge revenues as a result of the expiration of the Canada-U.S. Softwood Lumber Agreement.

EI premium revenues decreased by $0.9 billion, or 4.1 per cent. This decrease resulted from the reduction in the EI premium rate in 2017, offset in part by growth in employment and wages.

Other revenues decreased by $2.7 billion, or 9.0 per cent, in 2016–2017, largely reflecting the one-time gain of $2.1 billion recorded in 2015–2016 on the sale of the Government's remaining holdings of General Motors common shares. In addition, other revenues were impacted by a $0.2-billion decline in interest and penalties revenues and $0.2-billion decrease in Exchange Fund Account profits.

Expenses

Federal expenses can be broken down into three main categories: transfer payments, which account for almost two-thirds of all federal spending, other expenses and public debt charges.

Within these three main categories, the largest major component of expenses in 2016–2017 was major transfers to persons, which made up 29.2 per cent of total expenses. This category consists of elderly, EI and children's benefits.

The second largest component of expenses was other expenses, which accounted for 27.6 per cent of total expenses. Other expenses represent the operating expenses of the Government's 121 departments, agencies and consolidated Crown corporations and other entities.

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 22.1 per cent of total expenses in 2016–2017.

Other transfer payments, which include transfers to Aboriginal peoples, assistance to farmers, students and businesses, support for research and development, and international assistance, made up 13.4 per cent of expenses.

Public debt charges made up the remaining 7.7 per cent of total expenses in 2016–2017.

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.

Composition of expenses for 2016–2017

Composition of expenses for 2016–2017. Refer to the text description following the image.

Image description

The graph "Composition of expenses for 2016–2017" 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 29.2%; Major transfers to other levels of government 22.1%; Other transfer payments 13.4%; Other expenses 27.6%; and Public debt charges 7.7%.

The interest ratio (public debt charges as a percentage of revenues) shows the proportion of every dollar of revenue that is needed to pay interest and is therefore not available to pay for program initiatives. The lower the ratio, the more flexibility the Government has to address the key priorities of Canadians. The interest ratio has been decreasing in recent years, falling from a peak of 37.6 per cent in 1990–1991 to 8.6 per cent in 2015–2016. The ratio continued to fall in 2016–2017, reaching 8.2 per cent. This means that, in 2016–2017, the Government spent approximately 8 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 1992–1993. The percentage for 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 13.6; 2008–2009 is 13.1; 2009–2010 is 13.2; 2010–2011 is 12.8; 2011–2012 is 12.5; 2012–2013 is 11.2; 2013–2014 is 10.4; 2014–2015 is 9.4; 2015–2016 is 8.6; and 2016–2017 is 8.2.

Expenses compared to 2015–2016

Total expenses amounted to $311.3 billion in 2016–2017, up $14.8 billion, or 5.0 per cent, from 2015–2016. The following table compares total expenses for 2016–2017 to 2015–2016.

Expenses
(in millions of dollars)

  2016–2017 2015–2016 Change
$ %
Transfer payments
Major transfers to persons
Elderly benefitsLink to footnote 2 48,162 45,461 2,701 5.9
Employment insurance 20,711 19,419 1,292 6.7
Children's benefits 22,065 18,025 4,040 22.4
Total 90,938 82,905 8,033 9.7
Major transfers to other levels of government
Federal transfer support for health and other social programs 49,405 46,984 2,421 5.2
Fiscal arrangements and other transfers 19,247 18,866 381 2.0
Total 68,652 65,850 2,802 4.3
Other transfer payments 41,580 34,874 6,706 19.2
Total transfer payments 201,170 183,629 17,541 9.6
Other expenses 85,986 87,368 (negative 1,382) (negative 1.6)
Total program expenses 287,156 270,997 16,159 6.0
Public debt charges 24,109 25,443 (negative 1,334) (negative 5.2)
Total expenses 311,265 296,440 14,825 5.0

Major transfers to persons increased by $8.0 billion in 2016–2017, reflecting increases in elderly, children's and EI benefits. Elderly benefits increased by $2.7 billion, or 5.9 per cent, reflecting growth in the elderly population and changes in consumer prices, to which benefits are fully indexed. EI benefits increased by $1.3 billion in 2016–2017, reflecting measures announced in Budget 2016 to expand EI coverage.

Children's benefits increased by $4.0 billion, or 22.4 per cent, reflecting the new Canada Child Benefit, which replaced the Canada Child Tax Benefit and the Universal Child Care Benefit as of July 2016.

Major transfers to other levels of government increased by $2.8 billion in 2016–2017, primarily reflecting legislated growth in the Canada Health Transfer, the Canada Social Transfer, Equalization transfers and transfers to the territories.

Other transfer payments increased by $6.7 billion, or 19.2 per cent, in 2016–2017. This increase reflects a number of factors including the accelerated repayment of contributions by Pratt & Whitney Canada in 2015–2016, which decreased transfer payments in that year, as well as increased transfers recorded in 2016–2017, including transfers for Aboriginal peoples and social housing programs, and funding under the new Post-Secondary Institutions Strategic Investment Fund.

Other expenses of departments, agencies and consolidated Crown corporations and other entities decreased by $1.4 billion, or 1.6 per cent, largely reflecting the one-time accrual impact of amendments to veterans future benefit plans in 2015–2016 which raised other expenses in that year, as well as a decrease in bad debt expenses in 2016–2017, offset in part by increases in the current year in claims expenses and pensions and other future benefit costs based on the Government's latest actuarial valuations.

Public debt charges decreased by $1.3 billion, or 5.2 per cent, reflecting a lower average effective interest rate on the stock of interest bearing debt, down from 2.8 per cent in 2015–2016 to 2.5 per cent in 2016–2017.

Comparison of actual results to budget projections

Comparison to March 2017 budget plan

The $17.8-billion deficit recorded in 2016–2017 represents a $5.3-billion improvement over the $23.0-billion deficit projected in the March 2017 Budget.

Revenues were $1.4 billion, or 0.5 per cent, higher than expected, primarily reflecting higher-than-projected GST revenues and non-resident income tax revenues, largely as a result of the stronger-than-expected economic growth in the last few months of the fiscal year.

Program expenses were $3.7 billion lower than expected, reflecting a number of factors, including lower-than-expected infrastructure transfer payments; lower-than-expected bad debt expenses associated with taxes receivable and other accounts receivable; and a downward adjustment to the expenses of the St. Lawrence Seaway Management Corporation in the current year to reflect the retroactive capitalization of certain asset renewal costs.

Public debt charges were $0.1 billion lower than forecast, reflecting a lower-than-expected average effective interest rate on the stock of interest-bearing debt.

Comparison of 2016–2017 outcomes to March 2017 budget
(in millions of dollars)

  Projection Actual Difference
Revenues 292,089 293,495 1,406
Expenses
Program expenses 290,881 287,156 (negative 3,725)
Public debt charges 24,254 24,109 (negative 145)
Total expenses 315,135 311,265 (negative 3,870)
Annual deficit (negative 23,046) (negative 17,770) 5,276

Comparison to March 2016 budget plan

The 2016–2017 budgetary deficit of $17.8 billion represents a $11.6 billion improvement relative to the $29.4-billion deficit projected for 2016–2017 in the March 2016 budget. This improvement is due to higher-than-forecast revenues and lower-than-forecast expenses.

Revenues were $5.8 billion, or 2.0 per cent, higher than forecast in the March 2016 Budget, primarily reflecting stronger-than-expected growth in income tax revenues and other taxes and duties due mainly to a stronger-than-expected economic performance.

Total expenses were $5.8 billion lower than projected in the March 2016 Budget, with program expenses $4.2 billion lower than forecast and public debt charges $1.6 billion lower than forecast.

Major transfers to persons were $0.5 billion lower than forecast. This was largely as a result of lower-than-expected EI benefits reflecting improved labour market conditions, as well as lower-than-expected elderly benefits due to weaker-than-expected inflation and fewer recipients than forecast.

Direct program expenses, which are comprised of other transfer payments and other expenses, were $3.8 billion lower than projected in the March 2016 Budget. The variance from forecast was largely due to lower other expenses, driven in large part by lower-than-expected bad debt expenses, capital amortization expenses and a downward adjustment to the expenses of the St. Lawrence Seaway Management Corporation in the current year to reflect the retroactive capitalization of certain asset renewal costs.

Public debt charges in 2016–2017 were $1.6 billion lower than forecast in the March 2016 Budget, largely reflecting a lower-than-expected average effective interest rate on the stock of interest-bearing debt.

Comparison of 2016–2017 outcomes to March 2016 budget
(in millions of dollars)

  Budget Actual Difference
Revenues
Income tax revenues 187,992 192,967 4,975
Other taxes and duties 49,588 51,348 1,760
Employment insurance premiums 22,402 22,125 (negative 277)
Other revenues 27,677 27,055 (negative 622)
Total revenues 287,659 293,495 5,836
Expenses
Program expenses
Major transfers to persons 91,402 90,938 (negative 464)
Major transfers to other levels of government 68,649 68,652 3
Other transfer payments 41,684 41,580 (negative 104)
Other expenses 89,658 85,986 (negative 3,672)
Total program expenses 291,393 287,156 (negative 4,237)
Public debt charges 25,682 24,109 (negative 1,573)
Total expenses 317,075 311,265 (negative 5,810)
Annual deficit (negative 29,416) (negative 17,770) 11,646

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 represents 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 Canadian public sector accounting standards, 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.

Accumulated deficit
(in millions of dollars)

  2016–2017 2015–2016 Difference
Accumulated deficit at beginning of year (negative 615,986) (negative 612,330) (negative 3,656)
Annual deficit (negative 17,770) (negative 987) (negative 16,783)
Other comprehensive income (loss) 1,857 (negative 2,669) 4,526
Accumulated deficit at end of year (negative 631,899) (negative 615,986) (negative 15,913)

The accumulated deficit increased by $15.9 billion in 2016–2017, reflecting the $17.8-billion budgetary deficit, offset in part by $1.9 billion in other comprehensive income. The $1.9 billion in other comprehensive income reflects $0.1 billion in net unrealized gains on available-for-sale financial instruments and $1.8 billion in net actuarial gains on pensions and other employee future benefits recorded by enterprise Crown corporations and other government business enterprises.

The accumulated deficit was 31.2 per cent of GDP at March 31, 2017, compared to a post-World War II peak of 66.8 per cent at March 31, 1996.

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 1992–1993. The percentage for 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 30.9; 2015–2016 is 31.0; and 2016–2017 is 31.2.

The Government's 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.

Statement of financial position
(in millions of dollars)

  2016–2017 2015–2016 Difference
Liabilities
Accounts payable and accrued liabilities 132,519 127,853 4,666
Interest-bearing debt
Unmatured debt 713,633 688,211 25,422
Pensions and other future benefits 245,374 237,908 7,466
Other liabilities 5,689 5,602 87
Total 964,696 931,721 32,975
Total liabilities 1,097,215 1,059,574 37,641
Financial assets
Cash and accounts receivable 158,055 154,688 3,367
Foreign exchange accounts 98,797 93,539 5,258
Loans, investments and advances 124,006 115,957 8,049
Public sector pension assets 1,900 1,639 261
Total financial assets 382,758 365,823 16,935
Net debt (negative 714,457) (negative 693,751) (negative 20,706)
Non-financial assets 82,558 77,765 4,793
Accumulated deficit (negative 631,899) (negative 615,986) (negative 15,913)

Accounts payable and accrued liabilities

The following chart shows accounts payable and accrued liabilities by category for 2016–2017.

Accounts payable and accrued liabilities by category for 2016–2017

Accounts payable and accrued liabilities by category for 2016–2017. Refer to the text description following the image.

Image description

The Graph "Accounts payable and accrued liabilities by category for 2016–2017" 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 41.6%; Deferred revenues 7.0%; Environmental liabilities and asset retirement obligations 9.5%; Interest and matured debt 3.5%; Provision for contingent liabilities 12.4%; and Other accounts payable and accrued liabilities 26.0%.

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; provisions for contingent liabilities, including guarantees provided by the Government and claims and pending and threatened litigation; environmental liabilities and asset retirement obligations, which include estimated costs related to the remediation of contaminated sites and the future restoration of certain tangible capital assets; deferred revenue; interest 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, 2017, accounts payable and accrued liabilities totalled $132.5 billion, up $4.7 billion from March 31, 2016. This increase reflects growth in amounts payable to taxpayers, provisions for contingent liabilities, and other accounts payable and accrued liabilities, partially offset by decreases in environmental liabilities and asset retirement obligations, deferred revenue and interest and matured debt.

Amounts payable to taxpayers increased by $1.4 billion in 2016–2017, from $53.7 billion at March 31, 2016 to $55.1 billion at March 31, 2017.

Provisions for contingent liabilities increased by $3.9 billion, largely reflecting an increase in the provision for claims and pending and threatened litigation.

Other accounts payable and accrued liabilities increased by $1.2 billion in 2016–2017. Within this component, accrued salaries and benefits increased by $1.0 billion, reflecting in part the accrual of retroactive salaries under new collective agreements. Accounts payable of consolidated Crown corporations and other entities increased by $2.1 billion, largely relating to growth in trade payables and progress payments from foreign customers received by the Canadian Commercial Corporation. These increases were offset in part by a $1.9-billion decrease in liabilities under provincial, territorial and Aboriginal tax agreements, due to settlements of prior years' tax assessments and timing differences.

Deferred revenue decreased by $0.9 billion in 2016–2017, primarily reflecting the recognition of previously deferred revenue related to spectrum licence auctions and progress payments from foreign customers received by the Canadian Commercial Corporation.

Environmental liabilities and asset retirement obligations decreased by $0.7 billion in 2016–2017, reflecting remediation activities undertaken during the year, as well as downward revisions to estimated provisions for certain contaminated sites and Atomic Energy of Canada Limited's provision for decommissioning and waste management.

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

Graph - Accounts payable and accrued liabilities

(in billions of dollars)

Accounts payable and accrued liabilities by category for 2016–2017. Refer to the text description following the image.

Image description

The Graph "Accounts payable and accrued liabilities" illustrates, in billions of dollars, the amount of accounts payable and accrued liabilities since 1992–1993. The amount for 1992–1993 is 58.4; 1993–1994 is 63.7; 1994–1995 is 71.3; 1995–1996 is 74.9; 1996–1997 is 75.9; 1997–1998 is 81.7; 1998–1999 is 83.7; 1999–2000 is 83.9; 2000–2001 is 88.5; 2001–2002 is 83.2; 2002–2003 is 83.2; 2003–2004 is 85.2; 2004–2005 is 97.7; 2005–2006 is 101.4; 2006–2007 is 106.5; 2007–2008 is 110.5; 2008–2009 is 114.0; 2009–2010 is 120.5; 2010–2011 is 119.1; 2011–2012 is 125.0; 2012–2013 is 118.7; 2013–2014 is 111.7; 2014–2015 is 123.6; 2015–2016 is 127.9; and 2016–2017 is 132.5.

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 74.0 per cent of interest-bearing debt at March 31, 2017. Pension and other future benefit liabilities include obligations for: federal 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 15.7 per cent of interest-bearing debt and other employee and veteran future benefits accounted for an additional 9.7 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 2016–2017

Interest-bearing debt by category for 2016–2017. Refer to the text description following the image.

Image description

The graph "Interest-bearing debt by category for 2016–2017" 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 55.6%; Treasury bills 14.2%; Other unmatured debt 4.2%; Public sector pensions 15.7%; Other employee and veteran future benefits 9.7%; and Other liabilities 0.6%.

At March 31, 2017, interest-bearing debt totalled $964.7 billion, up $33.0 billion from March 31, 2016. Within interest-bearing debt, unmatured debt increased by $25.4 billion, liabilities for pensions decreased by $0.4 billion, liabilities for other employee and veteran future benefits increased by $7.9 billion, and other liabilities increased by $0.1 billion.

The $25.4-billion increase in unmatured debt is largely attributable to an increase in marketable bonds, reflecting increased borrowings to meet the financial needs of the Government.

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 $205.0 billion, representing approximately 28.7 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 1992–1993. The percentage for 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 26.0; 2014–2015 is 27.2; 2015–2016 is 29.5; and 2016–2017 is 28.7.

The Government's liabilities for pensions and other future benefits stood at $245.4 billion at March 31, 2017, up $7.5 billion from the prior year. These liabilities represent the estimated present value of pensions and other future benefits earned to March 31, 2017, 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 2016–2017.

Net future benefit liabilities
(in millions of dollars)

  Pensions Other future benefits Total
Net future benefit liabilities at beginning of year 150,588 85,681 236,269
Add:
Benefits earned during the year 6,865 5,350 12,215
Interest on accrued benefit obligations, net of the expected return on investments 6,699 2,783 9,482
Net actuarial losses recognized during the year 1,673 4,103 5,776
Plan amendments, curtailments and settlementsLink to footnote 3 (negative 22) 421 399
Subtotal 15,215 12,657 27,872
Deduct:
Benefits paid during the year 11,297 4,695 15,992
Transfers to the PSPIB and funds held in external trustsLink to footnote 4 3,795 1 3,796
Transfers to other plans and administrative expenses 805 74 879
Subtotal 15,897 4,770 20,667
Net (decrease) increase (negative 682) 7,887 7,205
Net future benefit liabilities at end of year 149,906 93,568 243,474
Presented on the Consolidated Statement of Financial Position as:
Public sector pension liabilities 151,806
Other employee and veteran future benefit liabilities 93,568
Total pension and other future benefit liabilities 245,374
Public sector pension assets 1,900
Net pensions and other future benefit liabilities 243,474

The increase in net liabilities for pensions and other future benefits in 2016–2017 reflects the addition of $12.2 billion in future benefits earned by employees during the year as well as $9.5 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 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 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. Interest is recorded on the liabilities 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 charges are recorded as part of public debt charges while benefits expense is recorded as part of other expenses on the Consolidated Statement of Operations and Accumulated Deficit. The Government is currently working on a project to update the methodology used to determine its discount rates for pensions and other future benefits. The recorded values of these benefit obligations are highly sensitive to changes in discount rates. The Government will report on the results of this project in future Public Accounts.

The Government's liabilities for pensions and other future benefits increased by an additional $5.8 billion in 2016–2017 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 the Government's 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, which represents periods ranging from 4 to 23 years, according to the plan in question. As of March 31, 2017, the Government had net unamortized losses of $46.6 billion. These losses will be reflected over time in the liabilities and recorded as part of other expenses.

The Government also recorded a $0.4-billion increase in liabilities for pensions and other future benefits to reflect the net impact of plan amendments, curtailments and settlements during the year.

These increases were offset in part by reductions in the liabilities for benefits paid during the year ($16.0 billion) and for net transfers to the Public Sector Pension Investment Board and funds held in external trusts for investment ($3.8 billion).

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

Interest-bearing debt stood at 47.6 per cent of GDP in 2016–2017, up from 46.9 per cent in 2015–2016. This ratio is down almost 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 1992–1993. The percentage for 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 46.9; 2014–2015 is 45.4; 2015–2016 is 46.9; and 2016–2017 is 47.6.

The average effective interest rate on the Government's interest-bearing debt in 2016–2017 was 2.5 per cent, down from 2.8 per cent in 2015–2016. The average effective interest rate on unmatured debt in 2016–2017 was 2.1 per cent, while the average effective interest rate on pension and other liabilities was 3.9 per cent. The average effective interest rate was higher on pension and other liabilities than on unmatured debt because the Government's unfunded pension liability is 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 1992–1993. The percentage for interest-bearing debt for 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; 2015–2016 is 2.8; and 2016–2017 is 2.5. For unmatured debt, the percentage for 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; 2015–2016 is 2.3; and 2016–2017 is 2.1. For pension and other liabilities, the percentage for 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 5.4; 2013–2014 is 5.0; 2014–2015 is 4.7; 2015–2016 is 4.2; and 2016–2017 is 3.9.

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 marketable securities, 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 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 2016–2017

Financial assets by category for 2016–2017. Refer to the text description following the image.

Image description

The Graph "Financial assets by category for 2016–2017" 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 9.5%; Taxes receivable 28.9%; Other accounts receivable 2.9%; Foreign exchange accounts 25.8%; Loans, investments and advances 32.4%; and Public sector pension assets 0.5%.

At March 31, 2017, financial assets amounted to $382.8 billion, up $16.9 billion from March 31, 2016. The increase in financial assets reflects increases in cash and accounts receivable, foreign exchange accounts, and loans, investments and advances.

At March 31, 2017, cash and accounts receivable totalled $158.1 billion, up $3.4 billion from March 31, 2016. Within this component, cash and cash equivalents decreased by $2.1  billion. The balance of cash and cash equivalents includes $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 $4.7 billion during 2016–2017 to $110.5 billion while other accounts receivable increased by $0.8 billion, largely due to growth in trade receivables of the Canadian Commercial Corporation.

Foreign exchange accounts increased by $5.3 billion in 2016–2017, totalling $98.8 billion at March 31, 2017. The increase in foreign exchange accounts is due mainly to growth in foreign exchange reserves held in the Exchange Fund Account, primarily reflecting $3.3 billion in net additional advances to the Account during the year and the Account's $2.0-billion net income.

Loans, investments and advances in enterprise Crown corporations and other government business enterprises increased by $8.3 billion in 2016–2017. Net loans and advances increased by $3.7 billion, due mainly to an increase in loans to Crown corporations under the consolidated borrowing framework. Investments in enterprise Crown corporations and other government business enterprises increased by $4.6 billion, as the $4.9 billion in net profits and $1.9 billion in other comprehensive income recorded by these entities during 2016–2017 were partially offset by $2.2 billion in dividends paid to the Government and other equity transactions. Other loans, investments and advances decreased by $0.3 billion in 2016–2017, while public sector pension assets increased by $0.3 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 $290.1 billion, mainly reflecting higher levels of cash and cash equivalents and accounts receivable (up $105.5 billion), an increase in the foreign exchange accounts (up $79.7 billion), and an increase in loans, investments and advances (up $103.0 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.

Graph - Financial assets

(in billions of dollars)

Financial assets.

Image description

The Graph "Financial assets" illustrates, in billions of dollars, the Loans, investments and advances and Public sector pension assets, Foreign exchange accounts, Cash and accounts receivable since 1994–1995. Respectively, the amounts for 1994–1995 are: 25.4, 14.4, 41.5; 1995–1996 are 21.0, 19.1, 52.6; 1996–1997 are 20.8, 26.8, 52.8; 1997–1998 are 19.4, 29.0, 55.3; 1998–1999 are 18.7, 34.7, 55.9; 1999–2000 are 20.1, 41.5, 61.9; 2000–2001 are 24.5, 50.3, 67.1; 2001–2002 are 25.7, 52.0, 59.9; 2002–2003 are 27.8, 49.0, 62.7; 2003–2004 are 33.8, 44.3, 71.0; 2004–2005 are 38.2, 40.9, 76.3; 2005–2006 are 41.9, 40.8, 82.8; 2006–2007 are 45.1, 44.2, 92.6; 2007–2008 are 50.9, 42.3, 82.9; 2008–2009 are 125.1, 51.7, 122.1; 2009–2010 are 152.7, 47.0, 101.2; 2010–2011 are 158.5, 48.5, 96.9; 2011–2012 are 152.9, 57.0, 107.7; 2012–2013 are 154.9, 58.8, 124.2; 2013–2014 are 118.6, 72.3, 128.6; 2014–2015 are 114.9, 85.0, 136.7; 2015–2016 are 117.9, 93.5, 154.7; and 2016–2017 are 125.9, 98.8, 158.1.

Net debt

The Government's net debt—its total liabilities less financial assets—stood at $714.5 billion at March 31, 2017. Net debt was 35.2 per cent of GDP, up 0.3 percentage points from a year earlier, and 37.0 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 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 1992–1993. The percentage for 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 36.0; 2014–2015 is 34.6; 2015–2016 is 34.9; and 2016–2017 is 35.2.

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

G7 total government net debt, 2016

(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 2016" illustrates the G7 net debt-to-GDP ratio as a percentage of GDP by country. The percentage by component is: Canada is 27.6; Germany is 45.0; United Kingdom is 80.7; United States is 81.5; France is 88.3; Italy is 113.3; and Japan is 119.8. The G7 average is 83.0.

Footnote G7 average: Weighted by nominal GDP converted to U.S. dollars at average market exchange rates.
Source: International Monetary Fund, Fiscal Monitor (April 2017).

Jurisdictional responsibility (between central, state and local levels of government) for government programs differs among countries. As a result, international comparisons of government fiscal positions are undertaken on a total government, National Accounts, basis. For Canada, total government net debt includes that of the federal, provincial/territorial and local governments, as well as the net assets held in the Canada Pension Plan and Quebec Pension Plan.

Canada's total government net debt-to-GDP ratio stood at 27.6 per cent in 2016, 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. This is in large part due to the holding of significant financial assets by federal and provincial governments as well as those held by 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 2016–2017

Non-financial assets by category for 2016–2017. Refer to the text description following the image.

Image description

The Graph "Non-financial assets by category for 2016–2017" 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 and other 7.3%; Inventories 8.3%; Land 2.1%; Buildings 18.7%; Works and infrastructure 9.1%; Machinery and equipment 12.8%; Vehicles 19.4%; Assets under construction 17.7%; and Other capital assets 4.6%.

At March 31, 2017, non-financial assets stood at $82.6 billion, up $4.8 billion from a year earlier. Of this growth, $3.8 billion relates to an increase in tangible capital assets while $1.3 billion relates to an increase in prepaid expenses and other non-financial assets. This latter increase is due mainly to a net increase in progress payments and advances to Canadian exporters by the Canadian Commercial Corporation.

At March 31, 2017, 60.8 per cent of the original cost of the Government's depreciable tangible capital assets had been amortized, an increase of 0.4 per cent 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

(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" illustrates, in billions of dollars, the tangible capital asset cost and net book value since 2002–2003. The amount for 2002–2003 is Cost 82.4 and Net book value 47.0; 2003–2004 is Cost 86.2 and Net book value 47.7; 2004–2005 is Cost 90.6 and Net book value 48.2; 2005–2006 is Cost 93.8 and Net book value 48.4; 2006–2007 is Cost 97.5 and Net book value 49.0; 2007–2008 is Cost 103.5 and Net book value 51.2; 2008–2009 is Cost 110.1 and Net book value 53.3; 2009–2010 is Cost 115.7 and Net book value 55.1; 2010–2011 is Cost 122.1 and Net book value 57.7; 2011–2012 is Cost 126.1 and Net book value 59.0; 2012–2013 is Cost 131.3 and Net book value 60.2; 2013–2014 is Cost 135.0 and Net book value 61.9; 2014–2015 is Cost 139.4 and Net book value 63.3; 2015–2016 is Cost 144.6 and Net book value 65.8; and 2016–2017 is Cost 152.4 and Net book value 69.7.

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 2016–2017, the Government had a total cash requirement of $27.1 billion before financing activities, compared to a total cash requirement of $16.4 billion before financing activities in 2015–2016. Operating activities resulted in a net cash requirement of $17.8 billion in 2016–2017, compared to a net cash requirement of $11.1 billion in 2015–2016. Cash used by capital investment activities resulted in net cash requirement of $1.9 billion in 2016–2017, compared to a net cash source of $1.5 billion in 2015–2016.

Cash flow
(in millions of dollars)

  2016–2017 2015–2016
Cash used by operating activities (negative 17,809) (negative 11,132)
Cash used by capital investment activities (negative 7,413) (negative 6,747)
Cash (used) provided by investing activities (negative 1,909) 1,528
Total cash used before financing activities (negative 27,131) (negative 16,351)
Cash provided by financing activities 25,061 19,922
Net (decrease) increase in cash and cash equivalents (negative 2,070) 3,571
Cash and cash equivalents at beginning of year 38,570 34,999
Cash and cash equivalents at end of year 36,500 38,570

Financing activities generated a $25.1-billion source of cash in 2016–2017, resulting in an overall net decrease in cash of $2.1 billion. The level of cash and cash equivalents stood at $36.5 billion at March 31, 2017.

Risks and uncertainties

The Government's financial results are subject to risks and uncertainties inherent in the nature of certain financial statement elements and government operations, including:

Exposure to measurement uncertainty from the use of accounting and other estimates in recording certain transactions is discussed in Note 1 of the consolidated financial statements of the Government of Canada in Section 2 of this volume. Further details with respect to the measurement of the Government's contingent liabilities and environmental liabilities are included in Notes 6 and 7, respectively, of the consolidated financial statements of the Government of Canada. Note 17 of the consolidated financial statements provides information on instruments and strategies used by the Government to manage financial risks associated with its financial assets and liabilities.

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, 2017 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.

The Government manages risks to its fiscal projections due to changes in economic conditions by regularly surveying private sector economists on their views on the outlook for the Canadian economy and by monitoring its financial results on an ongoing basis to assess potential risks and guide its financial decisions.

The Government also prepares long-term economic and fiscal projections, which provide a broad analysis of its fiscal position, allowing the Government to respond more effectively to upcoming challenges and protect the long-term sustainability of public finances. The most recent version of these projections is available on the Department of Finance Canada's website.

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