Federal spending tops $332 billion as revenue gets a $20 billion boost

Posted on October 19, 2018 in Governance Debates

TheStar.com – Politics/Federal
Oct. 19, 2018.   By

OTTAWA—The federal government brought in an extra $20 billion in revenue in the last fiscal year, in part through more personal incomes taxes, but that was offset by a rise in expenses as total annual spending grew to $332 billion, according to a year-end report.

The annual financial report released Friday shows that the government posted a deficit of $19 billion in 2017-18 and the federal debt-to-GDP ratio was 31.3 per cent.

The report shows that revenue was up by $20.1 billion, or 6.9 per cent, from 2016-17 to $313.6 billion. Driving part of that increase was an additional $9.9 billion in personal tax revenue. Officials said Friday said that was in part due to a rebound of personal tax revenues from 2016-17. The drop that year was caused when high-income earners declared income in the 2015 tax year to avoid higher taxes for those making more than $200,000 introduced by the Liberals for 2016.

Personal income tax makes up 49 per cent of Ottawa’s revenue stream compared to 15.2 per cent for corporate taxes, which grew by $5.6 billion attributed to strong business earnings. The goods and services tax, which accounts for 11.7 per cent of government revenue, was up $2.4 billion due to higher retail sales.

Spending grew by $20.1 billion, up 6.4 per cent from the previous fiscal year. Almost 30 per cent of the spending is on transfer payments to Canadians through programs like the old age security and guaranteed income supplements. Employment insurance payouts dropped by $1 billion, in part because of strong labour conditions.

Major transfers to other levels of government, such as the Canada Health Transfer, made up 21 per cent of federal spending.

Overall, revenues were $4 billion more than expected in 2016-17 and expenses ran $3.3 billion more than forecast.

The report says the federal coffers got a boost from a strong economy that added 427,300 jobs in 2017, pushing the December unemployment rate to 5.8 per cent, among its lowest level in the last four decades.

But Kevin Page, a former parliamentary budget officer, sounded a caution that despite strong economic growth, the deficit remained virtually unchanged from the previous year. He said the government is “deficit financing” key initiatives such as its child tax benefit and its infrastructure funding.

“The Liberals are right. It is a modest deficit. But it’s a deficit … we’re using our credit card to pay for a lot of this stuff,” said Page, president and CEO of the Institute of Fiscal Studies and Democracy at the University of Ottawa.

The financial report notes that public debt charges totalled $21.9 billion or 6.6 per cent of expenses in 2017-18, down from a peak of almost 30 per cent in the mid-1990s.

But interest rates are expected to rise to more normal levels over the coming years and that will ultimately raise debt costs for the federal government, Page said, adding, “we’re going to pay the price.”

“It’s piling up now and we’re now at a point where interest rates are going up so debt is going to get a lot heavier,” he said.

As first reported by the Star, the federal government has acted on a recommendation from the auditor general and changed how it accounts for future liabilities, notably unfunded pension costs.

But the change means that the some numbers have to be restated — the deficit for 2017-18 is $507 million more than expected; debt is up $20.2 billion to $671.3 billion and the federal debt-to-GDP ratio now stands at 31.3 per cent.

At a briefing Friday, federal officials said the move brought the government in line with best practices and increased transparency about future costs.

In response, the auditor general’s office said it was pleased that the government had acted on its recommendation to provide a more accurate assessment of future liabilities. “We are of the opinion that this resulted in a much better estimate of what the government owes,” the auditor general said in an assessment on its website.

During the 2015 election campaign, the Liberals committed to balance the books and reduce the debt-to-GDP ratio to 27 per cent by 2019. The accounting changes means the restated goal would now be 28 per cent, a government official said Friday.

The Liberals’ February budget — done before the accounting change — forecast a $17.5 billion deficit in 2019-20, dropping to $12.3 billion in 2022-23.

Friday’s report did not provide long-term forecasts but official said the debt-to-GDP ratio will continue on a downward track. The fall economic update expected in the coming weeks will lay out more detailed predictions of Ottawa’s fiscal picture.


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