Department of Finance Canada
Quarterly Financial Report for the Quarter Ended June 30, 2016 (unaudited)

Table of Contents

1. Introduction

2. Highlights of fiscal quarter and fiscal year-to-date (YTD) results.

3. Risks and Uncertainties

4. Significant changes in relation to operations, personnel and programs

5. Approval by Senior Officials

1. Introduction

This quarterly financial report has been prepared by management as required by section 65.1 of the Financial Administration Act and in the form and manner prescribed by the Treasury Board Accounting Standard 1.3. This quarterly financial report should be read in conjunction with the Main Estimates and Supplementary Estimates of the Department of Finance Canada.

The quarterly financial report has not been subject to an external audit or review.

1.1 Authority, Mandate and Program Activities

The Department of Finance Canada (the ‘Department’) provides the Government of Canada with high quality advice on appropriate economic, fiscal, tax, social, security, international and financial sector policies and programs with the goal of strengthening the Canadian economy and maintaining sustainable fiscal policy and social programs.

The Department's responsibilities include the following:

  • Preparing the Federal Budget and the Falls Update of Economic and Fiscal Projections;
  • Preparing the Annual Financial Report of the Government of Canada and, in cooperation with the Treasury Board of Canada Secretariat and the Receiver General for Canada, the Public Accounts of Canada;
  • Developing tax and tariff policy and legislation;
  • Managing federal borrowing on financial markets;
  • Designing and administering major transfers of federal funds to the provinces and territories;
  • Developing financial sector policy and legislation, and;
  • Representing Canada in various international financial institutions and organizations.

The description of the program activities for the Department can be found in Part II of the Main Estimates and the Report on Plans and Priorities.

1.2 Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes the Department’s spending authorities granted by Parliament and those used by the Department, consistent with the Main Estimates and Supplementary Estimates for both fiscal years as well as transfers from Treasury Board central votes that are approved by the end of the quarter. This quarterly financial report has been prepared using a special purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities.

The authority of Parliament is required before monies can be spent by the Government. Approvals are given in the form of annually approved limits through appropriation acts or through legislation in the form of statutory spending authority for specific purposes.

The Department uses the full accrual method of accounting to prepare and present its annual departmental financial statements that are part of the departmental performance reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis.

1.3 Department of Finance Canada – Financial Structure

The Department has three major categories of expenditure authority. These categories are:

  • Voted budgetary authorities: included in this category are the operational expenditures of the Department itself as well as authorized expenditures under grants and contribution programs. These expenditures must be specifically approved by Parliament through an appropriation act.
  • Statutory budgetary authorities: included in this category are expenditure authorities that are granted through an existing Act of Parliament. Further parliamentary approval is not required for expenditures related to statutory amounts and it is within the normal course of business that statutory expenditures may in some cases exceed planned spending estimates. Departmental statutory payments include those made under the Federal-Provincial Fiscal Arrangements Act as well as interest incurred in connection with the public-debt of Canada.
  • Non-budgetary authorities: included in this category are disbursements made by the Department which do not have a direct budgetary impact to the Government. This includes the value of loans initially disbursed to Crown Corporations participating in the Crown Borrowing Framework.

2. Highlights of fiscal quarter and fiscal year-to-date (YTD) results

This Departmental Quarterly Financial Report (QFR) reflects the results of the current fiscal period in relation to the Main Estimates and Supplementary Estimates A of 2015-16.

The following graph provides a comparison of budgetary authorities available for the full fiscal year and budgetary expenditures for the first three months of 2015-16 and 2016-17. Non-budgetary authorities related to the value of loans disbursed to Crown Corporations participating in the Crown Borrowing Framework are not reflected in the Estimates.

Comparison of Budgetary Authorities and Year to Date Budgetary Expenditures for the Quarter ended June 30 of Fiscal Years 2015-16 and 2016-17
In 2016-17, Q1 Authorities were $89,464 million, Q1 Expenditures were $22,590 million. In 2015-16, Q1 Authorities were $89,646 million, Q1 Expenditures were $22,468 million.

Sections 2.1 and 2.2 below highlight the significant items that contributed to the decrease in the resources available from 2015-16 to 2016-17 and the decrease in actual expenditures as at June 30, 2015 compared to June 30, 2016. Full details can be found in Table 1, Statement of Authorities found on page 12 of this document.

2.1 Authorities Analysis

Total authorities

The following table provides a comparison of cumulative authorities by vote for the current and previous fiscal years.

Comparison of Authorities Available for Use for the Year
as at June 30 of Fiscal Years 2015-16 and 2016-17
      Variance
     
Authorities Available (in millions) 2016-17 2015-16 $ %
Budgetary        
  Voted:        
    Vote 1 - Program Authority 90.7 103.0 (12.3) -11.9%
  Statutory:        
    Major transfers to other levels of government 65,989.9 63312.4 2,677.5 4.2%
    Interest on Unmatured Debt and Interest on Other Liabilities 22,782.0 25,618.0 (2,836.0) -11.1%
    Direct program expenses 601.2 613.0 (11.8) -1.9%
  Total statutory 89,373.1 89,543.4 (170.3) -0.2%
Total Budgetary authorities 89,463.8 89,646.4 (182.6) -0.2%
Non-Budgetary - - - -
Total authorities 89,463.8 89,646.4 (182.6) -0.2%

Authorities available in fiscal year 2016-17 are $89,463.8 million at the end of the first quarter as compared to $89,646.4 million at the end of the first quarter of 2015-16, representing a decrease of $182.6 million.

Voted budgetary authorities

Starting in 2016-17, departmental operating expenditures and grants and contributions are consolidated into Vote 1 – Program Expenditures. This change provides a more efficient approach to the management of voted expenditures.

Total 2016-17 Vote 1 program authorities available as at June 30, 2016 are $90.7 million compared to $103.0 million for the same period in 2015-16, representing a decrease of $12.3 million. This decrease is mainly attributable to the following factors:

  • Government advertising – A decrease of $7.5 million;
  • Harbourfront Centre Funding Program - A decrease of $3.0 million and,
  • Cooperative Capital Markets Regulatory System – A decrease of $1.5 million

Statutory budgetary authorities

Statutory Authorities available in fiscal year 2016-17 are $89,373.1 million at the end of the first quarter compared to $89,543.4 million at the end of the same quarter of 2015-16, representing a decrease of $170.3 million.

This decrease of $170.3 million relates to three broad categories: an increase of $2,677.5 million in major transfers to other levels of government, offset by a decrease in authorities for direct program expenses of $11.8 million and a decrease of $2,836.0 million in Interest on Unmatured Debt and Interest on Other Liabilities. Additional details are provided below.

Authorities for major transfers to other levels of government as at June 30, 2016 are $65,989.9 million compared to $63,312.4 million for the same period in 2015-16. The increase of $2,677.5 million is due to the net effect of the following increases and decreases in transfers:

Increases include:
  • Canada Health Transfer (CHT) – An increase of $2,041.5 million reflecting the annual increased funding commitment in the Jobs, Growth and Long-term Prosperity Act, 2012. This program will increase by 6% per year until 2016-17, after which it will grow based on a 3-year moving average of nominal gross domestic product, with funding guaranteed to increase by at least 3% per year;
  • Fiscal Equalization – An increase of $539.1 million reflecting the 3.1% gross domestic product-based escalator being applied to the 2015-16 level;
  • Canada Social Transfer – An increase of $388.8 million reflecting the 3% annual increased funding commitment in the Jobs, Growth and Long-term Prosperity Act, 2012;
  • Statutory Subsidies – An increase of $8.0 million is due to Newfoundland and Labrador's Term 29 payments under the Newfoundland Additional Financial Assistance Act;
Decreases include:
  • Additional Fiscal Equalization Offset Payment to Nova Scotia – A decrease of $3.5 million due to a decline in Nova Scotia's offshore oil and gas revenues. The Nova Scotia 2005 offshore arrangement provides offset payments equal to the decline in Equalization due to the inclusion of these revenues in the program;
  • Territorial Financing – A decrease of $24.7 million as a result of new and updated data used to calculate territorial expenditure requirements and revenue capacities entering the formula for Territorial Formula Financing. The Budget Implementation Act, 2016 No.1, contained amendments to this program to address the impact of certain public sector data revisions. Upon passage of this legislation on June 22, 2016, the Territorial Formula Financing amounts were re-determined, and consequently, and additional $67.0 million will be provided in 2016-17;
  • Youth Allowance Recovery – An increase in recovery of $37.6 million as a result of an increase in the estimated value of personal income tax points;
  • Additional Fiscal Equalization to Nova Scotia – A decrease of $63.3 million due to Nova Scotia’s lower offshore oil and gas revenues. This program ensures that there is no reduction in combined Equalization and 2005 Offshore Accord Offset Payments relative to the previous Equalization formula that was in place at the time it signed its 2005 Offshore Arrangement; and
  • Alternative Payments for Standing Programs – An increase in recoveries in the amount of $170.8 million as a result of an increase in the value of personal income tax points.

Authorities for direct program expenses at the end of the first quarter of fiscal year 2016-17 are $601.2 million as compared to $613.0 million at the same period in 2015-16, representing a decrease of $11.8 million. This decrease is primarily due to the following factor:

  • Domestic Coinage – A decrease of $12.0 million largely due to the recently amended Royal Canadian Mint Act, which stipulates that the Mint can no longer anticipate profit with respect to the provision of circulation coins.

Authorities for the Interest on Unmatured Debt and Interest on Other Liabilities as at June 30, 2016 are $22,782.0 million compared to $25,618.0 million at the same period in 2015-16. The decrease of $2,836 million is mainly due to the following factors:

  • Interest on Unmatured Debt – A decrease of $2,300.0 million due to a downward revision of interest rates by private sector economists for 2016-17, consistent with the 2015 Update of Economic and Fiscal Projections; and
  • Other Interest Costs – A reduction of $536.0 million, mainly due to a decline in the average Government of Canada long-term bond rate used to calculate interest on the public sector pension obligations pertaining to service pre-April 1, 2000.

Non-Budgetary Authorities

Non-budgetary authorities related to the value of loans disbursed to Crown Corporations participating in the Crown Borrowing Framework are not reflected in the Estimates. The gross borrowing requirements for Crown Corporations are driven by the need to match the term and structure of the borrowing requirements of corporations’ clients. These activities are influenced by current and expectations of future, economic conditions and can vary greatly over a short period of time. For example, if clients of the Crown Corporation are seeking short-term, floating rate loans, the Crown Corporation will seek to match that with short-term borrowings from the government. This will result in the loan being refinanced several times through the year, with higher gross borrowings associated with a smaller net borrowing amount. This can change very quickly should market conditions suggest interest rates are going to rise and their clients seek to lock in their borrowing costs through longer term borrowings. As such, there can be very large and significant variances both inter-year and intra-year. Given the risk of forecast inaccuracy and that the gross advances to Crown Corporations are a non-budgetary item and do not impact on the net-debt of the government, the Department only reports on actual borrowings by the Crown Corporations.

2.2 Expenditure Analysis

Total Expenditures

The following table provides a comparison of cumulative spending by vote for the current and previous fiscal years.

Comparison of Year to Date Expenditures for the Quarter Ended
June 30 of Fiscal Years 2015-16 and 2016-17
      Variance
     
Year to date expenditures (in millions) 2016-17 2015-16 $ %
Budgetary        
  Voted:        
    Vote 1 - Program Expenditures 23.7 26.2 (2.5) -9.5%
  Statutory:        
    Major transfers to other levels of government 16,846.9 16,099.3 747.6 4.6%
    Interest on Unmatured Debt and Interest on Other Liabilities 5,669.1 6,259.2 (590.1) -9.4%
    Direct program expenses 50.3 83.7 (33.4) -39.9%
  Sub Total Statutory 22,566.3 22,442.2 124.1 0.6%
Total Budgetary expenditures 22,590.0 22,468.4 121.6 0.5%
Non-Budgetary 12,855.4 13,057.5 (202.1) -1.5%
Total year to date expenditures 35,445.4 35,525.9 (80.5) -0.2%

At the end of the first quarter of the 2016-17 fiscal year, total expenditures were $35,445.4 million compared to $35,525.9 million reported in the same period of 2015-16, representing a decrease of $80.5 million or 0.2%.

Voted budgetary expenditures

Total 2016-17 Vote 1 program expenditures at the end of the first quarter were $23.7 million compared to $26.2 million for the same period in fiscal year 2015-16, representing a decrease of $2.5 million or 9.5%. The decrease is mainly attributable to reduced government advertising expenditures.

Statutory budgetary expenditures

Total statutory expenditures at the end of the first quarter of 2016-17 are $22,566.3 million as compared to $22,442.2 million at the end of the first quarter of 2015-16 representing an increase of $124.1 million or 0.6%.

This increase is primarily attributable to an increase of $747.6 million in major transfers to other levels of government, offset by a decrease of $33.4 million in direct program expenses, and a decrease of $590.1 million in Interest on Unmatured Debt and Interest on Other Liabilities (decrease of $408.6 million and decrease of $181.5 million, respectively).

Expenditures related to major transfers to other levels of government as at June 30, 2016 are $16,846.9 million compared to $16,099.3 million for the same period in 2015-16 representing an increase of $747.6 million. This increase is mainly due to the net effect of the following factors:

  • Canada Health Transfer – An increase of $510.4 million;
  • Fiscal Equalization – An increase of $134.8 million;
  • Canada Social Transfer – An increase of $97.2 million;
  • Alternative Payments for Standing Programs – A decrease in recoveries of $9.9 million;
  • Youth Allowances Recovery – A decrease in recoveries of $4.9 million; and
  • Territorial Financing – A decrease of $9.6 million.

Explanations for the increases in the items listed above are consistent with the explanations found under the statutory budgetary authorities in Section 2.1.

Direct Program Expenditures at the end of the first quarter of fiscal year 2016-17 are $50.3 million as compared to $83.7 million at the same period in 2015-16, representing a decrease of $33.4 million. This decrease is primarily due to the net effect of the following factors:

  • Losses on Foreign Exchange – A decrease of $37.4 million due to the revaluation of International Monetary Fund related accounts;
  • Purchase of Domestic Coinage – An increase of $3.8 million is attributable to normal variations in the demand for coinage from businesses and consumers and in the timing of costs incurred for coinage procurement throughout the year.

Expenditures for the Interest on Unmatured Debt and Interest on Other Liabilities as at June 30, 2016 are $5,669.1 million compared to $6,259.2 million at the same period in 2015-16 representing a decrease of $590.1 million. The decrease is mainly due to the following factors:

  • Interest on Unmatured Debt – A decrease of $408.6 million, largely reflecting lower Consumer Price Index adjustments on Real Return Bonds and lower effective average interest rates on Government of Canada bonds and treasury bills; and
  • Interest on Other Liabilities – A decrease of $181.5 million, largely reflecting a decrease in the average Government of Canada long-term bond rate, which is used to calculate interest on public sector pension obligations pertaining to service pre-April 1, 2000.

Non-budgetary expenditures

Non-budgetary expenditures at the end of the first quarter of 2016-17 are $12,855.4 million compared to $13,057.5 million at the end of the same quarter in the prior year representing a decrease of $202.1 million. This decrease is due to the following factors:

  • a decrease of $147.7 million related to the value of loans disbursed to Crown Corporations participating in the Crown Borrowing Framework. Gross borrowings by Crown Corporations are based on demand and the business requirements of the participating entities, and also depend on the terms of the Crown Corporation borrowings. As such, amounts can vary significantly from year to year;
  • a decrease of $28.3 million in payments under the Bretton Woods and Related Agreements Act – International Organizations and;
  • a decrease of $26.1 million in loans made to the International Monetary Fund under the New Arrangements to Borrow (NAB).

Significant Changes on the Departmental budgetary expenditures by Standard Object table

Table 2, located at the end of this report, presents Budgetary Expenditures by Standard Object (SO). The main variance in expenditures between 2016-17 and 2015-16 by standard object are as follows:

  • Transfer Payments (SO 10) – A net increase of $747.6 million of which the majority is related to an increase in the statutory expenditures pursuant to major transfers to other levels of government;
  • Utilities, Materials and Supplies (SO 07) – An increase of $3.8 million in the purchase of domestic coinage; and
  • Public Debt Charges (SO 11) – A decrease of $590.1 million.

The year over year variances are explained in detail in the preceding Section 2.2.

3. Risks and Uncertainties

Reflecting the ongoing impact of low and volatile crude oil prices and the overall weak and fragile global economic situation, growth in the Canadian economy has slowed considerably since 2014.

With respect to the fragile global economic situation, the Department will continue to monitor developments and risks in key regions and countries. Notable among these are the slowdown in large emerging market economies, the weak European economic recovery, the escalation of geopolitical tensions in the Middle East, slowing short-to-medium-term growth in both advanced and emerging economies, and the challenges associated with the normalization of U.S. monetary policy, which in turn poses risks for emerging markets with long-standing economic and financial vulnerabilities. Over the planning period, the Department will continue to foster international economic policy coordination, contribute to international efforts to mitigate and prevent economic crises, and manage the allocation of scarce fiscal resources.

The Department of Finance Canada’s Corporate Risk Profile provides a snapshot of the Department’s key corporate risks. It focuses the attention and action of senior management on measures to mitigate the adverse effects of global economic uncertainty and their impact on the Canadian economy. The Department monitors its corporate risks and associated risk responses to identify areas of opportunity and to reflect progress made in implementing measures to mitigate risks.

4. Significant changes in relation to operations, personnel and programs

Effective June 27, 2016, Christopher Meyers replaced Randy Larkin as Chief Financial Officer for the Department of Finance Canada.

5. Approval by Senior Officials

Approved by:

Original signed by
Paul Rochon, Deputy Minister
Original signed by
Christopher Meyers, Chief Financial Officer

Ottawa, Canada
August 29, 2016

Department of Finance Canada
Quarterly Financial Report for the quarter ended June 30, 2016
Table 1 - Statement of Authorities (unaudited)
(in thousands of dollars)
Fiscal year 2016-2017 Fiscal year 2015-2016
 

Total available for use for the
year ending
March 31, 2017 * 
Used during the
quarter ended
June 30, 2016
Year to date used at
quarter-end
Total available for use for the
year ending
March 31, 2015 *
Used during the
quarter ended
June 30, 2015
Year to date used at
quarter-end
Budgetary Authorities
Voted authorities
Program expenditures 90,741 23,669 23,669 102,972 26,182 26,182
 

Total voted authorities 90,741 23,669 23,669 102,972 26,182 26,182
 

Statutory authorities
Major transfers to other levels of government
Canada Health Transfer (Part V.1 - Federal-Provincial Fiscal Arrangements Act) 36,067,673 9,016,918 9,016,918 34,026,107 8,506,527 8,506,527
Canada Social Transfer (Part V.1 - Federal-Provincial Fiscal Arrangements Act) 13,347,956 3,336,989 3,336,989 12,959,181 3,239,795 3,239,795
Fiscal arrangements
Fiscal Equalization (Part I - Federal-Provincial Fiscal Arrangements Act) 17,880,415 4,470,104 4,470,104 17,341,310 4,335,328 4,335,328
Territorial Financing (Part I.1 - Federal-Provincial Fiscal Arrangement Act) 3,536,328 1,372,095 1,372,095 3,561,034 1,381,681 1,381,681
Statutory Subsidies (Constitution Acts, 1867-1982, and Other Statutory Authorities) 42,363 1,238 1,238 34,378 1,237 1,237
Youth Allowances Recovery (Federal-Provincial Fiscal Revision Act, 1964) (890,667) (412,317) (412,317) (853,046) (417,261) (417,261)
Other major transfers
Addtional Fiscal Equalization Offset Payment to Nova Scotia (Nova Scotia and Newfoundland and Labrador Additional Fiscal Equalization Offset Payments Act) 33,255 - - 36,779 - -
Additional Fiscal Equalization to Nova Scotia (Part I - Federal-Provincial Fiscal Arrangements Act) 16,026 - - 79,348 - -
Alternative Payments for Standing Programs (Part VI - Federal-Provincial Fiscal Arrangements Act) (4,043,422) (938,163) (938,163) (3,872,657) (948,036) (948,036)
 

Total major transfers to other levels of government 65,989,927 16,846,864 16,846,864 63,312,434 16,099,271 16,099,271
Interest on Unmatured Debt and Interest on Other Liabilities
Interest on Unmatured Debt and Other Public Debt Costs 15,688,000 3,868,026 3,868,026 17,988,000 4,276,617 4,276,617
Interest on Other Liabilities 7,094,000 1,801,087 1,801,087 7,630,000 1,982,607 1,982,607
 

Total Interest on Unmatured Debt and Interest on Other Liabilities 22,782,000 5,669,113 5,669,113 25,618,000 6,259,224 6,259,224
Direct program expenses
Operating expenses
Purchase of Domestic Coinage 96,000 27,369 27,369 108,000 23,562 23,562
Contributions to Employee Benefit Plans 12,222 3,056 3,055 12,097 3,024 3,024
Minister of Finance - Salary and motor car allowance 83 7 7 82 20 20
Minister of State – Motor car allowance - - - 2 1 1
Transfer payments
Payments to International Development Association 441,620 - - 441,610 - -
Debt payments on behalf of poor countries to International Organizations pursuant to section 18(1) of the Economic Recovery Act 51,200 - - 51,200 - -
Other
Losses on Foreign Exchange - 19,130 19,129 - 56,489 56,489
Payment of Liabilities Previously Recorded as Revenue - 760 760 - 593 593
 

Total direct program expenses 601,125 50,322 50,320 612,991 83,689 83,689
 

Total statutory authorities 89,373,052 22,566,299 22,566,299 89,543,425 22,442,184 22,442,184
 

Total budgetary authorities 89,463,793 22,589,968 22,589,968 89,646,397 22,468,366 22,468,366
 

Non-budgetary authorities
Advances to Crown corporations (Gross) - 12,853,434 12,853,434 - 13,001,111 13,001,111
Advances pursuant to section 13(1) of the Financial Consumer Agency of Canada Act (Gross) - 2,000 2,000 - 2,000 2,000
Payments under Bretton Woods and Related Agreements Act - International Organizations (Gross) - - - - 28,301 28,301
Payments to the International Monetary Fund New Arrangements to Borrow - - - - 26,077 26,077
 

Total non-budgetary authorities - 12,855,434 12,855,434 - 13,057,489 13,057,489
 

Total authorities 89,463,793 35,445,402 35,445,402 89,646,397 35,525,855 35,525,855
* Includes only Authorities available for use and granted by Parliament at quarter-end

 

Department of Finance Canada
Quarterly Financial Report for the quarter ended June 30, 2016
Table 2 - Departmental budgetary expenditures by Standard Object (unaudited)
(in thousands of dollars)
  Fiscal year 2016-2017 Fiscal year 2015-2016
 

Planned expenditures for the year
ending
March 31, 2016
Expended during the
quarter ended
June 30, 2016
Year to date
used at
quarter-end
Planned expenditures for the year
ending
March 31, 2015
Expended during the
quarter ended
June 30, 2015
Year to date
used at
quarter-end
             
Expenditures:            
Personnel 83,362 20,228 20,227 84,190 20,789 20,789
Transportation and communications 2,884 633 633 2,309 622 622
Information 1,580 332 332 8,763 3,364 3,364
Professional and special services 12,519 2,841 2,841 13,159 1,823 1,823
Rentals 1,430 393 394 1,156 408 408
Repair and maintenance 68 - - 62 10 10
Utilities, materials and supplies 96,440 27,413 27,413 108,363 23,622 23,622
Acquisition of land, buildings and works - - - - 29 29
Acquisition of machinery and equipment 820 32 32 2,217 57 57
Transfer payments 66,482,782 16,848,864 16,848,864 63,808,279 16,101,273 16,101,273
Public debt charges 22,782,000 5,669,113 5,669,115 25,618,000 6,259,224 6,259,224
Other subsidies and payments 58 20,119 20,117 49 57,145 57,145
 
Total gross budgetary expenditures 89,463,943 22,589,968 22,589,968 89,646,547 22,468,366 22,468,366
Less Revenues netted against expenditures 150 - - 150 - -
 
Total net budgetary expenditures 89,463,793 22,589,968 22,589,968 89,646,397 22,468,366 22,468,366
* Note: Numbers may not add due to rounding.