Revenues are up 4.7 per cent despite the $4.5 billion tax cuts that came into effect in 2003-04 Corporate tax revenues are up $5.2 billion and personal income tax revenues are up $3.2 billion from last year. Due to the decline in interest rates, public debt charges declined by $1.5 billion.
Despite its $100 billion Five-Year Tax Reduction Plan, there is no mystery why the government received more money than expected from corporate taxes last year. It all goes back to the decline in profits in 2001. The federal government allowed corporations to carry their losses forward and pay lower taxes in 2002-03. So, as corporate profits soared in 2003-04, corporations paid more in taxes. The Department of Finance points out that the current increase is also due to the strong Canadian dollar that meant increased profits for the financial sector. Corporations have already received huge tax cuts. This should not be used as a justification for more tax cuts in the upcoming budget.
While the corporations complain about paying too many taxes, in actual fact the regressive GST contributes more to government revenue than corporate taxes. The GST contributes 15.2 per cent to federal government revenues, while corporate income taxes are even less, at 14.7 per cent. The Goods and Services Taxes revenues increased slightly, because of slow consumer spending and cheaper imports due to the strong dollar. As well, GST-HST rebates to municipalities meant revenues were down.
Last year, the government continued to take the surplus from Employment Insurance away from unemployed workers. Despite the $0.3 billion decline in EI revenue caused by the reduction in premium rates, the government took in $17.5 billion in Employment Insurance premium revenues. It spent $15.1 billion on EI during 2003-04. The surplus amounts to almost $2.5 billion ($2,488 million).
Perhaps one of the most outrageous aspects of the Annual Financial Report was the announcement that the government spent $2.0 billion less on program spending than it said it would at the time of the 2004 budget. The Department of Finance attributes this to the year-end spending freeze and delays in implementing initiatives from previous budgets.
The government likes to point out that program expenses increased by $7.8 billion over the previous year, but we have to take a longer view. As a percentage of GDP, program expenses declined from 15.7 per cent in 1993-94 to 11.6 per cent in 2003-04.
It is also important to note that increases in program spending were recorded in all areas, except major transfers to other levels of government, because of one-time payments for health care in 2002-03 and the impact of lower equalization entitlements stemming from earlier budget decisions. In 2003-04, equalization payments were decreased by $1.0 billion primarily attributed to monies recovered from provinces for overpayments in 2002-03.
Composition of Net Revenues for 2003-04
- Corporate income tax: 14.7 per cent
- GST: 15.2 per cent of net revenue
- Employment Insurance: 9.4 per cent
- Personal income tax: 45.6 per cent
- Other excise taxes and duties: 7.0 per cent
- Other income tax: 1.7 per cent
- Other revenues: 6.4 per cent
Composition of Net Expenses for 2003-04
- Transfers to governments: 16.6 per cent
- Transfers to persons: 23.7 per cent
- Other Transfers: 13.0 per cent
- Crown Corporations: 3.0 per cent
- Defence: 7.0 per cent
- All other departmental operating expenses: 16.5 per cent
- Public debt interest: 20.2 per cent
See: Department of Finance Canada, Annual Financial Report of the Government of Canada Fiscal Year 2003-04