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PUBLIC ACCOUNTS OF CANADA

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FISCAL YEAR ENDED MARCH 31

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Summary Report and Financial Statements

Issued by the

DEPARTMENT OF FINANCE

ROGER DUHAMEL, F.R.S.C.

QUEEN'S PRINTER AND CONTROLLER OF STATIONERY

OTTAWA, 1968

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Available by mail from the Queen's Printer, Ottawa, and at the following Canadian Government^bookshops :

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ROGER DUHAMEL, F.R.S.C.

Queen's Printer and Controller of Stationery

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1968

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To His Excellency The Right Honourable Roland Michener, C.C., Governor General and Commander' in-Chief of Canada.

May It Please Your Excellency:

The undersigned has the honour to present to Your Excellency the PubUc Accounts of Canada

for the fiscal year ended March 31, 1968.

All of which is respectfully submitted. '^^^ «aoila«qo Ubixana .«4i3..mi«voa ed-t 1o aldsrlri^lH

EDGAR J. BENSON,

Minister of Finance.

Ottawa, November 29, 1968

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96762— IJ

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SUMMARY REPORT AND FINANCIAL STATEMENTS TABLE OF CONTENTS

Section

The government's accounting system 1

Highlights of the government's financial operations during 1967-68 2

Budgetary accounts 3

Asset and Uability accounts 4

The cash position 5

The public debt 6

Statements of expenditure and revenue and assets and Uabilities 7

Statements of appropriations, expenditure and revenue 8

Appendices 9

Index 10

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PUBLIC ACCOUNTS, 1967-68

Department of Finance, Ottawa, November 29, 1968

The Honourable Edgar J. Benson, Minister of Finance, Ottawa, Canada.

Sir:

I have the honour to submit the Public Accounts of the Government of Canada for the fiscal year ended March 31, 1968.

This annual report is required by section 64 of the Financial Administration Act and is pre- sented in three volumes:

Volume I A survey of the transactions for the fiscal year, together with statements certified by the Auditor General, of the revenue and expenditure for the fiscal year ended March 31, 1968, and of the assets and liabilities of Canada as at March 31, 1968, together with a statement of the contingent liabilities, departmental summaries of appropriations and expenditures, and various other supporting schedules, explanatory notes, statements and appendices.

Volume II Details of expenditures and revenues by departments together with certain statements required by the Financial Administration Act to be pubhshed in the Public Accounts and other miscellaneous statements.

Volume III The financial statements of all Crown Corporations and the Auditors' reports thereon.

Respectfully submitted,

R. B. BRYCE,

Deputy Minister of Finance.

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PUBLIC ACCOUNTS, 1967-68 7

SURVEY OF THE PUBLIC ACCOUNTS

The government's financial transactions for the fiscal year 1967-68 are summarized in this introductory survey.

The pages which follow present :

(a) a brief outline of the principal features of the government's financial statements and accounting system;

(6) a summary of the highlights of the government's financial operations during the fiscal year ended March 31, 1968 including revenue and expenditure on the national accounts basis;

(c) a review of budgetary revenue, expenditure and the deficit for the fiscal year and com- ments on the more significant aspects of the more important items;

{d) a summary of the government's statement of assets and liabilities as at March 31, 1968, with an analysis of the changes that have taken place during the fiscal year in the principal asset and liability categories;

(e) a review of the changes in the government's cash position in 1967-68, with an explanation of the relationship between budgetary and cash transactions ; and

(f) an analysis of the public debt as at March 31, 1968, together with a summary of security issues, maturities and redemptions, and a review of the changes in interest rates during the year.

To faciUtate reading, the figures have been given in most cases to the nearest million dollars.

In Volume II, an overall summary by departments of revenue and expenditure, details of revenue and expenditure by departments, a summary of accounts receivable in departmental sec- tions, appendices relating to departmental operating activities etc., are presented together with (1) statements in each departmental section showing the estimated value of major services provided to the department, the cost of which is not included as a charge to the departmental appropriations and the estimated value of major services provided to other departments for which no reimbursement is received, (2) a statement by department of all costs of financial assistance to persons on educational leave, (3) a statement by department detailing the amount of losses incurred as a result of the accidental destruction of, or damage to, assets which would normally be covered by insurance had such coverage existed, (4) a statement of all material declared surplus during the year showing, to the extent it can be determined, its original cost and the value obtained on disposal by Crown Assets Disposal Corporation, and (5) a summary of accounts properly chargeable to the fiscal year 1967-68 but carried over to the fiscal year 1968-69. In addition, the following statements are required by the Financial Administration Act to be published in the Public Accounts:

(1) Each remission of a tax, fee or penalty of $1,000 or more made under the authority of section 22 of the Financial Administration Act, or any other Act.

(2) The obligations, debts and claims deleted from the Public Accounts during 1967-68 under the authority of section 23 of the Financial Administration Act.

(3) Every accountable advance that is not repaid or accounted for, as required by section 36 of the Financial Administration Act.

(4) All stores and materials deleted from inventory pursuant to section 60 of the Financial Administration Act.

(5) Every payment out of the public officers guarantee account and the amount of every loss suffered by Her Majesty by reason of defalcations or other fraudulent acts or omissions of public officers, together with a statement of circumstances, as required by section 98 of the Financial Administration Act.

The financial statements of Crown Corporations and the auditors' reports thereon are pubUshed in Volume III.

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SECTION 1

1967-68 PUBLIC ACCOUNTS

THE GOVERNMENT'S ACCOUNTING SYSTEM

CONTENTS

Page

Revenue and expenditure 1-2

Assets and liabilities 1*3

Net debt 1-5

96762—2

1-2 PUBLIC ACCOUNTS, 1967-68

THE GOVERNMENT'S ACCOUNTING SYSTEM

To assist the reader who is not familiar with the government's financial statements and general system of accounting, a brief outline of some of the more significant features of these and particu- larly of those aspects which differ from normal commercial accounting practices is given in the paragraphs which follow.

There are two generally accepted bases or systems of accounting. One is the "cash" basis under which revenues are taken into the accounts in the period in which they are received in cash and expenditures are accounted for when the actual disbursements are made; the other is the "accrual" basis under which revenues are accounted for when earned or due, even though not collected and expenditures are accounted for when the liabilities are incurred whether payment is made in that accounting period or not.

Many factors must be considered in determining how the government's voluminous and varied transactions should be recorded and brought into focus in a clear and comprehensive way. In business, the accounts are usually maintained on an accrual basis. However, the prime purpose of government accounting is to serve the requirements of Parliament and more particularly to ensure effective control by Parliament over public moneys. As parHamentary control in Canada is predicated on the operation of the consolidated revenue fund, which is by law a cash account, and on regulating the flow of cash receipts into and cash payments out of the fund, it follows that the accounts of Canada are maintained basically on a cash system. However, there is provision in the Financial Administration Act for bringing into the accounts of each fiscal year expenditures relating to that year, which on a pure cash basis would be excluded, and in addition certain modifications have been made to facilitate the maintenance of accounting control over certain assets and liabilities, and to provide for valuation adjustments for recorded assets in anticipation of possible losses on ultimate realization.

Revenue and expenditure

Revenues are reported on a cash basis and consequently taxes assessed and due and other revenues receivable or accrued (including interest accrued) are not normally set up as assets on the government's statement of assets and liabilities.

On the expenditure side, under the provisions of section 35 of the Financial Administration Act, for thirty days after the end of each fiscal year, payments for the discharge of debts properly applicable to the old year may be made and charged to that year. Consequently, liabilities under contracts and other accounts payable at March 31 for which cheques are issued during the month of April are charged as expenditures in the old year and appear as current liabilities on the state- ment of assets and liabilities. This is a significant modification of pure "cash" accounting, and brings into the year's transactions the greater part of those expenditures which on the cash basis would be excluded, but which on the accrual basis would be included and carried to the statement of assets and. liabilities as accounts payable. In other respects the expenditure accounts reflect refinements of the cash basis. For example, discounts and commissions on loans are not charged to expenditure in the year in which they are paid, but are set up as deferred charges on the statement of assets and liabilities and are amortized or written off to expenditure during the period of a loan. Also, losses on loans and advances and on other assets are not generally charged to expenditure in the year in which the loss is sustained, but from time to time parliamentary authority is obtained to charge such losses to budgetary expenditure; or the ultimate loss when determined may be charged by parliamentary authority to the general reserve for possible losses on the reahzation of assets.

Prior to 1951-52, it was the practice to charge interest on the pubhc debt as it became due rather than when it was paid. This was a modification of the strict cash basis of accounting, but in 1951-52 a further modification was made whereby the charges to budgetary expenditure for

PUBLIC ACCOUNTS, 1967-68 \.^

interest on the public debt were made month by month as the interestaccruedratherthan annually or semi-annually as it became due and payable. This change is in Une with the aim previously mentioned of bringing into the accounts of the year all the expenditures relating to that year. No comparable change in the treatment of interest receivable was made as it was not considered appropriate to accrue interest receivable which might or might not be received or to take it into account in determining the revenue for the year before it was actually received.

These examples will serve to indicate that while revenue is reported on a cash basis, in expen- diture reporting significant modifications have been made in the cash basis to achieve many of the advantages which accrual accounting would produce. The practice is essentially conservative in that on the one hand the budgetary liabilities are set up or are otherwise taken into the accounts for the year, and on the other, tax and other revenue assessments, interest accruals (with certain exceptions) and accounts receivable are not treated as assets or taken into revenue until collected.

Assets and liabilities

Section 64 of the Financial Administration Act directs that the Public Accounts of Canada shall include:

"A statement, certified by the Auditor General, of such of the assets and Uabilities of Canada as in the opinion of the Minister are required to show the financial position of Canada as at the termination of the fiscal year."

The assets and liabilities of Canada are set out so as to disclose the amount of the net debt. In 1920, the practice was established of offsetting against the gross liabilities only what were des- ignated as "active" assets in determining the net debt. In the budget speech of May 18, 1920, the following explanation was given by the Minister of Finance. i?»J/ita blU lo vi>o<f ^di m

"Assets which are not readily convertible, as the reserve is convertible, or are not interest producing, are not such assets as ought to be deducted from the gross debt. They are inactive, they are items of such a character as might well be placed in a suspense account. At any rate, whatever may be their future value, however great it may be, they are not assets of such a character as to directly reduce the gross debt any more than the other capital accounts of the country ought to be deducted from it."

Since that time, there has been no fundamental change in the basic structure of the statement or in its main purpose. However, revisions have been made from time to time to improve the form or manner of presentation, with consideration being given continually to the possibihty of further improvements.

With certain exceptions, taxes and revenues receivable, revenue and other asset accruals and inventories of materials, supplies and equipment are not recorded as assets (except when these are held as charges against working capital accounts) nor are public works and buildings or other fixed or capital assets. Following the principle that only realizable or interest- or revenue-producing assets should be offset against the gross liabiUties, costs of capital works are charged to expendi- tures at the time of acquisition or construction. Consequently government buildings, public works, national monuments, mihtary assets (such as aircraft, naval vessels, and army equipment) and other capital works and equipment are recorded on the statements of assets and liabihties at a nominal value of $1 as the value is not considered as a proper offset to the gross liabiUties in determining the net debt of Canada.

On the liabihties side, accrued liabilities (except for interest accrued on the pubHc debt) are not taken into account in determining the obligations of the government. However, under section 35 of the Financial Administration Act, liabilities under contracts and other accounts payable at March 31 if paid on or before April 30 may be charged to the accounts for the year. These are recorded as accounts payable in the "Current and demand liabihties" schedule to the statement of assets and Uabihties.

96762—21

1-4 PUBLIC ACCOUNTS, 1967-68

The liabilities of the government, as shown in the statement of assets and liabiUties include :

(1) unmatured debt, consisting of bonds and treasury bills;

(2) current and demand liabilities, including matured debt outstanding, outstanding treasury- cheques, interest due and outstanding, interest accrued, accounts payable, non-interest- bearing notes payable to international organizations and other obligations payable on demand;

(3) sundry funds deposited with the Receiver General of Canada or held in trust for various purposes;

(4) amounts to the credit of various annuity, insurance and pension accounts;

(5) undisbursed balances of special accounts, which, in accordance with the legislation under which they are authorized, are available for expenditure in periods subsequent to the fiscal year in which they are granted ;

(6) refundable tax on cash profits of businesses paid by all corporations not exempt from tax under section 62 of the Income Tax Act and by certain types of trusts on specified types of mcome ;

(7) provision for estimated premium on redemption of bonds;

(8) amounts due to the government but in respect of which payment has been deferred ; these are contra accounts to corresponding items under "Loans to, and investments in. Crown corporations", "Loans to national governments" and "Other loans and investments" ; and

(9) suspense accounts consisting of balances where some uncertainty as to disposition exists.

The indirect or contingent liabilities of the government are shown as a special note appearing in the body of the statement of assets and liabilities and are also set out in a detailed supplementary statement, f *; i . f c i ;

Offsetting the direct liabilities, and in a measure explaining their existence, as a substantial portion of the total debt is attributable to them, are the government's recorded assets. For the most part, these consist of assets which yield interest, profits or dividends, and very liquid assets such as cash and departmental working funds. The principal classes of assets are:

(1) current assets, including cash, securities held for the securities investment account and ' departmental working capital advances;

(2) cash in blocked currency;

(3) advances to the exchange fund account for the acquisition of gold and foreign exchange ;

(4) investments in United States of America dollar securities issued by other than the Government of Canada, a category set up to record the special securities issued by the Government of the United States of America and purchased by Canada pursuant to the terms of the Columbia River Treaty between the Governments of the United States and Canada and the bonds of the international bank for reconstruction and development;

(5) Canada pension plan investment fund;

(6) investments held for retirement of unmatured debt;

(7) loans to, and investments in, Crown corporations;

(8) loans to national governments;

(9) other loans and investments, including loans to provincial and municipal governments, subscriptions to international organizations, advances to the municipal development and loan board and a number of miscellaneous advances to veterans and others;

(10) securities held in trust for various deposit and trust and annuity, insurance and pension .1 accounts and bonds and certified cheques held in connection with contractors' security

deposits;

PUBUC ACCOUNTS, 1967-68 15

(11) deferred charges which consist of the unamortized portions of the actuarial deficiencies in the superannuation accounts, representing that portion of the government's UabiUty in respect of these accounts that has not been charged to budgetary expenditures and discounts, commissions, redemption bonuses and conversion premiums on loan flotations, remaining to be charged to expenditure;

(12) capital assets, a category set up to cover capital assets that are charged to budgetary expenditure at the time of acquisition or construction and which are shown on the state- ment of assets and liabiHties at a nominal value of $1 ; and

(13) inactive loans and investments which are not currently yielding interest, profits or dividends.

A reserve for losses on the reahzation of assets is not shown as a liability but is deducted from the total of the assets.

Net debt

The excess of the gross liabilities over the net recorded assets is designated as the net debt and a separate schedule to the statement of assets and liabilities is presented showing the changes in the net debt during the fiscal year. In effect, the net debt is the overall deficit since Confeder- ation. The list of items charged to net debt is presented in appendix No. 11, in section 9 of this volume.

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1967-68 PUBLIC ACCOUNTS

HIGHLIGHTS OF THE GOVERNMENT'S

FINANCIAL OPERATIONS

DURING 1967-68

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CONTENTS

Page

Summary of budgetary and non-budgetary transactions and changes in cash position ... .• .• . . .- .• .• .• .• . .- . . .•;'. . . 2-2

Budgetary transactions .,..-.......,.., 2-3

Non-budgetary transactions (excluding unmatured debt transactions) ...,'.,•.••''•'•♦• ^' ^

Unmatured debt transactions 2*6

Change in cash position \(^-^. «%a*o -'^i ■kinm' 6

Change in debt position 2*6

Federal government revenue and expenditure on the National Accounts basis 2* 6

2.2

PUBLIC ACCOUNTS, 1967-68

HIGHLIGHTS OF THE GOVERNMENT'S FINANCIAL OPERATIONS

DURING 1967-68

This section outlines the financial operations of the government in 1967-68 giving a brief sum- mary of the budgetary and non-budgetary transactions, the unmatured debt transactions and the changes in the cash position during the fiscal year and the debt position as at the end of the fiscal year. More detailed explanations of these transactions are given in subsequent sections of this volume.

In order to meet the requirements of those interested in the impact of government operations on the economy as a whole, a presentation of federal government revenue and expenditure on the National Accounts basis is also included.

The following table summarizes the budgetary and non-budgetary transactions for 1967-68 with comparative figures for 1966-67 and indicates how these transactions affected the government's cash balances:

TABLE 1 (in millions of dollars)

SUMMAKY OF BUDGETARY AND NoN-BtJDGETARY TRANSACTIONS

AND Changes in Cash Position

Fiscal year ended March 31

1968

1967

Budgetary transactions

Revenue

Tax

Non-tax

Expenditure

Defence

Non-defence

Deficit (— )

Non -budgetary transactions (excluding unmatured debt transactions) Receipts and credits

Net annuity, insurance and pension accounts receipts

) . . Repayment of advances to exchange fund account

Canada pension plan account

t* ■''■ Investments in United States dollar securities issued by other than .. f. the Government of Canada

Increase in non-interest-bearing notes payable on demand

a .'; Repayment of other loans, investments and advances

Other

Disbursements and charges

Canada pension plan investment fund

Loans, investments and advances

Other

Net amount available from, or required for ( ), non-budgetary transactions

Overall cash requirement to be financed by increase in unmatured

debt or decrease in cash balances

Net increase in unmatured debt outstanding in hands of the public. . .

Net increase in Receiver General bank balances

8,017 1,060 9,077

7,440

918

8,368

1,813 8,059

9,872

-795

1,696 7,084 8,780

-422

466 322 672

931 341 592

67 450

445

2,411

7

111

37

436

2,465

665

1,471

69

2,206

206

581

1,564

420

2,665

-110

-589 790

-532 712

201

180

PUBLIC ACCOUNTS, 1967-68

2-3

Budgetary transactions

The budgetary revenue, expenditure and deficit as forecast in the budget speech of June 1, 1967, the revised figures as forecast on November 30, 1967 and the actual figures for the fiscal year 1967-68 are shown in the following table:

TABLE 2 (in millions of dollars)

Budgetary Transactions for Fiscal Year 1967-68

Budget

forecast

June 1,

1967

Revised

forecast

November 30,

1967

Actual

Increase or decrease (— )

compared with

November 30, 1967 forecast

Amount

Per cent

Revenue

8,960 9,700

9,115 9,900

9,077 9,872

-38

-28

-0.42

Expenditure

-0.28

Deficit

740

785

795

10

BUDGETARY REVENUE AND EXPENDITURE AND FINANCING OF CASH REQUIREMENTS

EXPENDITURE

NON-DEFENCE

$1,813 Million

$8,059 Million

$9,872 Million

$795

Million

$1,060 Million

$8,017 Million

$9,077 Million

For Fiscal Year 1967-68

BUDGETARY DEFICIT

NON-TAX REVENUE

REVENUE

TAX REVENUE

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SOURCE OF CASH

NET INCREASE IN

UNMATURED DEBT

OUTSTANDINO

IN HANDS OF PUBLIC

NET AMOUNT

AVAILABLE FROM

NON-BUDGETARY

TRANSACTIONS

$790 Million

$206 Million

APPLICATION OF CASH

$795

Million

$201 Million

$996 Million

BUDGETARY DEFICIT

INCREASE IN

RECEIVER GENERAL

BANK BALANCES

Revenue

Budgetary revenue of the government in 1967-68 was $9,077 million. This was $38 million or about half of one per cent less than the revised figure of $9,115 million as forecast by the Minister of Finance on November 30, 1967 and $719 million or 9 per cent higher than revenue of $8,358 million received in 1966-67.

Tax revenue of $8,017 million was 88 per cent of budgetary revenue and accounted for $577 million of the increase over the previous year's receipts. Non-tax revenue of $1,060 million was 12 per cent of total revenue and accounted for $142 million of the increase.

2-4

PUBLIC ACCOUNTS, 1967-68

The yield from income taxes was $4,741 million, $470 million more than in 1966-67. The increase was due mainly to a higher level of personal incomes during the year.

Receipts from the sales tax were $1,601 million, $88 million more than in 1966-67 due in large part to an increase in the rate of the tax from 11 to 12 per cent effective January 1, 1967; receipts from other excise taxes and duties were $826 million, $49 million more, due mainly to increased rates on spirits and tobacco products; and receipts from customs import duties were $746 million, $31 milhon less than in 1966-67.

Non-tax revenue of $1,060 million was $142 milHon higher than in 1966-67 due mainly to increases of $93 million in return on investments and $28 million in Post Office revenue.

Expenditure

Budgetary expenditure in 1967-68 was $9,872 million. This was $28 million or about one third of one per cent less than the revised figures as forecast on November 30, 1967 and $1,092 milHon or 12 per cent higher than 1966-67 expenditures.

Defence expenditure, again the largest category, was $1,813 million or 18 per cent of total budgetary expenditure and accounted for $117 milHon of the increase. In 1966-67 defence expenditure of $1,696 million constituted 19 per cent of total expenditure, ...

Civil or non-defence expenditure was $8,059 million or 82 per cent of total expenditure and accounted for $975 million of the increase over the previous year's total. In 1966-67 non-defence expenditure of $7,084 million constituted 81 per cent of total budgetary expenditure. The main changes were increases of $222 million in fiscal, subsidy and other payments to provinces, $110 million in public debt charges, $71 million in the government's contributions to the provinces under the Hospital Insurance and Diagnostic Services Act and $51 million in the net operating loss of the agricultural stabilization board. Payments to provinces under the Canada assistance plan increased by $215 million in 1967-68, offset in part by a decrease of $137 million in respect of unemployment assistance. In addition to the above increases, expenditures of $105 milfion were made in respect of the new adult occupational training program for which there was no comparable expenditure in the previous fiscal year.

1000 500

BUDGETARY DEFICIT

Millions off Dollars

BUDGETARY REVENUE AND EXPENDITURE

Fiscal Years Ended March 31 Billions of Dollars

1000

IZ\

EXPENDITURE. 500 REVENUE.

1964 1965 1966 1967 1968

-10

- 8

1964

1965

1966

1967

1968

PUBLIC ACCOUNTS, 1967-68 2-5

Deficit

Budgetary expenditure of $9,872 million exceeded budgetary revenue of $9,077 million resulting in a budgetary deficit of $795 million. This was $10 million higher than the revised figure as forecast on November 30, 1967 and $373 million higher than the 1966-67 deficit of $422 million.

Non -budgetary transactions (excluding unmatured debt transactions)

Non-budgetary transactions are those which increase or decrease the government's asset and liability accounts and do not enter into the calculation of the annual budgetary surplus or deficit.

In 1967-68 receipts and credits of $2,411 million exceeded net disbursements and charges of $2,205 million resulting in a net cash receipt of $206 million. In 1966-67 net disbursements and charges of $2,565 million exceeded net receipts and credits of $2,455 million resulting in a net cash requirement of $110 million.

Old age security fund

Receipts credited to the fund in 1967-68 totalled $1,495 million and pension payments charged to the fund totalled $1,388 million. In 1966-67 receipts were $1,285 milHon and pensions payments were $1,073 million.

The higher receipts in 1967-68 were due partly to an increase from $120 to $240 effective January 1, 1967 in the maximum amount payable by an individual on account of the 4 per cent old age security tax on personal incomes. The increase in pension payments was due mainly to payments of $234 milHon attributable to the guaranteed income supplement which became effective January 1, 1967, partly to the lowering of the age limit for eligibihty to 68 years on January 1, 1967 and to 67 years on January 1, 1968 and partly to an increase in the pension rate from $75 to $76.50 per month effective January 1, 1968.

The transactions in the fund during 1967-68 compared with those for 1966-67 were as follows:

Fiscal year ended March 31 ,0€ hU: : , , .1968 1967

i. '" I IdLdl (in millions of dollars)

Balance in fund at beginning of fiscal year 429 217

Receipts

Sales tax 545 559

Personal income tax 800 577

Corporation income tax 150 149

1,924 1,502

Disbursements

Pension payments —1,388 —1,073

Balance in fund at end of fiscal year 536 429

Canada pension plan account

Receipts credited to the fund in 1967-68 totalled $685 million and disbursements (mainly administrative costs) totalled $13 million. In 1966-67 receipts were $600 million and disbursements were $8 million.

The transactions in the fund during 1967-68 compared with those for 1966-67 were as follows:

Fiscal year ended March 31 1968 1967

(in millions of dollars)

Balance at beginning of fiscal year 681 89

Receipts 685 600

Disbursements 13 —8

Balance at end of fiscal year 1,353 681

2-6 PUBLIC ACCOUNTS, 1967-68

The balance in the account at March 31, 1968 consisted of investments of $1,275 million m provincial government securities and $6 million in federal government securities and an operating balance of $72 million on deposit with the Receiver General of Canada.

Unmatured debt transactions

These transactions resulted in an increase of $790 million in unmatured debt outstanding in the hands of the public compared with an increase of $712 milUon in 1966-67.

Change in cash position

Receiver General bank balances in current and special deposits were $201 million higher at March 31, 1968 than at March 31, 1967. This is the amount by which the increase of $790 million in unmatured debt outstanding in the hands of the pubHc plus the net receipt of $206 million from non-budgetary transactions exceeded the budgetary deficit of $795 million.

Change in debt position

As a result of budgetary and non-budgetary transactions the gross liabilities of the government increased by $2,584 million to $32,924 million at March 31, 1968, net recorded assets increased by $1,789 milUon to $16,164 million and the net debt increased by $795 milUon to $16,760 million.

Fiscal year ended March 31

Increase or 1968 1967 decrease (-)

(in millions of dollars)

Gross liabilities 32,924 30,340 2,584

Less net recorded assets 16,164 14,375 1,789

Net debt 16,760 15,965 795

Federal Government Revenue and Expenditure ON A National Accounts Basis

Annual federal government revenue, on a national accounts basis, has for the past seven years advanced in keeping with the continued expansion of the economy. Expenditures during the years 1961-62 to 1965-66 rose at a stable 4 per cent per year, due primarily to increases in transfers to persons, and in transfers to other levels of governments. The net effect of this trend in 1965-66 was a surplus, on a national accounts basis, of some $599 million.

An upsurge in expenditures on goods and services, and on transfers to other levels of government in 1966-67 pushed federal government expenditures up by some 15 per cent. Revenue continued to maintain the pace set in the preceding five years. The combined effect was a much reduced surplus for the year, on a national accounts basis, of $166 million.

The fiscal year 1967-68 saw a continuation of the growth of revenue with increases in expenditure at a greater rate. This resulted in a deficit for the year, on a national accounts basis, of $408 million.

PUBLIC ACCOUNTS, 1967-68

2-7

An 8.6 per cent increase in total federal government revenue was recorded during 1967-68, greater personal direct tax revenue was the primary cause of this sustained increase. A number of factors contributed to the 19 per cent increase in personal direct taxes, with the continuing upward trend in labour income, and the doubling of the maximum old age security tax on personal income being the most significant. Smaller increases were recorded in investment income, indirect taxes and contributions to social insurance and government pension funds. Corporate tax liabilities on business income declined slightly from the previous year in line with the downward pattern of corporate profits.

Total expenditure by the federal government during 1967-68 rose by 14.5 per cent over that of the previous year. While all components of expenditure increased, the most significant increases occurred in expenditures on transfers to persons ($461 million), transfers to other levels of govern- ment ($428 milUon), and on outlays for goods and services ($412 milUon). A considerable portion of the increase in transfers to other levels of government represented increased payments to provinces, under the Federal-Provincial Fiscal Arrangements Act and the Hospital Insurance and Diagnostic Services Act. Increases in transfers to persons were largely attributable to old age security fund payments as a result of the continued progressive lowering of the age level qualification, and of the introduction of the guaranteed monthly minimum supplement provision of the Old Age Security Act. The other factor, which had a significant influence on the increase in transfers to persons, was higher unemployment insurance payments, due to increased unemployment during the year. Increased salary and wage payments contributed to a higher expenditure on goods and services. The higher interest on pubUc debt reflected the higher interest rates prevailing during the year.

-J. TABLE 3

Fedebal Government Revenue and Expenditure

ON National Accounts Basis

(millions of dollars)

1967-68*

1966-67

Increase or decrease (— )

Amount

Per cent

REVENUE

Direct taxes, persons

Direct taxes, corporations

Withholding taxes

Indirect taxes

Investment income

Employer and employee contributions to social insurance

and government pension funds

Total revenue

EXPENDITURE

Goods and services, defence

Goods and services, non-defence

Transfers to persons

Interest on pubUc debt

Subsidies

Capital assistance

Transfers to other levels of government

Total expenditure

Surplus or deficit( )

3,750

3,152

1,665

1,673

225

207

3,686

3,646

852

689

752

10,930

11,338

-408

700

10,067

1,819

1,699

2,611

2,319

3,033

2,572

1,270

1,156

395

381

71

63

2,139

1,711

9,901

166

598

-8

18

40

163

52

863

120 292 461 114 14 8 428

1,437

-574

19.0

-0.5

8.7

1.1

23.7

7.5

8.6

7.1 12.6 17.9 9.9 3.7 12.7 25.0

14.5

^Preliminary estimates.

28 PUBLIC ACCOUNTS, 1967-68

Reconciliation of the Public Accounts and National Accounts Presentation

The reconciliation of revenue and expenditure within the national accounts framework with that within the budgetary or public accounts framework, is presented in Tables 5 and 6. A summary of adjustments is provided in the following table:

TABLE 4

Reconciliation of Public Accounts and National Accounts Presentation

OF THE Federal Government Revenue and Expenditure

(in millions of dollars)

1967-68

1966-67

Revenue

Expen- diture

Surplus or deficit (—)

Revenue

Expen- diture

Surplus or deficit (—)

Budgetary revenue and expenditure

Deduct

Post office revenue and expenditure. . . . Other non-tax budgetary transactions . .

Add extra budgetary funds

Old age security

9,077

- 282

- 166

- U8

1,494

348

404

11

2,257

- 40

84

9,872

- 302

- 126

- 4^8

1,388

389

141

9

1,927 184

- 217

-795

20

- 40

- 20

106

- 41 263

2

330

-224

301

8,376

- 253

- 164

- 417

1,286

344

356

11

1,997

11

100

8,798

- 268

- 130

- 398

1,073

307

129

3

1,512 229

- 240

-422

15

- 34

- 19

213

Unemployment insurance

37

Government pensions

227

Other

8

Miscellaneous ^1'

485 -218

Other adjustments to revenue and ex- penditure

340

Total revenue and expenditure on a national accounts basis

10,930

11,338

-408

10,067

9,901

166

(i^This item includes the supplementary period adjustment.

The framework (national accounts or public accounts), within which the annual budget or surplus is computed, has a significant impact on its level. The contributing factors to this difference may be grouped within three classifications :

(i) transactions included within the budgetary or public accounts framework, but excluded from national accounts, e.g. Post Office which is considered, for national accounts analy- sis, as an enterprise, (ii) extra-budgetary transactions excluded from the budgetary or pubhc accounts presentation, but included in the national accounts determination of government revenue and expendi- ture, and (iii) other adjustments required to convert data in accordance with national accounts concepts, such as those required to convert investment income and corporate tax reporting from a cash to an accrual basis, and those required to incorporate the transactions of other government funds and Crown agencies within the national accounts framework. The budgetary deficit for 1967-68 was significantly higher than in 1966-67. The effect of the deduction of items included in classification (i) above did not vary between the two years despite an increase in post office revenue, as it was ojffset by an even greater increase in post office expenditure. The annual surplus of extra-budgetary funds which normally tends to improve the overall net posi- tion of the federal government, on a national accounts basis, did not have the usual impact in 1967-68,

PUBLIC ACCOUNTS, 1967-68

2.^

due primarily to increased expenditures from the old age security and unemployment insurance funds. While the net effect of the miscellaneous adjustments was negligible, there was great variation within some of the component parts. A much larger supplementary period adjustment was required with respect to revenue, as a change in the pattern of income tax refunds left net tax revenue for the supplementary period at a relatively high level. The drop in the miscellaneous adjustment to expen- diture between 1966-67 and 1967-68 was caused by a return to normal of