The Daily — Consolidated Canadian Government Finance Statistics, 2021 (2024)

Released:2022-11-22

Canadian general government deficit shrinks, still above pre-pandemic levels

The consolidated Canadian general government (CGG) deficit (which includes all federal, provincial, territorial and local governments) dropped sharply from $291.9billion in2020to $99.0billion in2021, a66.1% decrease. The increase in revenues (+13.9%)—particularly driven by corporate income taxes (+26.4%), taxes on goods and services (+17.1%) and personal income taxes (+9.7%)—combined with the decrease in expenses (-6.8%) contributed to the reduced deficit. The decrease in expenses was driven by decreased COVID-19-related transfers, shown by large declines in subsidies (-44.0%) and social benefits (-22.2%).

The net operating balance is the difference between revenues and expenses for a given period and is a summary measure of the sustainability of government operations. When revenues are lower than expenses, a deficit is recorded, while the reverse induces a surplus.

The federal government accounted for the majority ($88.7billion) of the CGG deficit, while the consolidated provincial, territorial and local governments (PTLGs) recorded a deficit of $10.2billion. Compared with2020, the federal government deficit declined by65.2%, while that of PTLGs shrank by72.6%.

As a percentage of nominal gross domestic product (GDP), the CGG deficit decreased sharply to3.9% after reaching13.2% in2020. The strong growth in GDP (+13.6%) and the quick reduction of the federal government deficit contributed to the improvement of the deficit-to-GDP ratio.

Revenue goes up as gross domestic product surges

In2021, federal government revenue grew by $34.3billion (+9.8%) linked to significant increases in taxes on income, profits and capital gains (+$20.0billion) and taxes on goods and services (+$12.1billion). Federal government expenses decreased sharply (-21.7%) compared with2020, from $605.5billion to $473.9billion. Decreased expenses were primarily attributable to fewer subsidies and social benefits: Canada Emergency Wage Subsidy and Canada Emergency Response Benefits totalled $149.2billion in2020and $19.1billion in2021.

PTLG revenues went up by $65.8billion (+10.6%) compared with2020. Tax revenues grew by16.8%, mainly driven by higher personal income taxes (+$19.2billion or +16.6%), taxes on goods and services (+$17.2billion or +15.2%) and corporate income taxes (+$16.7billion or +48.0%). Property income increased by56.5%, mostly attributable to the jump in rent revenue from oil and gas royalties (+351.6%). This growth is mostly explained by a surge in oil and natural gas prices on the world markets: in Alberta alone, oil and gas royalties ascended to $16.0billion in2021(from $3.0billion in2020).

PTLG expenses increased by $38.8billion (+5.9%), thus mitigating the impact of strong revenue growth on the deficit. Among all provinces, expenses increased most sharply in Saskatchewan (+17.6%), followed by Prince Edward Island (+9.2%), Nova Scotia (+7.0%) and British Columbia (+6.9%). The growth in Saskatchewan's expenses was mainly due to higher agricultural subsidies. Indeed, extreme weather conditions have caused significant damage to crops, resulting in a sharp increase in crop insurance claims.

Among the provinces, Quebec ($3.9billion or0.8% of GDP) and Nova Scotia ($0.4billion or0.8% of GDP) posted a surplus in2021, while other provinces remained in deficit. Compared with2020, the deficit-to-GDP ratio improved in all provinces, except in Prince Edward Island. The highest deficits expressed as a percentage of GDP were observed in Saskatchewan (2.4%), Newfoundland and Labrador (2.2%) and Manitoba (1.1%).

Canadian general government fiscal burden remains stable

Fiscal burden measures the taxes and social contributions paid to governments by individuals, businesses, and non-residents, expressed as a percentage of GDP. These compulsory transfers constituted83.5% of total revenues generated by the CGG in2021.

Including the Canada Pension Plan (CPP) and Quebec Pension Plan (QPP), taxes and social contributions in Canada totalled $878.6billion in2021, up from $772.4billion in2020(+$106.2billion or +13.7%). This represented a fiscal burden of35.0% of nominal GDP in2021, a similar level to the previous year.

While federal government revenues from taxes and social contributions as a percentage of GDP decreased, from14.9% in2020to14.5%, the PTLG fiscal burden increased in2021to17.3% of GDP from16.8%. PTLG fiscal burden as a percentage of GDP was highest in Quebec (23.1%), followed by Ontario (18.1%) and Nova Scotia (18.0%), while Alberta (10.1%) posted the lowest fiscal burden among the provinces. The territories recorded a significantly lower fiscal burden than the provinces, with Nunavut posting the lowest at3.8%. The territories rely more heavily on federal transfers than on fiscal revenues to deliver essential goods and services to the population.

Federal transfers to the provinces and territories decline from the peak of2020

The federal government extends different types of grants to the provinces and territories to help them provide essential programs and services to all Canadians, such as health care, education, social assistance, and childhood development. The largest transfers are the Canada Health Transfer, the Canada Social Transfer, equalization payments and territorial formula financing.

In2021, PTLGs received $112.4billion in federal grants, down from the peak of $129.5billion in2020. In2020, the federal transfers to PTLGs included $19.7billion related to the Safe Restart Agreement. Grants received by Ontario ($32.5billion) and Quebec ($30.0billion) represented55.6% of the total federal grants to the PTLGs. These two provinces had61.2% of the Canadian population in2021.

On a per capita basis, federal transfers paid to PTLGs declined, from $3,397in2020to $2,909in2021. Among all provinces, Prince Edward Island received the highest grants per capita ($6,433), followed by Nova Scotia ($5,248) and New Brunswick ($5,230). By contrast, British Columbia received the lowest grants per capita ($2,116), closely followed by Ontario ($2,167) and Alberta ($2,348).

In the territories, federal grants amounted to $57,273per capita in Nunavut, $44,028in the Northwest Territories and $35,847in Yukon. Federal transfers accounted for77.9% of total revenues in the territories.

Interest charges remain low despite debt accumulation

Canada's total outstanding general government debt costs billions of dollars each year in interest charges. In2021, CGG's interest expenses accrued on debt liabilities totalled $64.6billion (+6.2%) compared with $60.8billion in2020. Thus, Canadian governments spent6.8cents of every dollar earned on debt charges.

In2021, the federal government spent $24.0billion on interest, up12.2% compared with2020. The interest expense to revenue ratio was relatively stable at6.2cents (6.1cents in2020). In the early1990s, despite a similar level of gross debt as a percentage of GDP, the federal government was paying more than30cents in interest for every dollar of revenue received, reflecting much higher interest rates at that time.

In2021, at the Canada level for PTLG, interest expenses totalled $40.7billion (+3.0%), which represented5.9cents for every dollar of revenue, down from6.4cents in2020. At the provincial level, Quebec (8.7cents) and Manitoba (8.5cents) spent the most on interest per dollar of revenue in2021, while British Columbia (3.4cents) and Alberta (3.6cents) spent the least.

Gross debt-to-gross domestic product ratio goes down, but remains higher than pre-pandemic levels

During the economic downturn related to the pandemic, Canadian general government revenue decreased and spending rose sharply, which significantly contributed to debt accumulation. In2021, the CGG's liabilities (gross debt) totalled $2,942.2billion ($76,135per capita), an increase of $69.9billion compared with the previous year. In2021, the federal gross debt ($1,569.6billion) remained higher than that of PTLG ($1,460.4billion).

While the gross debt-to-GDP ratio of CGG fell to117.2%, down from the peak of130.0% reached in2020, it remained significantly above pre-pandemic levels (105.6% in2019). Gross debt at the Canada level for PTLG decreased, from66.6% of GDP in2020to58.2% in2021. Among all provinces, the gross debt-to-GDP ratio decreased most significantly in Alberta, from53.9% to39.5%, and in New Brunswick, from80.2% to65.9%. British Columbia (35.7%) and Alberta (39.5%) recorded the lowest ratios of gross debt-to-GDP, while Manitoba (88.6%) and Quebec (88.0%) posted the highest levels.

Growth in financial assets outpaces liabilities, lowering net debt

While gross debt represents the magnitude of outstanding debt, it does not take into account financial assets. It only provides information about liabilities (unconditional obligations to creditors) of the government. Net debt or net liability (total liabilities less total financial assets) gives a more comprehensive view of the financial position of the government. Net debt is used as a key indicator to assess the sustainability of fiscal policy.

Net debt of the Canadian general government ($1,452.8billion) fell, from68.7% of GDP in2020to57.9% in2021. This decrease in net debt is mainly explained by the large downward revaluation of liabilities in the form of debt securities, such as bills and bonds, at their market value. The price of bonds has an inverse relationship with interest rates. Market anticipation of sharp increases in interest rates to counter inflation made the yield on outstanding debt securities less attractive to investors, driving down their market value.

Federal government net debt edged down in2021(-$4.1billion) to $910.5billion, still above pre-pandemic levels. Federal government net debt-to-GDP ratio decreased to36.3% in2021, following the upswing from29.8% in2019to41.4% in2020.

PTLGs accounted for more than90% of the decrease in CGG's net debt. In2021, PTLG net debt was down $60.4billion to $542.3billion, or21.6% of GDP, from27.3% in2020. It was the lowest net debt-to-GDP ratio since2008. Financial assets of the PTLG increased by5.7% (+$49.5billion), while their liabilities decreased slightly (-0.7% or -$10.9billion) to $1,460.4billion in2021.

In2021, a decline in net debt was observed in all provinces. The largest decreases in net debt were recorded in British Columbia (-59.0%), New Brunswick (-25.4%) and Alberta (-18.1%).

Among PTLGs, Newfoundland and Labrador recorded the highest net debt per capita ($19,478), followed by Ontario ($18,697), Quebec ($18,545) and Manitoba ($17,233).

Expressed as a percentage of GDP, the highest net debt was recorded in Quebec (31.8%), followed by Manitoba (30.3%), Ontario (29.3%) and Newfoundland and Labrador (26.9%). Again, in2021, British Columbia posted the lowest net debt ratios by far (1.5% of GDP or $1,010per capita), well below the Canada total level for PTLG (21.6% of GDP or $14,032per capita).

The Northwest Territories, Yukon and Nunavut were the only jurisdictions to post a positive net financial worth (total financial assets less total liabilities). Debt in the territories was low compared with the provinces, as their borrowing capacity is restricted to limits set by the federal government.

Social contributions to Canada Pension Plan and Quebec Pension Plan increase

The CPP and QPP are the largest social security funds in the country; along with Old Age Security, they are the foundation of Canada's public retirement income system. In2021, Canadian workers' and employers' contributions to the CPP and QPP significantly increased (+14.0%), from $72.5billion in2020to $82.6billion in2021. Beneficiaries of these plans, mostly retired citizens, received $69.1billion (+3.2%) in social security benefits in2021, up from $66.9billion in2020.

In2021, Canadians' nest eggs grew by9.4%, a more-than-decent return on the funds' investments, following one of the best performances on record in2020(+21.5%). Thus, the funds' net financial worth reached $648.6billion in2021(25.8% of GDP) compared with $592.9billion in2020(26.8% of GDP). In a rare occurrence, the growth of the QPP net financial worth (+14.9%) has outpaced CPP growth (+8.4%) in2021.

The net financial worth of the CPP and QPP measures the net financial assets available for the payment of future social security benefits. At the end of2021, net financial worth was $16,783per capita, up7.9% from $15,553in2020.

Products

The Canadian Government Finance Statistics2014 classification structure is now available in the Definitions, data sources and methods module of our website.

Additional information can be found in the Latest Developments in the Canadian Economic Accounts (Catalogue number13-605-X). The User Guide: Canadian System of Macroeconomic Accounts (Catalogue number13-606-G) is also available. This publication has been updated with Chapter9. Government Finance Statistics.

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