January 1999

Q: How have the top spending priorities of the federal government changed over the past 30 years?

A: Table 1 shows how federal expenditure priorities have changed from 1965/66 to 1997/98. The largest change is for debt charges, which account for more than twice as much of total spending as they did in 1965/66 (12.5% versus 27.0%). The January Graph shows the composition of federal spending for 1965/66 and 1997/98.

Click Here to View Table 1

The “Health” spending category dropped sharply for 1997/98 compared to the previous years shown because of the Canada Health and Social Transfer (CHST). Most federal health spending now shows up as transfers to provinces. Spending on education and social services are also affected, although to a lesser degree. Spending on social services, health, education, and general purpose transfers to other levels of government accounted for 41.6 percent of all federal spending in 1965/66 and 45.4 percent in 1997/98; social spending increased by 3.8 percentage points of total spending. In contrast, spending on debt charges increased by 14.5 percentage points and spending on protection of persons and property dropped by 10.1 percentage points between 1965/66 and 1997/98.

The categories in table 1 are those defined by Statistics Canada’s Financial Management System (FMS). Social services includes programs to support the socio-economic well being of individuals and families. It includes Old Age Security (OAS), the Guaranteed Income Supplement (GIS), Employment Insurance, Workers’ Compensation, Family Allowances, Veterans Benefits and other social assistance services. Protection of persons and property includes the costs of policing, law courts, correction and rehabilitation, and national defense. Health includes all expenditures related to hospital and medical insurance programs, disease control and prevention, and laboratory services. Education includes all outlays for elementary, secondary, and post-secondary education as well as skills retraining and upgrading.

Q: What are tax expenditures? What are the largest areas of tax expenditures?

A: Tax expenditures are special provisions in the personal and corporate income tax and sales tax systems. These provisions are used to further specific objectives of government policy rather than raise revenue. They are not expenditures at all but rather amounts of tax that are not collected because the federal or provincial government allows a deduction from, or a credit against, a tax. Some of the more familiar and largest tax expenditures are the income tax deductions allowed for Registered Retirement Savings Plan (RRSP) and Registered Pension Plan (RPP) contributions. These deductions are intended to encourage people to save for their retirement. RRSP and RPP deductions cost the federal and provincial governments an estimated $16.986 billion in foregone revenue in 1994/95. Other large tax expenditures are the Child Tax Credit and the non-taxation of income in RRSP and RPP funds. (Please note that the tax expenditure numbers in table 2 are estimates only and cannot be summed to arrive at the total amount of tax expenditure in Canada because of the technique used to arrive at the estimates.)

Click Here to View Table 2

January 1999

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Last Modified: Wednesday, October 20, 1999.