EX-99.D 2 m18754orexv99wd.htm CURRENT CANADA DESCRIPTION exv99wd
 

Exhibit D

DESCRIPTION OF CANADA

TABLE OF CONTENTS

         
Page
General Information
    3  
The Canadian Economy
    6  
External Trade
    12  
Balance of Payments
    14  
Foreign Exchange and International Reserves
    16  
Government Finances
    17  
Debt Record
    30  
Monetary and Banking System
    31  
Tables and Supplementary Information
    36  

Unless otherwise indicated, dollar amounts hereafter in this document are expressed in Canadian dollars. On December 16, 2005 the noon buying rate in New York City payable in Canadian dollars (“$”), as reported by the Federal Reserve Bank of New York, was $1.00 = $0.8651 United States dollars (“U.S.$”). See “Foreign Exchange and International Reserves”.


 

Canada Map

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Certain information contained in the Exhibit has been extracted or compiled from public official documents of Canada, which include statistical data subject to revision. Canada is sometimes referred to as the “Government of Canada” or the “Government” in this Exhibit.

CANADA

 
GENERAL INFORMATION

Area and Population

Canada is the second largest country in the world, with an area of 9,984,670 square kilometers of which about 891,163 square kilometers are covered by fresh water. The occupied farm land is about 7% and the commercial forest land is about 25% of the total area. The population on July 1, 2005 was estimated to be 32.3 million. Approximately 65% of Canada’s population lives in metropolitan areas of which Toronto, Montreal and Vancouver are the largest. Most of Canada’s population lives within 200 kilometers of the United States border.

Form of Government

Canada is a federal state composed of ten provinces and three territories. In 1867, the United Kingdom Parliament adopted the British North America Act, which established the Canadian federation comprised of, at that time, the Provinces of Ontario, Québec, Nova Scotia and New Brunswick. Since then, six additional provinces (Manitoba, British Columbia, Prince Edward Island, Saskatchewan, Alberta and Newfoundland and Labrador), along with the Yukon Territory, the Northwest Territories and the new territory of Nunavut (which was carved out of the Northwest Territories on April 1, 1999), have become parts of Canada.

The British North America Act (which has been renamed the Constitution Act, 1867) gave the Parliament of Canada legislative power in relation to a number of matters including all matters not assigned exclusively to the legislatures of the provinces. These powers now include matters such as defense, the raising of money by any mode or system of taxation, the regulation of trade and commerce, the public debt, money and banking, interest, bills of exchange and promissory notes, navigation and shipping, extra-provincial transportation, aerial navigation and, with some exceptions, telecommunications. The provincial legislatures have exclusive jurisdiction in such areas as education, municipal institutions, property and civil rights, administration of justice, direct taxation for provincial purposes and other matters of purely provincial or local concern.

The executive power of the federal Government is vested in the Queen, represented by the Governor General, whose powers are exercised on the advice of the federal Cabinet, which is responsible to the House of Commons. The legislative branch at the federal level, Parliament, consists of the Crown, the Senate and the House of Commons. The Senate has 105 seats. There are 24 seats each for the Maritime Provinces, Québec, Ontario and Western Canada, 6 for Newfoundland and 1 each for the three territories. Senators are appointed by the Governor General on the advice of the federal Cabinet and hold office until age 75. The House of Commons has 308 members, elected by voters in single-member constituencies. The leader of the political party that gains the most seats in each general election is usually invited by the Governor General to be Prime Minister and to form the Government. The Prime Minister selects the members of the federal Cabinet from among the members of the House of Commons and the Senate (in practice almost entirely from the former). The House of Commons is elected for a period of five years, subject to earlier dissolution upon the recommendation of the Prime Minister or because of the Government’s defeat in the House of Commons on a vote of no confidence.

The most recent general election was held on June 28, 2004. As a result of that election the Liberal Party forms the Government. On November 28, 2005, the House of Commons passed a motion of non-confidence in the Government. Subsequently, on the advice of the Prime Minister, the Governor General dissolved Parliament and January 23, 2006 has been set as the polling day for a general election. At the time of dissolution the distribution of seats in the House of Commons was as follows: the Liberal Party had 133 seats, the Conservative Party had 98 seats, the Bloc Québécois had 53 seats and the New Democratic Party had 18 seats. There were 4 independent members and 2 vacant seats.

The executive power in each province is vested in the Lieutenant Governor, appointed by the Governor General on the advice of the federal Cabinet. The Lieutenant Governor’s powers are exercised on the advice of the provincial cabinet, which is responsible to the legislative assembly. Each provincial legislature is composed of a Lieutenant Governor and a legislative assembly made up of members

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elected for a period of five years. The practice of selecting the provincial premier and the provincial cabinet in each province follows that described for the federal level, as does dissolution of a legislature.

The judicial branch of government in Canada is composed of an integrated set of courts created by federal and provincial law. At the federal level there are two principal courts, the Supreme Court of Canada which is the highest appeal court in Canada and the Federal Court of Canada which, among other things, deals with federal revenue laws and claims involving the Government. Judges of the two federally constituted courts and those of the provincial superior and county courts are appointed by the Governor General on the advice of the federal Cabinet and hold office during good behavior until age 70 or 75. Judges of the magistrates courts (commonly now known as provincial courts) are appointed by the provincial government and usually hold office until age 65 or 70.

Constitutional Reform

In April 1982, Her Majesty the Queen proclaimed the Constitution Act, 1982, terminating British legislative jurisdiction over Canada’s Constitution. The Constitution Act, 1982 provides that Canada’s Constitution may be amended pursuant to an amending formula contained therein and contains the Canadian Charter of Rights and Freedoms, including the linguistic rights of Canada’s two major language groups.

The government of Québec did not sign the constitutional agreement which led to the repatriation of the Canadian Constitution and the proclamation of the Constitution Act, 1982. Although Québec is legally bound by the Constitution Act, 1982, the government of Québec set out five conditions for accepting the legal legitimacy of the Act. Discussions on those principles led on April 30, 1987 at Meech Lake to a unanimous agreement by First Ministers on principles respecting each of Québec’s conditions.

A constitutional resolution to give effect to the Meech Lake Accord was adopted by Parliament and eight provinces before the deadline for ratification on June 23, 1990. In the absence of ratification by Newfoundland and Manitoba, the amendment was not adopted. In the wake of this event, the most extensive series of public consultations on constitutional matters ever to occur in Canada began through the work of both provincial and federal commissions and committees, among other things. Recommendations produced by this process were then assessed by a series of multilateral negotiations involving the federal, provincial and territorial governments and four national Aboriginal organizations, held from April to July 1992. Agreement was reached on a wide range of constitutional issues through the multilateral process which led to a First Ministers’ Conference held in Charlottetown in August 1992.

The Charlottetown Accord was an extensive package of reforms agreed upon by the federal, provincial and territorial governments and the four Aboriginal organizations. On October 26, 1992 Canadians were asked in a referendum if they agreed that the Constitution of Canada should be renewed on the basis of the Charlottetown agreement. A majority of Canadians in a majority of the provinces, including a majority in Québec and a majority of Status Indians living on reserves, declined to provide such a mandate. Consequently, governments set aside the constitutional issue and announced their intention to concentrate on social and economic initiatives that do not require constitutional change.

Québec

In September 1994, the Parti Québécois was elected, and its platform called for Québec’s accession to independence. On October 30, 1995, the government of Québec held a consultative referendum under provincial law, seeking a mandate to secede from Canada and proclaim Québec’s independence, after having made a formal offer of a new economic and political partnership between Québec and the rest of Canada. The government’s proposal was rejected by a vote of 50.6% against and 49.4% in favour, with a participation rate of 93%. While all sides accepted the 1995 referendum results, the Parti Québécois has not abandoned the goal of achieving independence for Québec.

In September 1996, the Government of Canada referred a series of legal questions to the Supreme Court of Canada with a view to clarifying, at both domestic and international law, whether the government of Québec has the right to secede from Canada unilaterally. On August 20, 1998, the Supreme Court rendered judgment, ruling that the government of Québec cannot, under either the Constitution of Canada or international law, legally effect the unilateral secession of Québec from Canada. The Supreme Court

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also stated that, if a clear majority of Québecers were to clearly and unambiguously express their will to secede, the federal and provincial governments in Canada would then have a constitutional obligation to enter into negotiations to address the potential act of secession as well as its possible terms should, in fact, secession proceed.

On June 29, 2000, the Government of Canada enacted a law to give effect to the requirement for clarity set out in the opinion of the Supreme Court. That law requires the House of Commons to assess, prior to any future referendum on the secession of a province, whether the referendum question made clear that the province would cease to be part of Canada and become an independent country. The law further requires that, after the vote itself, the House of Commons also assess whether there appeared to be a clear majority in support of the question. Only if both these conditions were met would the Government of Canada be authorized to enter into negotiations which might lead to the constitutional amendments required to effect secession.

In the provincial election of April 14, 2003, the federalist Québec Liberal Party was elected with a majority of 76 out of 125 seats in Québec’s National Assembly, as compared to 45 for the main opposition Parti Québécois, and 4 for the Action Démocratique du Québec party. The Québec Liberal Party obtained 45.9% of the votes cast, the Parti Québécois, 33.2% and the Action Démocratique du Québec, 18.2%.

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THE CANADIAN ECONOMY*

General

The following chart shows the distribution of real gross domestic product (“GDP”) at basic prices (1997 constant dollars) in 2004, which is indicative of the structure of the economy.

DISTRIBUTION OF REAL GROSS DOMESTIC PRODUCT AT BASIC PRICES(1)

Percentage Distribution in 2004(2)

(PIE CHART)


Source: Statistics Canada, Gross Domestic Product by Industry.

(1) GDP is a measure of production originating within the geographic boundaries of Canada, regardless of whether factors of production are Canadian or non-resident owned, whereas gross national product (“GNP”) measures the value of Canada’s total production of goods and services — that is, the earnings of all Canadian owned factors of production. Quantitatively, GDP is obtained from GNP by adding investment income paid to non-residents and deducting investment income received from non-residents. GDP at basic prices represents the value added by each of the factors of production and is equivalent to GDP at market prices less net taxes on products. These differences can cause discrepancies in levels and growth rates of GDP at basic prices on pages 6 and 7 and GDP at market prices on pages 8 and 9.

(2) May not add to 100.0% due to rounding.

(3) The agriculture, forestry, fishing, hunting, mining and oil and gas extraction sectors include a service component.

The volume of industry and sector output in the following discussion provides “constant dollar” measures of the contribution of each industry to GDP at basic prices. The share of service-producing industries in real GDP was 68.3% in 2004 while the remaining 31.7% was attributed to goods-producing industries.


* Quarterly and semi-annual figures or changes are based upon seasonally adjusted data, except where otherwise indicated. All percentage changes are compounded at annual rates. For percentage changes over more than one year the method of computation includes growth over the entire period indicated. Unless otherwise specified, all growth rates on page 7 are calculated using real GDP at basic prices, 1997 chained dollars.

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The following table shows the composition of Canada’s real GDP at basic prices (1997 constant dollars) by sector in 1990 and over the 2000-2004 period.

REAL GROSS DOMESTIC PRODUCT AT BASIC PRICES BY INDUSTRY

                                                                           
For the years ended December 31,

2004 2003 2002 2001 2000 1990(3) 2004 2000 1990(3)









(millions of 1997 dollars) (percentage distribution)
Agriculture(1)
  $ 15,174     $ 14,445     $ 12,513     $ 13,683     $ 15,876     $ 13,578       1.5 %     1.7 %     1.9 %
Forestry, fishing and hunting
    8,184       7,424       7,335       7,128       7,028       7,422       0.8       0.7       1.0  
Mining and oil and gas extraction
    40,425       39,100       36,212       35,507       35,459       26,922       3.9       3.7       3.8  
Manufacturing
    180,801       172,810       172,794       170,761       179,564       117,566       17.3       19.0       16.6  
Construction
    60,527       57,883       54,920       52,367       48,833       48,156       5.8       5.2       6.8  
Utilities
    26,342       26,228       26,808       25,533       26,502       22,513       2.5       2.8       3.2  
Transportation and warehousing
    49,849       47,413       47,072       46,741       45,764       33,063       4.8       4.8       4.7  
Wholesale and retail trade
    124,420       118,760       114,422       109,229       103,987       73,193       11.9       11.0       10.3  
Finance, insurance, real estate and leasing
    205,877       199,309       194,574       187,897       181,064       126,765       19.7       19.1       17.9  
Public administration and defence
    57,970       57,400       56,128       54,692       53,208       47,674       5.5       5.6       6.7  
Health, social, educational, professional and other services
    276,226       272,013       266,559       257,119       248,740       190,294       26.4       26.3       26.9  
     
     
     
     
     
     
     
     
     
 
 
TOTAL (2)
  $ 1,045,795     $ 1,012,785     $ 989,337     $ 960,657     $ 946,025     $ 707,670       100.0 %     100.0 %     100.0 %
     
     
     
     
     
     
     
     
     
 

Source: Statistics Canada, Input Output Division.

(1) Includes support activities for agriculture and forestry.

(2) May not add to total due to rounding.

(3) Data do not add to total due to rebasing.

The share of service-producing industries in real GDP at basic prices increased from 66.5% in 1990 to 68.3% in 2004. The fastest growing groups in this sector have been wholesale and retail trade, and finance, insurance, real estate and leasing, which grew at average compounded annual rates of 3.4% and 3.5%, respectively, between 1990 and 2004, compared to an average annual growth rate of 2.7% for total real GDP (1997 constant dollars). The goods-producing sector constituted 31.7% of real GDP at basic prices in 2004, down from 33.4% in 1990. The decline was most evident in construction with its share declining from 6.8% in 1990 to 5.8% in 2004, and in utilities, where the share fell from 3.2% to 2.5%.

Real GDP growth was 5.3% in 2000. Total year-over-year GDP growth slowed to 1.4% in 2001, rebounded to 3.0% in 2002 and eased to 2.3% in 2003, before advancing to 3.2% in 2004 and to 3.0%, 2.8% and 2.8% in the first, second and third quarters of 2005, respectively. In the manufacturing sector, year-over-year output growth exceeded overall GDP growth in 2000, increasing by 9.9%. Manufacturing output contracted by 4.2% in 2001, in line with the weaker economy, followed by growth of 1.1% in 2002 and no growth in 2003. After recovering to 4.6% in 2004 and 4.8% in the first quarter of 2005, manufacturing output growth decelerated to 2.0% and 0.5% in the second and third quarters of 2005, respectively (year-over-year).

The construction sector was the second largest goods-producing sector in Canada in 2004. Construction activity rose by 5.5% in 2000 and 7.3% in 2001, followed by more modest growth of 4.6% in 2002. Year-over-year output growth in this industry strengthened to 5.6% in 2003 and moderated to 4.6% in 2004. In the first three quarters of 2005, construction output gained 3.6%, 4.6% and 4.9%, respectively (year-over-year).

Output from mining and oil and gas extractions rose by 3.0% in 2000 and fell by 0.5% in 2001. After recovering to 3.6% in 2002 and 5.0% in 2003, output growth subsided to 2.8% in 2004, followed by a contraction in output of 2.7% and 2.4% in the first two quarters of 2005, respectively. Growth in this sector was restored in the third quarter of 2005 to 2.4% (year-over-year).

Although the share of agricultural output in total real GDP was 1.4% in 2003, agriculture is an important part of Canada’s economy and a significant contributor to foreign exchange earnings. Wheat is Canada’s principal agricultural crop and one of its largest export products by value. The wheat crop was 26.5 million tonnes in the 2000-2001 crop year. Total wheat production fell to 20.6 million tonnes and 16.2 million tonnes in the 2001-2002 and 2002-2003 crop years, respectively, followed by a rebound to 23.6 million tonnes in the 2003-2004 crop year and 25.9 million tonnes in the 2004-2005 crop year. For the 2005-2006 crop year, Statistics Canada estimates wheat production to be 26.8 million tonnes.

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Gross Domestic Income and Expenditure*

Nominal GDP at market prices was about $1.3 trillion in 2004. Nominal GDP grew at 9.6% in 2000, with growth tapering off to 2.9% in 2001 before regaining strength to 4.2% in 2002, 5.4% in 2003 and 6.1% in 2004. In 2005, nominal GDP growth was 6.1%, 5.4% and 5.5% in the first, second and third quarters, respectively (year-over-year basis).

GROSS DOMESTIC INCOME AND EXPENDITURE

                                                                 
First 3 quarters (10) For the years ending December 31,


2005 2004 2004 2003 2002 2001 2000







(in millions of dollars)
INCOME
                                                       
 
Labor income (1)
  $ 672,764     $ 640,515     $ 643,964     $ 617,753     $ 592,692     $ 570,008     $ 545,204  
 
Corporate profits (2)
    190,947       173,036       175,148       147,592       135,840       127,073       135,978  
 
Non-farm unincorporated business income
    84,473       80,621       81,027       77,158       74,260       68,857       64,944  
 
Farm income
    1,371       2,804       2,866       1,280       855       1,675       1,243  
 
Other net domestic income (3)
    131,611       121,605       124,060       123,304       109,372       116,590       115,885  
     
     
     
     
     
     
     
 
   
Net domestic income
    1,081,165       1,018,581       1,027,065       967,087       913,019       884,203       863,254  
 
Indirect taxes, capital consumption
                                                       
   
allowances and residual error
    273,555       262,129       263,120       249,104       241,185       223,845       213,323  
     
     
     
     
     
     
     
 
GROSS DOMESTIC INCOME
  $ 1,354,720     $ 1,280,711     $ 1,290,185     $ 1,216,191     $ 1,154,204     $ 1,108,048     $ 1,076,577  
     
     
     
     
     
     
     
 
EXPENDITURE
                                                       
 
Consumer expenditure
  $ 757,964     $ 716,855     $ 721,235     $ 687,791     $ 656,349     $ 620,614     $ 596,009  
 
Government expenditure
                                                       
   
(goods & services):
                                                       
 
Federal (4)
    53,495       49,996       50,225       47,334       45,600       42,762       41,412  
 
Provincial-municipal (5)
    242,359       230,432       231,421       220,265       207,992       196,244       183,220  
     
     
     
     
     
     
     
 
     
Total government (6)
    295,853       280,428       281,646       267,599       253,592       239,006       224,632  
       
of which current
    261,531       247,320       248,534       236,631       223,905       211,706       200,084  
       
of which capital (7)
    34,323       33,108       33,112       30,968       29,687       27,300       24,548  
 
Residential construction
    88,996       82,571       83,557       72,971       65,712       55,133       48,572  
 
Business fixed investment:
                                                       
   
Non-residential construction
    62,707       56,685       57,139       53,883       49,987       52,966       49,826  
   
Machinery and equipment
    90,683       84,749       85,171       80,266       80,150       81,879       83,350  
     
     
     
     
     
     
     
 
     
Total
    153,389       141,435       142,310       134,149       130,137       134,845       133,176  
 
Inventory accumulation:
                                                       
   
Business non-farm
    8,463       2,471       6,262       6,018       305       -3,745       11,355  
   
Farm
    931       1,395       1,496       1,221       -1,606       -995       150  
     
     
     
     
     
     
     
 
     
Total
    9,393       3,865       7,758       7,239       -1,301       -4,740       11,505  
 
Exports (goods & services) (8)
    511,012       493,395       492,580       461,266       478,071       482,463       490,688  
 
Imports (goods & services) (9)
    -462,561       -436,641       -438,346       -414,370       -427,679       -418,836       -428,754  
 
Residual error of estimate
    673       -1,196       -555       -454       -677       -437       749  
     
     
     
     
     
     
     
 
GROSS DOMESTIC EXPENDITURE
  $ 1,354,720     $ 1,280,711     $ 1,290,185     $ 1,216,191     $ 1,154,204     $ 1,108,048     $ 1,076,577  
     
     
     
     
     
     
     
 
GROSS DOMESTIC EXPENDITURE IN 1997 CHAIN-FISHER DOLLARS
  $ 1,152,819     $ 1,120,152     $ 1,124,428     $ 1,092,388     $ 1,070,789     $ 1,038,702     $ 1,020,488  
     
     
     
     
     
     
     
 

Source: Statistics Canada, National Income and Expenditure Accounts.

(1) Includes military pay and allowances.

(2) Includes net interest and dividends paid to non-residents.

(3) Includes interest and miscellaneous investment income, government business enterprise profits before taxes, taxes less subsidies on factors of production and inventory valuation adjustment.

(4) Net spending (outlays minus sales) including gross capital formation and Canada Pension Plan.

(5) Net spending (outlays minus sales) including gross capital formation and Québec Pension Plan.

(6) Includes government inventories.

(7) Includes inventory accumulations at all levels of government.

(8) Excludes investment income received from non-residents.

(9) Excludes investment income paid to non-residents.

(10) Seasonally adjusted, annual rates.


*Year-over-year growth rates for nominal GDP at market prices are based on not seasonally adjusted data.

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Economic Developments*

Real output experienced robust growth between 1997 and 2000, attaining gains of 5.2% in 2000 before a slowdown in global economic activity helped reduce growth to 1.8% in 2001. Since then, real GDP growth has recovered to 3.1% in 2002, 2.0% in 2003 and 2.9% in 2004, as stronger world demand was partially offset by the impact of an appreciation in the Canadian dollar and several temporary shocks. In 2005, real GDP maintained steady year-over-year increases of 3.2%, 2.8%, and 2.8% in the first three quarters, respectively.

After rising by 4.0% in 2000, real consumer spending saw softer growth rates of 2.3% in 2001, 3.7% in 2002, 3.1% in 2003 and 3.4% in 2004. In 2005, year-over-year growth in consumer spending strengthened to 4.0% in the first quarter, 4.2% in the second quarter and 4.0% in the third quarter. Since attaining a peak above 20% in 1982, the personal savings rate has been on a steady downward trend, reaching 4.7% in 2000. A slight uptick to 5.2% in 2001 was followed by continued declines to 3.5% in 2002, 2.4% in 2003 and 1.4% in 2004. Low interest rates and increased household borrowing have led the personal savings rate to fall below zero in 2005, to -0.5% in the first quarter, -0.6% in the second quarter, and -0.2% in the third quarter.

Year-over-year growth in non-residential business fixed investment was 4.7% in 2000 and 0.2% in 2001. The strength in non-residential business investment in 2000 was largely due to strong increases in machinery and equipment investment. Non-residential business fixed investment fell 4.9% in 2002, but rebounded with growth of 6.1% in 2003 and 6.1% in 2004, followed by year-over-year growth of 7.9%, 8.8% and 10.0% in the first three quarters of 2005, respectively.

Housing starts have increased in recent years. Following a level of 152 thousand units in 2000, housing starts continued to rise to 163 thousand units, 205 thousand units, 218 thousand units and 233 thousand units in 2001, 2002, 2003 and 2004, respectively. In the first three quarters of 2005, the level of housing starts was 213 thousand, 235 thousand and 228 thousand units, respectively (at annual rates).

Government spending on current goods and services grew by 3.1% in 2000, 3.9% in 2001, 2.6% in 2002, 2.9% in 2003 and 2.7% in 2004. Year-over-year growth in government spending on goods and services for 2005 was 2.3% in the first quarter, 2.7% in the second quarter and 3.3% in the third quarter.

In current dollar terms, the trade balance on a balance of payments basis was $61.3 billion in 2000 and $62.9 billion in 2001. The surplus on the foreign trade balance slid to $49.6 billion and $46.2 billion in 2002 and 2003, respectively, and rebounded in 2004 to $53.4 billion. In 2005, the trade surplus was $39.9 billion, $40.0 billion, and $62.7 billion (at annual rates) in the first, second and third quarters, respectively. (See also “Balance of Payments”.)


* In this section all figures, except the savings rates, are reported in real terms and growth rates are calculated from chained 1997 dollars, seasonally adjusted at annual rates unless otherwise noted.

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Prices and Costs

The year-over-year increase in the GDP implicit price deflator was 4.2% in 2000, and 1.1%, 1.1%, 3.3% and 3.0% in 2001, 2002, 2003 and 2004, respectively. Year-over-year growth in the implicit price deflator was 2.8% for the first quarter of 2005, 2.2% in the second quarter and 3.3% in the third quarter.

Since the introduction of inflation-targeting into monetary policy in 1991, year-over-year increases in the consumer price index (“CPI”) have been moderate. Registering increases of 2.7% in 2000, 2.6% in 2001 and 2.2% in 2002, the increase in 2000 is largely attributable to a surge in energy prices, while the increase observed in 2001 was more broadly-based. CPI inflation accelerated to 2.8% in 2003, boosted by energy prices and auto insurance premiums, while diminished effects of the latter and other special factors pulled the rate down to 1.9% in 2004. In 2005 inflation was 2.1%, 1.9% and 2.6% in the first, second and third quarter, respectively.*

PRICE DEVELOPMENTS

                                                                 
G.D.P. Consumer Price Index
Implicit
Industrial
Chain Total Total Excluding Product
For the years Price Index Excluding Food & Shelter Price
ended December 31, (1) Total Food Food Energy Energy Services Index









(annual percentage changes)
2000
    4.2       2.7       1.4       3.1       16.2       1.5       2.1       4.3  
2001
    1.1       2.6       4.5       2.1       3.3       2.0       2.5       1.0  
2002
    1.1       2.2       2.6       2.1       –2.0       2.7       1.9       0.1  
2003
    3.3       2.8       1.7       3.0       7.9       2.6       2.7       –1.4  
2004
    3.0       1.9       2.0       1.7       6.7       1.2       2.4       3.2  
2004 Q4
    3.5       2.3       3.4       2.1       11.1       1.2       2.6       4.3  
2005 Q1
    2.8       2.1       2.6       2.1       8.1       1.4       2.7       3.0  
2005 Q2
    2.2       1.9       3.3       1.7       5.3       1.3       2.6       0.5  
2005 Q3
    3.3       2.6       2.3       2.7       14.4       1.4       2.5       0.1  

Source: Statistics Canada, National Income and Expenditure Accounts; Consumer Prices and Price Indexes; Industry Price Indexes.
(1)  This implicit price index is based on seasonally adjusted data.

The average annual increase in new collective agreements (without cost of living clauses) involving 500 or more employees for all industries increased steadily between 1996 and 2001, followed by decreases from 2002 to 2004. Average wage gains (over the life of the contract) rose from 0.6% in 1996 to 2.5% in 2000 and 3.2% in 2001, before declining to 2.8% in 2002, 2.6% in 2003, and 1.7% in 2004. Wage gains were 2.6% in the first quarter of 2005, 2.6% in the second quarter and 2.9% in the third quarter.


* Year-over-year growth rates for CPI are based on not seasonally adjusted data.

10


 

Labor Market*

The following table shows labor market characteristics for the periods indicated.

LABOR MARKET CHARACTERISTICS(1), (2)

(thousands of persons)
                                                                         
Canada Atlantic Provinces Québec



For the years Labor Employ- Unemploy- Labor Employ- Unemploy- Labor Employ- Unemploy-
ended December 31, Force ment ment Rate Force ment ment Rate Force ment ment Rate










2000
    15,842       14,759       6.8       1,130       1,003       11.2       3,717       3,402       8.5  
2001
    16,111       14,947       7.2       1,148       1,014       11.7       3,772       3,440       8.8  
2002
    16,580       15,308       7.7       1,171       1,037       11.4       3,908       3,568       8.7  
2003
    16,954       15,665       7.6       1,186       1,054       11.2       3,991       3,625       9.2  
2004
    17,183       15,950       7.2       1,203       1,074       10.7       4,028       3,686       8.5  
2004 Q4
    17 279       16 053       7.1       1,204       1,077       10.5       4,064       3,712       8.7  
2005 Q1
    17,279       16,077       7.0       1,204       1,078       10.5       4,048       3,716       8.2  
2005 Q2
    17,317       16,146       6.8       1,200       1,077       10.2       4,021       3,695       8.1  
2005 Q3
    17,365       16,191       6.8       1,198       1,074       10.3       4,068       3,727       8.4  
                                                                         
Ontario Prairie Provinces British Columbia



For the years Labor Employ- Unemploy- Labor Employ- Unemploy- Labor Employ- Unemploy-
ended December 31, Force ment ment Rate Force ment ment Rate Force ment ment Rate










2000
    6,170       5,814       5.8       2,746       2,609       5.0       2,079       1,930       7.2  
2001
    6,327       5,926       6.3       2,782       2,645       4.9       2,082       1,922       7.7  
2002
    6,499       6,035       7.1       2,859       2,707       5.3       2,144       1,960       8.6  
2003
    6,672       6,208       7.0       2,914       2,764       5.2       2,191       2,014       8.0  
2004
    6,775       6,316       6.8       2,959       2,814       4.9       2,219       2,060       7.2  
2004 Q4
    6,809       6,349       6.7       2,975       2,832       4.8       2,227       2,082       6.5  
2005 Q1
    6,802       6,340       6.8       2,977       2,845       4.4       2,248       2,098       6.7  
2005 Q2
    6,868       6,401       6.8       2,972       2,848       4.2       2,256       2,124       5.9  
2005 Q3
    6,859       6,410       6.6       2,976       2,849       4.3       2,264       2,131       5.9  

Source: Statistics Canada, The Labour Force.
(1) Unemployment levels are calculated using the difference between Labor Force and Employment for the quarters.
(2) Annual employment levels are based on not seasonally adjusted data, while quarterly employment levels are based on seasonally adjusted data.

After increasing on a year-over-year basis by 2.6% in 2000, employment growth slipped to 1.3% in 2001, before rebounding to 2.4% in 2002 and 2.3% in 2003. Since then, year-over-year employment growth has slowed, registering 1.8% in 2004, and 1.5%, 1.4% and 1.3% in the first three quarters of 2005. Meanwhile, year-over-year labor force growth was 1.7% in both 2000 and 2001, and advanced to 2.9% in 2002 and 2.3% in 2003. Labor force growth has since eased to 1.4% in 2004, and in the first three quarters of 2005 to 1.1%, 0.9% and 1.0% respectively (year-over-year).

The unemployment rate rose from 6.8% in 2000 to 7.2% in 2001, 7.7% in 2002 and 7.6% in 2003. Since then the unemployment rate has declined to 7.2% in 2004. In 2005, the unemployment rate continued to fall to 7.0% in the first quarter and 6.8% in both the second and third quarters of 2005 (seasonally adjusted).


* Year-over-year growth rates for employment and labor force are based on not seasonally adjusted data.

11


 

EXTERNAL TRADE

Canada has continued to work towards implementing its trade goals of freer and more open markets based on internationally agreed rules and practices at multilateral, regional and bilateral levels.

At the multilateral level, Canada continues to be an active member of the World Trade Organization (“WTO”) and continues to fully participate in multilateral trade negotiations launched in Doha, Qatar in November 2001.

At the regional level, Canada is a member of the North American Free Trade Agreement (“NAFTA”) with both the United States and Mexico. Under NAFTA, as of January 1, 2003, virtually all tariffs for goods originating in Canada, the United States, and Mexico have been eliminated.

Canada currently has bilateral free trade agreements in place with the following countries: Chile, Costa Rica, and Israel.

Merchandise Trade

The following table sets forth the composition of Canadian trade for the periods indicated.

THE COMPOSITION OF CANADIAN MERCHANDISE TRADE

(Balance of Payments Basis)
                                                           
First 3 quarters (2) For the years ended December 31,


2005 2004 2004 2003 2002 2001 2000







(in millions)
Value of Exports
                                                       
 
Wheat
  $ 2,127     $ 2,824     $ 3,503     $ 2,805     $ 3,071     $ 3,807     $ 3,609  
 
Other agricultural products
    18,165       18,367       24,291       23,573       25,296       24,499       21,403  
 
Crude petroleum
    21,763       18,898       25,513       20,644       18,551       15,370       19,166  
 
Natural gas
    24,183       20,442       27,382       26,083       18,372       25,595       20,537  
 
Ores and metals
    26,891       24,193       32,415       26,029       28,079       26,007       26,618  
 
Lumber
    7,917       8,747       11,515       8,941       10,853       11,571       12,217  
 
Pulp and paper
    9,033       9,879       12,991       12,537       13,264       15,300       16,860  
 
Other materials
    63,542       58,490       78,069       70,163       70,156       72,778       71,102  
 
Motor vehicles
    44,085       47,276       62,613       59,498       67,672       65,872       69,676  
 
Motor vehicle parts
    21,009       21,013       27,722       27,887       29,005       26,655       28,210  
 
Machinery
    15,329       14,474       19,350       18,918       20,300       19,995       19,571  
 
Other end products
    68,800       67,660       89,341       86,947       94,470       98,865       105,678  
 
Special transactions
    11,012       10,438       14,430       16,151       14,970       14,416       14,726  
     
     
     
     
     
     
     
 
 
TOTAL EXPORTS (1)
  $ 333,856     $ 322,701     $ 429,134     $ 400,175     $ 414,056     $ 420,730     $ 429,372  
     
     
     
     
     
     
     
 
Value of Imports
                                                       
 
Edible products
  $ 15,530     $ 14,918     $ 19,972     $ 20,120     $ 20,432     $ 19,085     $ 17,389  
 
Crude petroleum
    15,533       11,605       16,452       13,301       11,723       12,814       13,437  
 
Other crude materials
    9,993       8,683       11,534       9,515       8,645       8,122       8,026  
 
Fabricated materials
    61,051       55,303       74,856       66,633       69,539       69,411       69,871  
 
Motor vehicles
    29,329       27,430       36,441       37,547       38,003       31,825       32,479  
 
Motor vehicle parts
    29,295       30,856       40,764       38,950       43,466       40,749       44,954  
 
Machinery and equipment
    82,294       77,913       103,810       98,585       105,901       111,947       122,913  
 
Other end products
    37,044       35,520       47,677       46,262       46,454       42,896       40,115  
 
Special transactions
    8,563       8,847       11,570       11,696       12,596       13,221       13,153  
     
     
     
     
     
     
     
 
 
TOTAL IMPORTS (1)
  $ 288,631     $ 271,074     $ 363,076     $ 342,608     $ 356,759     $ 350,071     $ 362,337  
     
     
     
     
     
     
     
 

Source: Statistics Canada, Canadian International Merchandise Trade.
(1) May not add to total due to rounding.
(2) Seasonally adjusted.

12


 

Canada is one of the leading trading nations of the world. Canada’s exports have always reflected the country’s high endowment in natural resources. However, Canada has been diversifying its exports over time, relying less on commodities and more on finished goods. The value of commodity exports as a share of merchandise exports dropped from 68.8% in 1980 to 52.0% in the first three quarters of 2005. Over this period the increase in exports of finished goods was led by automotive and miscellaneous end products. Canada’s imports consist mostly of manufactured goods; the two main components are machinery and equipment, and automotive products.

Canada and the United States are each other’s largest trading partners, reflecting the physical proximity of the two countries and their close economic and financial relationship. In 2004, trade with the United States accounted for 81.7% of the value of Canada’s merchandise exports and 68.9% of the value of Canada’s merchandise imports. According to the United States Department of Commerce, trade with Canada accounted for 23.1% of the United States’ exports and 17.4% of its imports in 2004.

GEOGRAPHICAL DISTRIBUTION OF CANADIAN MERCHANDISE TRADE

(Balance of Payments Basis)
                                                           
First 3 quarters For the years ended December 31,


2005 2004 2004 2003 2002 2001 2000







Exports (1)
                                                       
 
United States
    81.2 %     81.7 %     81.7 %     82.6 %     83.8 %     83.7 %     83.6 %
 
Japan
    2.3       2.3       2.3       2.4       2.5       2.4       2.6  
 
United Kingdom
    2.1       2.2       2.2       1.9       1.5       1.6       1.7  
 
European Union (2)
    4.4       4.1       4.1       4.1       3.9       4.0       3.9  
 
Other
    10.0       9.6       9.7       8.9       8.3       8.3       8.1  
     
     
     
     
     
     
     
 
      100.0 %     100.0 %     100.0 %     100.0 %     100.0 %     100.0 %     100.0 %
     
     
     
     
     
     
     
 
Imports (1)
                                                       
 
United States
    67.1 %     69.3 %     68.9 %     70.1 %     71.5 %     72.7 %     73.6 %
 
Japan
    2.9       2.7       2.8       3.1       3.3       3.0       3.2  
 
United Kingdom
    2.3       2.6       2.6       2.7       2.9       3.4       3.4  
 
European Union (2)
    7.5       7.4       7.4       7.6       7.2       6.6       5.8  
 
Other
    20.1       17.9       18.3       16.5       15.1       14.3       14.0  
     
     
     
     
     
     
     
 
      100.0 %     100.0 %     100.0 %     100.0 %     100.0 %     100.0 %     100.0 %
     
     
     
     
     
     
     
 

Source: Statistics Canada, Canadian International Merchandise Trade.
(1) May not add to total due to rounding.
(2) Excludes the United Kingdom. Includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, and Sweden.

The following table presents volume and price indices of Canada’s merchandise trade for the periods indicated.

MERCHANDISE TRADE INDICES

(Balance of Payments Basis)
                                                           
First 3 quarters For the years ended December 31,


2005 2004 2004 2003 2002 2001 2000







(1997 = 100)
Indices of physical volume
                                                       
 
Exports
    135.9       133.1       133.2       126.4       128.8       127.8       132.3  
 
Imports
    143.6       132.7       134.4       124.1       119.8       117.8       125.0  
Indices of prices
                                                       
 
Exports
    108.0       106.5       106.2       104.4       106.0       108.5       107.0  
 
Imports
    96.5       98.1       97.3       99.4       107.2       107.0       104.4  
 
Terms of trade (1)
    111.9       108.5       109.1       105.0       98.9       101.4       102.4  

Source: Statistics Canada, National Income and Expenditure Accounts.
(1) Index of price of exports divided by index of price of imports multiplied by 100.

13


 

BALANCE OF PAYMENTS

The following table presents the balance of international payments for the periods indicated.

CANADIAN BALANCE OF INTERNATIONAL PAYMENTS

                                                                 
First 3 quarters(1) For the years ended December 31,


2005 2004 2004 2003 2002 2001 2000







(in millions of dollars)
CURRENT ACCOUNT
                                                       
 
RECEIPTS
                                                       
   
Goods and services
  $ 381,882     $ 368,832     $ 490,950     $ 459,697     $ 476,408     $ 480,795     $ 489,090  
     
Goods
    333,792       322,701       429,134       400,175       414,056       420,730       429,372  
     
Services
    48,090       46,132       61,816       59,522       62,352       60,065       59,718  
   
Investment Income
    32,714       28,431       38,385       29,999       31,329       25,990       36,755  
   
Current transfers
    5,229       5,476       7,272       6,614       6,891       6,968       6,116  
     
Current account receipts
    419,825       402,740       536,607       496,310       514,628       513,754       531,961  
 
PAYMENTS
                                                       
   
Goods and services
    346,234       326,889       437,566       413,523       426,814       417,945       427,836  
     
Goods
    288,509       271,074       363,076       342,608       356,759       350,071       362,337  
     
Services
    57,725       55,816       74,490       70,915       70,055       67,874       65,500  
   
Investment Income
    49,009       47,288       63,321       57,991       60,739       65,320       69,863  
   
Current transfers
    5,903       5,059       6,944       6,398       5,960       5,384       4,992  
     
Current account payments
    401,147       379,236       507,830       477,913       493,513       488,649       502,692  
 
BALANCES
                                                       
   
Goods and services
    35,647       41,943       53,384       46,174       49,594       62,850       61,254  
     
Goods
    45,283       51,626       66,058       57,567       57,297       70,659       67,036  
     
Services
    -9,636       -9,684       -12,674       -11,393       -7,703       -7,809       -5,782  
   
Investment Income
    -16,295       -18,856       -24,935       -27,992       -29,410       -39,330       -33,109  
   
Current transfers
    -674       416       328       215       930       1,584       1,124  
     
Current account balance
    18,679       23,504       28,777       18,397       21,115       25,104       29,269  
CAPITAL AND FINANCIAL ACCOUNT
                                                       
 
CAPITAL ACCOUNT
    4,835       3,260       4,407       3,977       4,937       5,752       5,314  
 
FINANCIAL ACCOUNT
    -26,721       -19,340       -26,912       -20,108       -17,934       -21,375       -27,070  
 
CANADIAN ASSETS, NET FLOWS
                                                       
   
Canadian direct investment abroad
    -29,633       -49,617       -61,737       -30,058       -41,991       -55,800       -66,352  
   
Portfolio investment
    -32,994       -12,174       -18,523       -15,720       -26,839       -37,573       -63,927  
     
Foreign bonds
    -20,515       -8,699       -15,262       -7,974       -6,229       -1,920       -3,963  
     
Foreign stocks
    -10,600       -1,979       -1,592       -4,438       -18,858       -35,653       -59,965  
   
Other investment
    -34,129       -6,262       -3,518       -20,395       -12,491       -20,556       -11,759  
     
Loans
    2,284       -1,586       3,349       7,586       -8,584       -8,051       -5,126  
     
Deposits
    -29,113       440       -7,497       -22,646       5,648       -2,172       3,973  
     
Official international reserves
    -1,760       -510       3,427       4,693       298       -3,353       -5,480  
     
Other assets
    -5,539       -4,607       -2,797       -10,028       -9,853       -6,980       -5,125  
     
     
     
     
     
     
     
 
     
Total Canadian assets, net flows
    -96,756       -68,051       -83,778       -66,173       -81,322       -113,930       -142,039  
 
CANADIAN LIABILITIES, NET FLOWS
                                                       
   
Foreign direct investment in Canada
    26,104       9,980       8,187       8,896       33,751       42,844       99,198  
   
Portfolio investment
    7,304       39,448       55,471       20,322       21,056       37,779       14,598  
     
Canadian bonds
    473       13,062       20,063       8,293       18,805       41,002       -21,458  
     
Canadian stocks
    9,409       28,715       35,838       13,491       -1,531       4,125       35,232  
     
Canadian money market
    -2,578       -2,329       -430       -1,461       3,782       -7,349       824  
   
Other investment
    36,627       -717       -6,792       16,846       8,581       11,932       1,173  
     
Loans
    5,174       -1,654       -3,067       1,422       1,299       -5,941       3,396  
     
Deposits
    28,607       3,100       -554       18,318       13,565       23,716       -962  
     
Other liabilities
    2,847       -2,163       -3,171       -2,894       -6,283       -5,843       -1,261  
     
     
     
     
     
     
     
 
     
Total Canadian liabilities, net flows
    70,035       48,711       56,865       46,064       63,388       92,555       114,969  
     
     
     
     
     
     
     
 
       
Total capital and financial account, net flows
    -21,885       -16,081       -22,505       -16,132       -12,997       -15,623       -21,756  
 
Statistical discrepancy
    3,809       -7,468       -6,272       -2,265       -8,118       -9,481       -7,514  

Source: Statistics Canada, Canada’s Balance of International Payments
(1) Year-to-date (not annualized). Current account data are seasonally adjusted. Capital account data are not seasonally adjusted.

14


 

Canada’s current account balance moved from a surplus of $29.3 billion in 2000 to a surplus of $28.8 billion in 2004. The current account surplus declined to an average of $24.9 billion (seasonally adjusted, annualized level) in the first three quarters of 2005. Over the period since 2000, the three main components of the current account have evolved as follows:
  (1)  The merchandise trade surplus decreased from $67.0 billion in 2000 to $66.1 billion in 2004. In the first three quarters of 2005, the merchandise trade surplus declined further to an average of $60.4 billion (annualized level).
  (2)  The service account deficit worsened from $5.8 billion in 2000 to $12.7 billion in 2004. The services deficit averaged $12.8 billion (annualized level) in the first three quarters of 2005.
  (3)  The deficit on net investment income payments narrowed from $33.1 billion in 2000 to $24.9 billion in 2004. The investment income deficit averaged $21.7 billion in the first three quarters of 2005 (annualized level).

Low inflation and a depreciation of the Canadian dollar helped support the merchandise trade surplus in 2000 and 2001. An uneven recovery in the United States provided limited stimulus to exports in 2002 and an appreciation of the Canadian dollar restrained gains in the surplus when growth in the United States shifted to a higher pace in 2003, 2004 and the first three quarters of 2005.

In 2000, the net outflow in the capital and financial account stood at $21.8 billion. Following that, Canada registered net outflows of $15.6 billion, $13.0 billion, $16.1 billion and $22.5 billion in 2001, 2002, 2003 and 2004, respectively. The net outflow in the first three quarters of 2005 averaged $29.2 billion (annualized level).

Various Canadian financial instruments were acquired by non-residents during the 1990s and early 2000s. Non-resident net purchases of Canadian bonds, stocks and money market instruments amounted to $14.6 billion in 2000. After rising to $37.8 billion in 2001, purchases of Canadian financial instruments decreased to $21.1 billion in 2002 and $20.3 billion in 2003, before surging to $55.5 billion in 2004. The first three quarters of 2005 saw net purchases of Canadian bonds, stocks and money market instruments slide to an average $9.7 billion (annualized level).

From 1980 to the early 1990s foreign direct investment in Canada maintained a steady range, averaging just over $5 billion annually. In the mid-1990s, foreign direct investment in Canada began to rise sharply, peaking at $99.2 billion in 2000 before sliding to $42.8 billion in 2001, $33.8 billion in 2002, $8.9 billion in 2003 and $8.2 billion in 2004. Foreign direct investment rebounded in the first three quarters of 2005 to an average of $34.8 billion (annualized level).

15


 

FOREIGN EXCHANGE AND INTERNATIONAL RESERVES

Since May 31, 1970 the Canadian dollar has been allowed to float so that the rate of exchange is determined by conditions of supply and demand in the market. During this period, the Canadian dollar has floated between a high of 104.43 U.S. cents that occurred in April 1974 and a low of 61.79 U.S. cents in January 2002. The dollar closed 2004 at 83.19 U.S. cents. In 2005 through December 16, trading has been in a range of 78.53 to 87.51 U.S. cents; the dollar closed at 86.27 U.S. cents on December 16, 2005.

EXCHANGE RATE FOR THE CANADIAN DOLLAR

                                                 
For the years ended December 31,
2005 through
December 16 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995











(in U.S. cents)
High
    87.51     85.14   77.89   66.54   67.11   69.84   69.35   71.23   74.93   75.26   75.33
Low
    78.53     71.41   63.38   61.79   62.30   63.97   64.62   63.11   69.45   72.12   70.09

Source: Bank of Canada.

Canada does not have foreign exchange controls. Foreign exchange operations conducted by the Bank of Canada on behalf of the Minister of Finance are directed toward the maintenance of orderly conditions in the foreign exchange market in Canada through the purchase or sale of United States dollars for Canadian dollars. The following table shows Canada’s official international reserves on the dates indicated.

CANADA’S OFFICIAL INTERNATIONAL RESERVES

                                                                                         
At December 31,
At November 30,
2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995











(in millions of U.S. dollars)
Total
    34,199       34,466       36,268       37,169       34,248       32,424       28,646       23,427       17,969       20,578       15,227  

Source: Department of Finance.

Canada’s official reserves at November 30, 2005 consisted of United States dollars in the amount of U.S.$16,646 million, U.S.$54 million in gold (valued at U.S.$495.65 per fine ounce), U.S.$2,039 million in the form of the reserve position in the International Monetary Fund (“IMF”), U.S.$894 million in Special Drawing Rights (“SDRs”) and U.S.$14,566 million in other convertible currencies.

Beginning in 1978 transactions relating to foreign currency debt undertaken for reserve management purposes have had an important effect on the level of official reserves. The Government maintains a U.S.$6,000 million standby credit facility with a group of foreign banks. Since August 31, 1986 no drawings have been outstanding on the standby credit facility. The “Canada Bills” program was launched in October 1986. Under this program U.S. dollar-denominated short-term notes are issued in the United States money market. There were U.S.$1,748 million of Canada Bills outstanding on September 30, 2005. The “Canada Notes” program was launched in March 1996. Canada Notes are interest-bearing marketable notes that mature not less than nine months from their date of issue. As of September 30, 2005, there was a total of U.S.$881 million equivalent of Canada Notes outstanding. A Euro Medium Term Note program was launched in March 1997. As of September 30, 2005, there was a total of U.S.$1,276 million equivalent of Euro Medium Term Notes outstanding. As of September 30, 2005, there was a total of U.S.$6,515 million equivalent of other marketable bonds, comprised of 4 global bond issues and 4 Petro Canada bond issues assumed by the Government of Canada on February 5, 2001, on the dissolution of Petro Canada Limited.

16


 

 
GOVERNMENT FINANCES

Introduction

The financial structure of the Government of Canada rests on a constitutional and statutory framework dating back to the British North America Act, 1867. That Act, which has been renamed the Constitution Act, 1867, gave constitutional foundation to the principles of financing that are basic to responsible government, while other necessary financial administrative machinery and procedures were established by subsequent legislation, most notably the Financial Administration Act. The proclamation in 1982 of the Constitution Act, 1982 terminated British legislative jurisdiction over Canada’s Constitution in accordance with an amending formula that permits amendment of the Constitution without resorting to the Parliament of the United Kingdom.

Within the confines of the Constitution, the authority of Parliament is supreme. Ultimate control of the public purse and the financial structure of the Government rests with Parliament. This is reflected in the fundamental principles that no tax shall be imposed and no money shall be spent without the authority of Parliament, and that expenditures shall be made only for the purposes authorized by Parliament.

Public money received by the Government is deposited in the Consolidated Revenue Fund of Canada. Withdrawals of public money out of the Consolidated Revenue Fund may not be made without the authority of Parliament.

The Government has two major sources of money: budgetary revenues and borrowing. The main sources of revenue are personal and corporate income taxes, employment insurance premiums, and excise taxes and duties. These revenues are authorized by specific acts passed by Parliament. The Government’s revenues also include net gains/losses from Crown corporations (such as the Bank of Canada, Export Development Canada and the Canada Mortgage and Housing Corporation), foreign exchange revenues, and other revenues (primarily revenues from the sales of goods and services). The other major source of money to finance Government operations is borrowing. Borrowing limits are established by acts of Parliament. The main sources of borrowing are marketable bonds, treasury bills and retail debt.

Parliament authorizes the disbursement of moneys out of the Consolidated Revenue Fund by means of Appropriation Acts passed on an annual basis by Parliament and based on the Main Estimates submitted by the various departments. In addition to the Appropriation Acts, authority for payments may also be found in certain statutes which authorize certain payments out of the Consolidated Revenue Fund. Expenditures for public debt charges, social security payments and transfers to other levels of government are authorized in this way. Appropriations may also be made by the Governor in Council for urgent payments. Such appropriations may be made only when Parliament is not in session, and must be laid before Parliament during the subsequent session.

Information on the Government’s planned revenues and expenditures is presented to Parliament primarily in two documents: the Budget and the Main Estimates, which are both presented in the House of Commons. The Budget, which may be delivered at any time during the fiscal year, provides the occasion on which the Minister of Finance generally brings under review the whole financial position of the Government, present and prospective, and announces the Government’s plans and proposals. The Main Estimates are tabled (i.e., introduced) once each year and outline the Parliamentary authority, either existing or required, for disbursements. Supplementary Estimates may also be tabled during the year to provide authority for spending as the need arises.

The considerations for overall resource availability and demands for new policies and programs are reconciled through the establishment of a five year Fiscal Plan reflecting Government priorities. This Fiscal Plan, which is presented with the Budget, establishes an expenditure framework, in which the Cabinet establishes priorities. This ensures that expenditure decisions are made within the context of Government priorities and do not exceed the provision for such expenditures set out in the expenditure framework. The Government also releases an Economic and Fiscal Update in the fall for pre-budget consultation purposes.

17


 

The reporting entity of the Government of Canada includes all departments, agencies, corporations and funds which are owned or controlled by the Government and which are accountable to Parliament. The financial activities of all departments, agencies, corporations and funds are consolidated in the Government’s financial statements, except for enterprise Crown corporations and other government business enterprises which are not dependent on the Government for financing their activities. For these corporations, the Government reports in its financial statements only the cost of its investment and an allowance for valuation which includes their annual net profits and losses. In addition, any amounts receivable from or payable to these corporations are reported.

The primary source of information on all actual financial transactions of the Government is the Public Accounts of Canada, which are required by the Financial Administration Act to be tabled in Parliament each year. The other chief accountability reports are the statements of budgetary and non-budgetary financial transactions and of the Government’s cash and debt position published monthly in The Fiscal Monitor and in the Annual Financial Report.

Since fiscal 2002-03, the financial statements have been presented on a full accrual basis of accounting, replacing the modified accrual standard that had been used since the mid 1980s. The Government’s fiscal anchor remains the budgetary balance, which now provides a more comprehensive and up-to-date picture of the financial situation. Prior to the shift to accrual accounting, there was no distinction between net debt and the accumulated deficit, or federal debt, so these terms were used interchangeably. Under full accrual accounting, this is no longer the case. Net debt is the Government’s net liabilities excluding the value of its non-financial assets. The federal debt takes into account the value of non-financial assets. The two indicators now represent different measures of the Government’s financial position. The Federal debt now represents the accumulation of surpluses and deficits in the past and is the key measure of debt. Data from fiscal 1983-84 are not directly comparable with earlier years due to a break in the series following the introduction of full accrual accounting.

Fiscal Policy

Since 1993, the Government’s fiscal objective has been to restore and maintain fiscal health. Implicit in this objective was the need to halt the rise in the debt-to-GDP ratio and to put it on a permanent downward track. On a full accrual basis of accounting, the budgetary balance went from a record deficit of $39.0 billion, or 5.6% of GDP in fiscal 1992-93, to eight consecutive surpluses over the fiscal 1997-98 to fiscal 2004-05 period. The fiscal 2004-05 surplus was $1.6 billion, or 0.1% of GDP. As a percentage of GDP, program expenses declined from 16.8% in fiscal 1992-93 to 12.6% in fiscal 2004-05, and public debt charges fell from 5.9% in fiscal 1992-93 to 2.6% in fiscal 2004-05. Coupled with economic growth, the fiscal turnaround has also led to a fall in federal debt as a share of GDP of almost 30 percentage points to 38.7% in fiscal 2004-05, from the peak of 68.4% in fiscal 1995-96. This is the ninth consecutive year in which the debt-to-GDP ratio has declined.

This turnaround in federal finances underlined the soundness of the Government’s fiscal planning approach — basing budget plans on economic planning projections based on the average of the private sector economic forecasts, and fiscal forecasts backed by prudence. Prudence is of two types — the Contingency Reserve and economic prudence. The Contingency Reserve of $3.0 billion per year provides a measure of back-up against adverse errors in the fiscal forecast. Economic prudence provides an extra measure of back-up to ensure that the fiscal target is met. The magnitude of the adjustment for economic prudence increases over the forecast period, reflecting rising uncertainty over the planning horizon. Prudence in budget planning has meant that budgetary balance targets have been consistently bettered in each and every year.

The budgetary deficit/surplus — the budgetary balance — is the most comprehensive measure of the Government’s fiscal results. It is presented on a full accrual basis of accounting, recording government assets and liabilities when they are earned or incurred, regardless of when the cash is received or paid. In addition, the budgetary balance includes only those activities over which the Government has legislative control. However, it is only one measure of the Government’s financial position.

18


 

Another important measure is financial source/requirement. Financial source/requirement measures the difference between cash coming in to the Government and cash going out. It differs from the budgetary balance in that it includes transactions in loans, investments and advances, federal employees’ pension accounts, other specified purpose accounts, foreign exchange activities, changes in other financial assets, liabilities and non-financial assets. These activities are included as part of non-budgetary transactions. The conversion from full accrual to cash accounting is also reflected in non-budgetary transactions. In contrast to the large financial requirements observed from the mid 1970s through the mid 1990s, financial surpluses have now been recorded in seven of the past eight years. As a result, the Government has retired $43.3 billion of market debt since fiscal 1996-97. Market debt as a percentage of GDP has declined to 33.8% from the peak of 58.2% in fiscal 1995-96.

BUDGETARY BALANCE, FINANCIAL SOURCE/REQUIREMENT AND NET FINANCING ACTIVITIES

                                             
For the years ended March 31,

2005 2004 2003 2002 2001





(in millions)
BUDGETARY TRANSACTIONS
                                       
 
Revenues
  $ 211,658     $ 198,547     $ 190,232     $ 183,676     $ 194,120  
 
Program expenses
    -175,910       -153,695       -145,993       -137,006       -130,066  
   
Operating surplus or deficit ( - )
    35,748       44,852       44,239       46,670       64,054  
 
Public debt charges
    -34,118       -35,769       -37,270       -39,651       -43,892  
     
     
     
     
     
 
   
Budgetary surplus or deficit ( - )
    1,630       9,083       6,969       7,019       20,162  
     
     
     
     
     
 
NON-BUDGETARY TRANSACTIONS
                                       
 
Loans, investments and advances
    -4,312       -5,800       -2,192       16       -3,212  
 
Pensions and other liabilities
    -1,090       2,611       346       -1,031       3,222  
 
Non-financial assets
    -48       -578       -878       -1,621       -1,512  
 
Other transactions
    5,198       -3,708       260       -2,944       1,419  
 
Foreign exchange transactions
    3,442       4,637       3,096       -1,776       -8,776  
     
     
     
     
     
 
   
Total non-budgetary transactions
    3,190       -2,838       632       -7,356       -8,859  
FINANCIAL SOURCE/REQUIREMENT
    4,820       6,245       7,601       -337       11,303  
     
     
     
     
     
 
UNMATURED DEBT TRANSACTIONS
    -4,771       -2,185       -2,475       -4,104       -10,013  
     
     
     
     
     
 
CHANGE IN CASH BALANCES
    49       4,060       5,126       -4,441       1,290  
     
     
     
     
     
 
CASH AT END OF YEAR
  $ 20,595     $ 20,546     $ 16,486     $ 11,360     $ 15,801  
     
     
     
     
     
 

Source: Public Accounts of Canada, 2005.

19


 

Budgetary Revenue

The Government reports revenue on an accrual basis in the period in which the event that gave rise to the revenue took place. Income tax revenue is recognized when the taxpayer has earned the income subject to tax. Personal income taxes accounted for about 47% and corporate income taxes accounted for about 14% of Government revenue in fiscal 2004-05.

In recognition of continued budget surpluses, the Government has continued to provide significant income tax reductions for individuals and corporations since the February 2000 Budget. There are currently four income tax brackets for individuals: 16%, 22%, 26%, and 29%. For 2005, the taxable income thresholds at which these brackets apply, indexed annually to account for inflation, are as follows: 16% on taxable income up to $35,595, 22% on taxable income between $35,596 and $71,190, 26% on taxable income between $71,191 and $115,739 and 29% on taxable income of $115,740 and above.

In the November 2005 Economic and Fiscal Update, the Government proposed to lower taxes further by, among other things, reducing the 16% income tax bracket to 15% retroactively to January 1, 2005; reducing the 22% income tax bracket to 21% effective January 1, 2010; reducing the 26% income tax bracket to 25% effective January 1, 2010; and increasing the taxable income threshold at which the 29% rate begins to apply to $200,000 effective January 1, 2010.

The general federal corporate income tax rate in 2005 is 21%. The 2005 Budget and the November 2005 Economic and Fiscal Update proposed to reduce this general rate to 19% by 2010, to eliminate the corporate surtax fully in 2008 and to eliminate the federal capital tax on corporations effective January 1, 2006.

Capital gains are taxed as part of the income tax system, in the taxation year in which they are realized. A portion of the gain is included in income and is subject to tax at the applicable individual or corporate income tax rate. Prior to the February 2000 Budget, 75% of a capital gain was required to be included in income. The current inclusion rate of 50% became effective on October 18, 2000.

The goods and services tax is a broad-based value-added tax, which is applied to the sale of most goods and services at a rate of 7%. Food for home consumption, prescription drugs, residential rents, sales of existing houses, and educational and healthcare services are generally not subject to this tax.

Excise taxes and duties are imposed on selected goods, such as tobacco, alcoholic beverages and gasoline. Customs duties are also imposed on a wide range of goods.

In addition, the Government obtains non-tax revenues in the form of net gains/losses from Crown Corporations (such as the Bank of Canada, Export Development Canada, and the Canada Mortgage and Housing Corporation), foreign exchange revenues, and other revenues (primarily from the sale of goods and services).

20


 

The following table sets forth budgetary revenue for the years shown.

DETAILED STATEMENT OF TRANSACTIONS — BUDGETARY REVENUES

                                           
For the years ended March 31,

2005 2004 2003 2002 2001





(in millions)
TAX REVENUES
                                       
 
Personal income tax
  $ 98,521     $ 92,957     $ 89,530     $ 86,972     $ 92,662  
 
Corporate income tax
    29,956       27,431       22,222       24,242       28,293  
 
Other income tax revenues
    3,560       3,142       3,291       2,925       2,982  
 
Goods and services tax
    29,758       28,286       28,248       25,292       24,759  
 
Energy taxes
    5,054       4,952       4,935       4,848       4,792  
 
Customs import duties
    3,091       2,887       3,278       3,040       2,784  
 
Other excise taxes and duties
    4,954       5,240       4,896       3,953       3,434  
     
     
     
     
     
 
 
Total tax revenues
    174,894       164,895       156,400       151,272       159,706  
EMPLOYMENT INSURANCE PREMIUMS
    17,307       17,546       17,870       17,637       18,655  
OTHER REVENUES
                                       
 
Crown corporation revenues
    6,827       5,920       5,305       4,754       5,460  
 
Other program revenues
    11,455       8,096       7,278       7,560       7,620  
 
Foreign exchange revenues
    1,175       2,090       3,379       2,453       2,679  
     
     
     
     
     
 
 
Total other revenues
    19,457       16,106       15,962       14,767       15,759  
TOTAL BUDGETARY REVENUES
  $ 211,658     $ 198,547     $ 190,232     $ 183,676     $ 194,120  
     
     
     
     
     
 

Source:  Public Accounts of Canada 2005.

21


 

Budgetary Expenses

Budgetary expenses encompass the cost of servicing the public debt, the operating expenses of Government departments and agencies, grants and contributions to other levels of government, organizations and individuals, and subsidies. Under full accrual accounting, the cost of using capital assets is amortized over its estimated useful life.

Transfer payments includes a range of federal social spending programs designed to enhance the quality of life of Canadians, particularly those who have modest incomes or who are disadvantaged. It includes income support — most notably for the elderly and unemployed; transfers to the provinces for health, education and social assistance; and programs for aboriginal Canadians.

The following table sets forth budgetary expenses, including federal social spending, for the years shown.

DETAILED STATEMENT OF TRANSACTIONS — BUDGETARY EXPENSES

                                               
For the years ended March 31,

2005 2004 2003 2002 2001





(in millions)
PROGRAM EXPENSES
                                       
 
Transfer payments
                                       
   
Old age security benefits, guaranteed income supplement and spouse’s allowance
  $ 27,871     $ 26,902     $ 25,692     $ 24,641     $ 23,668  
   
Other levels of Government
                                       
     
Canada health and social transfer
    28,031       22,341       21,100       17,300       13,500  
     
Fiscal arrangements
    12,863       9,409       10,879       11,603       12,467  
     
Alternative payments for standing programs
    -2,746       -2,700       -2,321       -2,662       -2,460  
     
Other
    3,807       342       987       375       1,217  
     
     
     
     
     
 
     
Total other levels of Government
    41,955       29,392       30,645       26,616       24,724  
   
Employment insurance benefits
    14,748       15,058       14,496       13,726       11,444  
   
Canada child tax benefits
    8,688       8,062       7,823       7,471       6,783  
   
Other transfer payments
    25,001       22,964       19,987       18,321       21,075  
     
     
     
     
     
 
     
Total transfer payments
    118,263       102,378       98,643       90,775       87,694  
     
     
     
     
     
 
Other program expenses
                                       
 
Crown corporation expenses
    8,907       6,566       6,551       6,085       5,402  
 
National Defence
    14,318       12,869       11,803       10,443       9,744  
 
All other departments and agencies
    34,422       31,882       28,996       29,703       27,226  
     
     
     
     
     
 
     
Total other program expenses
    57,647       51,317       47,350       46,231       42,372  
     
     
     
     
     
 
     
Total program expenses
    175,910       153,695       145,993       137,006       130,066  
PUBLIC DEBT CHARGES
    34,118       35,769       37,270       39,651       43,892  
     
     
     
     
     
 
TOTAL BUDGETARY EXPENSES
  $ 210,028     $ 189,464     $ 183,263     $ 176,657     $ 173,958  
     
     
     
     
     
 

Source: Public Accounts of Canada 2005.

22


 

Loans, Investments and Advances

The Government’s financial assets include loans and advances to, or investments in, its enterprise Crown corporations, other governments and other individuals and organizations.

Loans, investments and advances by the Government resulted in a net requirement of funds of $4.3 billion in fiscal 2004-05.

Pension and Other Liabilities

The Government acts as an insurer and/or administrator of a number of pension funds and annuities and deposit and trust accounts. The balance outstanding of these accounts amounted to $179.8 billion at March 31, 2005. The public sector pensions comprised 72.1% of the outstanding balance at March 31, 2005.

Canada Pension Plan Liability. The Canada Pension Plan (the “Plan”) is a federal-provincial program for compulsory and contributory social insurance. It operates in all parts of Canada, except for Quebec which has a comparable program. The Government administers the Plan under joint control with the participating provinces. Until 1997, the Plan was financed on an essentially pay-as-you-go basis, which means that pensions and benefits were paid out of current contributions (with some interest earned by the Canada Pension Plan Investment Fund). In December 1997, the Government passed legislation to ensure that the Plan remains sustainable over the long term and to allow fuller funding. Changes included a more rapid increase in contribution rates, a new investment policy, as well as changes to calculations of, and eligibility criteria to, some benefits. Under the new investment policy which came into effect April 1, 1998, the Plan’s funds are prudently invested by an independent investment board in a diversified portfolio of securities, including equities, under generally the same rules that apply to other private and public pension funds.

Contributions are paid equally by employers and employees and self-employed workers pay the full amount. The Plan is funded on a steady-state basis with contributions at 9.9% of pensionable earnings. As administrator, the Government’s authority to spend is limited to the Plan’s net assets of $83.4 billion at March 31, 2005 ($72.5 billion at March 31, 2004). Of these assets, $19.3 billion was invested in securities issued or guaranteed by the provinces and Canada, $50.6 billion was transferred to the Canada Pension Plan Investment Board and $2.8 billion was a direct liability of the Government.

Public Sector Pensions. The Government is responsible for defined benefit pension plans covering substantially all of its full-time employees (including the Public Service, Canadian Forces, Royal Canadian Mounted Police and certain Crown corporations) as well as federally appointed judges and Members of Parliament. Pension benefits are generally calculated by reference to highest earnings for a specific period of time. They are related to years of service and are indexed to inflation. Until March 31, 2000, separate market invested funds were not set aside to provide for payment of these pension benefits. Beginning on April 1, 2000, new employer and employee contributions to the pension plans are transferred to the Public Sector Pension Investment Board. Its goal is to achieve maximum rates of return on investments without undue risk, while respecting the requirements and financial obligations of each of the public sector pension plans. At March 31, 2005 the net liability in respect of these accounts totalled $129.6 billion. This net liability is comprised of the accrued benefit obligation determined as of March 31, 2005, which amounted to $145.3 billion, less pension plan assets of $18.8 billion and unamortized pension adjustments of $3.1 billion. In fiscal 2004-05 the net liability to the public sector pensions increased by $2.0 billion.

Other Employee and Veteran Future Benefits. The Government also sponsors a variety of other future benefit plans from which employees and other former employees can benefit, during or after employment or upon retirement. The cost of these benefits can accrue either during the service life of employees or upon occurrence of an event giving rise to the liability under the terms of the plans. The Government is liable for future payments for the disability and other benefits paid to war veterans, as well as the Canadian Forces retired veterans and still-serving members, their beneficiaries and dependants. Other

23


 

significant benefits for which the Government is liable include the health care and dental plans available to retired employees and their dependants, severance benefits, and workers’ compensation benefits. All these plans are unfunded. The health care and dental plans are contributory plans.

Non-Financial Assets

Non-financial assets include the net book value of the Government’s capital assets. Capital assets include land, buildings, works and infrastructure such as roads and bridges, machinery and equipment, ships, aircraft and other vehicles. Non-financial assets also include inventories and prepaid expenses. Non-financial assets increased by $48 million to $54.9 billion in fiscal 2004-05 from $54.8 billion in fiscal 2003-04.

Other Transactions

This category includes tax receivables, other receivables, the provincial and territorial tax collection agreements account, tax payables and other liabilities. These transactions, due to their nature, are subject to wide fluctuations. They were a source of $5.2 billion in fiscal 2004-05, compared to a requirement of $3.7 billion in fiscal 2003-04.

Foreign Exchange Transactions

Foreign exchange transactions represent all transactions in international reserves held in the Exchange Fund Account (EFA). The objectives of the EFA are to provide general foreign currency liquidity for the Government and promote orderly conditions in the foreign exchange market. The EFA includes foreign currency investments, gold holdings and assets related to Canada’s commitment to the International Monetary Fund.

24


 

DETAILED STATEMENT OF TRANSACTIONS — NON-BUDGETARY TRANSACTIONS, NON-FINANCIAL ASSETS AND FOREIGN EXCHANGE TRANSACTIONS

                                                 
For the years ended March 31,

2005 2004 2003 2002 2001





(in millions)
 
LOANS, INVESTMENTS AND ADVANCES
                                       
 
Enterprise Crown corporations and other government business enterprises
                                       
   
Loans and advances
                                       
     
Canada Mortgage and Housing Corporation
  $ 190     $ 219     $ 218     $ 226     $ 224  
     
Farm Credit Canada
                    578       226       236  
     
Other
    2       -28       63             -38  
     
     
     
     
     
 
      192       191       281       804       412  
   
Investments
                                       
     
Share of annual profit
    -4,855       -3,711       -2,962       -2,482       -3,274  
     
Dividends
    1,944       1,907       1,881       2,078       1,990  
     
Capital
    -275       -64       -67       89       65  
     
     
     
     
     
 
      -3,186       -1,868       -1,148       -315       -1,219  
     
     
     
     
     
 
       
Total
    -2,994       -1,677       -867       489       -807  
     
     
     
     
     
 
 
Other loans, investments and advances
                                       
   
Portfolio investments
    1,225                          
   
National governments including developing countries
    184       574       684       219       2  
   
International organizations
    -266       -74       327       453       313  
   
Provincial and territorial governments
    -673       -2,459       -139       385       -963  
   
Other
    -1,736       -2,500       -1,827       -1,624       -1,269  
     
     
     
     
     
 
      -1,266       -4,459       -955       -567       -1,917  
 
Total loans, investments and advances
    -4,260       -6,136       -1,822       -78       -2,724  
   
Allowance for valuation
    -52       336       -370       94       -488  
     
     
     
     
     
 
 
Total loans, investments and advances after allowance for valuation
    -4,312       -5,800       -2,192       16       -3,212  
     
     
     
     
     
 
PENSIONS AND OTHER LIABILITIES
                                       
   
Public sector pensions
    2,019       1,852       -1,213       -2,264       839  
   
Other employee and veteran future benefits
    2,182       523       564       612       1,954  
   
Due to Canada Pension Plan
    -4,712       390       323       379       174  
   
Other liabilities
    -579       -154       672       242       255  
     
     
     
     
     
 
     
Total pensions and other liabilities
    -1,090       2,611       346       -1,031       3,222  
     
     
     
     
     
 
NON-FINANCIAL ASSETS
                                       
   
Tangible capital assets
    -462       -711       -1,310       -1,510       -1,360  
   
Inventories
    609       -21       325       153       -140  
   
Prepaid expenses
    -195       154       107       -264       -12  
     
     
     
     
     
 
     
Total non-financial assets
    -48       -578       -878       -1,621       -1,512  
     
     
     
     
     
 
OTHER TRANSACTIONS
                                       
   
Tax receivables
    -5,524       -4,356       2,008       2,967       -5,251  
   
Other receivables
    214       121       325       -239       550  
   
Provincial and territorial tax collection agreements accounts
    1,103       2,374       -934       -1,139       -824  
   
Tax payables
    2,610       -509       -735       1,254       3,221  
   
Other liabilities
    6,795       -1,338       -404       -5,787       3,723  
     
     
     
     
     
 
 
Total other transactions
    5,198       -3,708       260       -2,944       1,419  
     
     
     
     
     
 
FOREIGN EXCHANGE TRANSACTIONS
                                       
   
International reserves held in the Exchange Fund Account
    2,133       3,602       3,818       -822       -9,215  
   
International Monetary Fund — Subscriptions
    945       757       -121       -7       -424  
     
     
     
     
     
 
      3,078       4,359       3,697       -829       -9,639  
   
Less: International Monetary Fund — Notes payable
    -453       -336       623       947       -835  
   
Special drawing rights allocations
    89       58       -22             -28  
     
     
     
     
     
 
      -364       -278       601       947       -863  
     
     
     
     
     
 
     
Total foreign exchange transactions
    3,442       4,637       3,096       -1,776       -8,776  
     
     
     
     
     
 
NET NON-BUDGETARY TRANSACTIONS
  $ 3,190     $ -2,838     $ 632     $ -7,356     $ -8,859  
     
     
     
     
     
 

Source: Public Accounts of Canada 2005.

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Unmatured Debt

The Government’s unmatured debt represents financial obligations resulting from the sale of marketable bonds, treasury bills, Canada Savings Bonds, Canada Premium Bonds, Canada Investment Bonds, Canada Bills, and Canada Notes, as well as from non-marketable obligations issued to the Canada Pension Plan Investment Fund and obligations issued to Trustees in respect of health care initiatives.

Borrowing is one of the two major sources of money available to the Government to finance its operations. The increase in unmatured debt payable in Canadian currency has been broadly consistent with changes in financial requirements. The changes in unmatured debt payable in foreign currency have been associated with developments in foreign exchange markets and related requirements to supplement foreign exchange reserves through foreign borrowing.

UNMATURED DEBT

(Principal Amount Outstanding)
                                                     
At At March 31,
Sept. 30,
2005 2005 2004 2003 2002 2001






(in millions)
CANADIAN CURRENCY
                                               
 
Marketable bonds
  $ 259,803     $ 263,300     $ 276,022     $ 286,290     $ 292,910     $ 293,879  
 
Treasury bills
    122,800       127,200       113,400       104,600       94,200       88,700  
 
Canada Savings Bonds
    11,584       11,958       14,038       16,084       18,928       21,410  
 
Canada Premium Bonds
    7,061       7,115       7,286       6,500       5,092       4,204  
 
Canada Investment Bonds
    8       8       7                    
 
Obligations issued to Canada Pension Plan Investment Fund
    3,202       3,335       3,351       3,369       3,386       3,403  
 
Obligations issued to Trustees in respect of Health Care Initiatives
    23       58       76       2       5       70  
     
     
     
     
     
     
 
   
Total Canadian currency
    404,481       412,974       414,180       416,845       414,521       411,666  
     
     
     
     
     
     
 
FOREIGN CURRENCY (1)
                                               
 
Canada Bills
    2,032       3,862       3,364       2,603       3,355       7,228  
 
Canada Notes
    1,024       1,128       1,257       1,244       1,202       1,580  
 
Euro Medium Term Note Program
    1,484       1,661       3,170       3,215       2,933       3,417  
 
Other marketable bonds (2)
    7,575       9,941       13,201       14,420       19,629       20,488  
 
Standby credit facilities
                                   
     
     
     
     
     
     
 
   
Total foreign currency
    12,115       16,592       20,992       21,482       27,119       32,713  
     
     
     
     
     
     
 
TOTAL UNMATURED DEBT
  $ 416,596     $ 429,566     $ 435,172     $ 438,327     $ 441,640     $ 444,379  
     
     
     
     
     
     
 

Source: Bank of Canada, Department of Finance.

(1) Foreign currency debt is converted to Canadian dollars using the following closing exchange rate levels:

                                                 
At At March 31,
Sept. 30,
2005 2005 2004 2003 2002 2001






(in millions)
United States Dollar
    1.1627       1.2096       1.3113       1.4678       1.5942       1.5763  
Euro
    1.3976       1.5681       1.6149       1.6037       1.3879       1.3837  
Japanese Yen
    0.010242       0.011281       0.01257       0.01244       0.01202       0.01249  
New Zealand Dollar
    0.8053       0.8617       0.8716       0.8142       0.7026       0.6370  
British Pound
                2.4201       2.3240       2.2716       2.2315  
Danish Krone
                0.2169       0.2158       0.1868       0.1852  
Norwegian Krone
                0.19145       0.2018       0.1801       0.1718  
Greek Drachma
                                  0.004070  
Hong Kong Dollar
                                  0.202254  

26


 

(2) Excludes Canada Notes and Euro Medium Term Notes. Other globals foreign currency marketable bonds are comprised of the following amounts (before conversion to Canadian dollars):

                                                 
At At March 31,
Sept. 30,
2005 2005 2004 2003 2002 2001






(in millions)
United States Dollars
    3,711       5,211       7,216       7,312       10,312       11,000  
New Zealand Dollars
    500       500       500       500       500       500  
Euro
    2,045       2,045       2,045       2,045       2,045       2,045  

Marketable bonds are interest-bearing obligations available to all investors generally. In the period April 1, 2005 to September 30, 2005 the Government issued an aggregate of $19,207 million of marketable bonds in Canadian currency and redeemed $22,704 million (including $8,848 million in repurchased and cancelled bonds), for a net decrease of $3,497 million. Treasury bills are obligations issued at a discount with maturities generally of three months, six months and one year. In the period April 1, 2005 to September 30, 2005 the amount of treasury bills outstanding decreased by $4,400 million. Canada Savings Bonds are offered to individual Canadian residents and differ from other bonds in that they can be redeemed prior to maturity at the option of the holder for the full face value, plus accrued interest. In the period April 1, 2005 to September 30, 2005 the amount of unmatured Canada Savings Bonds outstanding decreased by $374 million. The Canada Premium Bond is a retail investment and savings product introduced in 1998 that replaced the Canada Registered Retirement Savings Plan Bond (“Canada RRSP Bond”). It offers a higher interest rate compared to Canada Savings Bonds and is redeemable once a year, on the anniversary of the issue date and during the 30 days thereafter without penalty. In the period April 1, 2005 to September 30, 2005 the amount of unmatured Canada Premium Bonds outstanding decreased by $54 million. Canada Investment Bonds, piloted through investment dealers from November 1, 2003 to April 1, 2004, were discontinued. They offer a fixed rate of interest for the full term to maturity. The Canada Investment Bonds carry a higher rate of interest than the Canada Savings Bonds or the Canada Premium Bonds over the equivalent priced period. They are non-cashable prior to maturity but are transferable to other eligible registration types. In the period April 1, 2005 to September 30, 2005, the amount of unmatured Canada Investment Bonds outstanding was unchanged. Obligations issued to Canada Pension Plan Investment Fund are non-marketable. Obligations issued to Trustees in respect of health care initiatives are non marketable. Canada Bills are short-term U.S. dollar-denominated unsecured obligations issued in the U.S. money market with a term to maturity of not more than 270 days. Canada Notes are usually U.S. dollar-denominated interest-bearing marketable notes that mature not less than nine months from their date of issue. The Euro Medium-Term Notes are medium-term notes issued outside the United States and Canada. Notes issued under this program can be denominated in a range of currencies and structured to meet investor demand. The other marketable bonds are comprised of 4 global bond issues and 4 Petro Canada bond issues assumed by the Government of Canada on February 5, 2001, on the dissolution of Petro Canada Limited in U.S. dollars and other foreign currencies.

In the mid 1990s, Canada implemented an Exchange Fund Account foreign currency swap program. Under these foreign exchange swaps, Canadian dollar liabilities are swapped into liabilities in foreign currencies, allowing Canada to raise foreign exchange reserves cost effectively. As of September 30, 2005, $17,595 million of Canadian dollars have been swapped for U.S.$12,808 million, $9,287 million of Canadian dollars have been swapped for Euro 6,670 million and $111 million Canadian dollars have been swapped for ¥8 billion.

27


 

The average rates of interest paid on the unmatured debt outstanding by instrument are set out below.

AVERAGE RATES OF INTEREST

                                         
At March 31,

2005 2004 2003 2002 2001





Marketable bonds (1)
    5.62 %     5.96 %     6.26 %     6.61 %     6.98 %
Treasury bills
    2.62       2.52       3.04       2.64       5.31  
Canada Savings Bonds
    2.85       3.37       3.43       3.23       5.42  
Non-marketable bonds and notes (2)
    9.99       9.96       10.14       10.16       10.10  
Canada Bills
    2.63       0.92       1.12       1.75       5.10  
Foreign currency notes
    3.14       2.37       2.36       2.46       4.15  
Total Unmatured Debt
    4.61       4.91       5.32       5.56       6.11  

Source: Public Accounts of Canada 2005.

(1) Excludes Canada Notes and Euro Medium-Term Notes, but includes other foreign currency marketable bonds.

(2) Includes the bonds for the Canada Pension Plan and obligations issued to trustees in respect of health care initiatives.

The following table shows the scheduled repayments in respect of principal and interest on the marketable bonds and notes outstanding at September 30, 2005.

SCHEDULE OF MARKETABLE DEBT REPAYMENTS

(in millions)
                 
Total Principal and Interest

Foreign
Canadian Currency
For years ended Currency Debt
December 31, Debt(1) (1)(2)(3)(4)



2005
  $ 14,224     $ 91  
2006
    42,256       2,149  
2007
    42,088       832  
2008
    31,032       6,183  
2009
    26,986       1,977  
2010-2014
    102,359        
2015-2019
    34,480        
2020-2024
    35,542        
2025-2029
    47,447        
2030-2034
    24,135        
2035-2039
    9,278        

Source: Bank of Canada.

(1) Excludes the effect of interest rate swaps and cross currency swaps.
(2) Includes Canada Notes and other foreign currency marketable bonds and notes.
(3) Converted at U.S. $1.00 = $1.1627, Japanese Yen 1.00 = $0.010242, New Zealand $1.00 = $0.8053 and Euro 1.00 = $1.3976, the closing rates on September 30, 2005.
(4) Excludes principal and interest payments on U.S. $210,719,000 of Petro Canada bond issues assumed by the Government of Canada on February 5, 2001, on the dissolution of Petro Canada Limited.

Crown Corporations

Except for enterprise Crown corporations and other government business enterprises, which are reported under the modified equity basis of accounting, all Government organizations are consolidated in the financial statements. Only certain financial transactions between the Government and enterprise Crown corporations are recorded. All assets and liabilities of agent Crown corporations are, however, assets and liabilities of the Government.

The payment of all money borrowed by agent Crown corporations is a charge on and payable out of the Consolidated Revenue Fund. Such borrowings constitute unconditional obligations of the Government

28


 

and are recorded as such in the accounts of Canada, net of borrowings expected to be repaid directly by these corporations. Borrowings expected to be repaid by enterprise Crown corporations and other government business enterprises amounted to $47,389 million as at March 31, 2005. The following table summarizes the unaudited financial information of consolidated and enterprise Crown corporations as at March 31, 2005.

FINANCIAL INFORMATION REGARDING CROWN CORPORATIONS

(in millions)
                               
Consolidated Enterprise Total



Assets
                       
 
Total assets
  $ 6,087     $ 127,645     $ 133,732  
     
     
     
 
Liabilities
                       
 
Liabilities to other than Government
                       
   
Borrowings
          49,128       49,128  
   
Other
    4,419       57,181       61,600  
     
     
     
 
      4,419       106,309       110,728  
     
     
     
 
     
Net assets
  $ 1,668     $ 21,336     $ 23,004  
     
     
     
 
Financial interest of the Government
                       
   
Obligations to the Government
  $ 242     $ 7,173     $ 7,415  
   
Net equity of the Government
    1,426       14,163       15,589  
     
     
     
 
     
Total financial interest
  $ 1,668     $ 21,336     $ 23,004  
     
     
     
 
Contingent liabilities
  $ 194     $ 2,750     $ 2,944  
     
     
     
 

Source: Public Accounts of Canada 2005.

Contingent Liabilities (with Respect to Guarantees by the Government)

The contingent liabilities of the Government, with respect to guarantees by the Government as at March 31, 2005 are summarized as follows.

CONTINGENT LIABILITIES (WITH RESPECT TO NET EXPOSURE UNDER GUARANTEES)

(in millions)
             
Guarantees by the Government
       
 
Borrowings by enterprise Crown corporations which are agents of Her Majesty
  $ 43,490  
 
Borrowings by other than Crown corporations
       
   
From agents
    540  
   
From other than agents
    2,718  
   
Other explicit loan guarantees
    23  
 
Insurance programs of the Government
    1,929  
 
Other explicit guarantees
    6,513  
     
 
   
Total gross guarantees
    55,213  
   
Less: allowance for losses
    -2,318  
     
 
Net exposure under guarantees
  $ 52,895  
     
 

Source: Public Accounts of Canada 2005.

29


 

Insurance Programs

Certain agent enterprise Crown corporations operate insurance programs. In the event that such corporations have insufficient funds to meet their obligations, the Government would provide the required financing through appropriations, either budgetary or non-budgetary.

The following table summarizes the unaudited information regarding such insurance programs as at March 31, 2005.

AGENT ENTERPRISE CROWN CORPORATIONS INSURANCE PROGRAMS

                                   
5 year Closing
average balance
Insurance Net of net of
in force claims (1) claims fund




(in millions)
Canada Deposit Insurance Corporation
  $ 375,563     $ 14     $     $ 788  
Canada Mortgage and Housing Corporation
                               
 
Mortgage Insurance Fund
    247,140       153       214       3,329  
 
Mortgage-Backed Securities Guarantee Fund
    84,544                   163  
Export Development Canada
                               
 
Export insurance contracts entered into on its own behalf
    11,869       39       65        

Source: Public Accounts of Canada 2005.

(1) Refers to the difference between claims and amounts received from sales of related assets and other recoveries.

DEBT RECORD

Canada has always paid the full face amount of the principal and interest on every direct obligation issued by it and every indirect obligation on which it has been required to implement its guarantee, promptly when due. During war, where such payment would have violated laws or regulations forbidding trading with the enemy, payment was made to a custodian of enemy property.

30


 

MONETARY AND BANKING SYSTEM

Bank of Canada

The Bank of Canada (the “Bank”) was incorporated in 1934 under the Bank of Canada Act (in this sec-tion referred to as the “Act”) as Canada’s central bank. All of the capital stock of the Bank is owned by the Government. The Act gives the Bank the responsibility for the conduct of monetary policy and confers specific powers for discharging that responsibility.

The Bank has the sole right to issue notes for circulation in Canada. The Bank acts as the fiscal agent of the Government of Canada and in this role the Bank participates in the management of the public debt. Specifically, the Bank is responsible for handling the Government’s new market borrowings, administering its outstanding market debt, and making payments for interest and market debt redemption on its behalf.

The Bank may buy or sell various types of securities, including securities issued or guaranteed by Canada or any province, short-term securities issued by the United Kingdom, and treasury bills or other obligations of the United States. The Bank may buy and sell foreign currencies, SDRs issued by the IMF, coin, and gold and silver bullion. The Bank may open accounts with other central banks, at the Bank for International Settlements (“BIS”), and at commercial banks. The Bank may accept deposits from the Government or any of its corporations or agencies, any province, any chartered bank or any member of the Canadian Payments Association. The Bank pays interest to the Government on deposits held at the Bank and may pay interest to member institutions of the Canadian Payments Association on deposits accepted for certain specified purposes. It may also accept deposits from other central banks and official international financial organizations and may pay interest on such deposits. The Bank does not accept deposits from individuals nor does it compete with the chartered banks in the commercial banking field. The Bank is not required to maintain gold or foreign exchange reserves against its liabilities.

The Bank may, on the pledge of certain classes of securities or property, make loans or advances for periods not exceeding six months to chartered banks, and to any other members of the Canadian Payments Association. The Bank Rate is the minimum rate at which the Bank is prepared to make loans or advances. Although the Bank has the power to make loans or advances under certain conditions and for limited periods to the Government or any province, such loans are extremely rare and no such loans have been made in over 35 years.

The framework for the implementation of monetary policy by the Bank was changed considerably on two occasions during the 1990s, first as a result of the phased elimination of reserve requirements between June 1992 and July 1994, and second, with the introduction of a real-time large-value settlement system (the “Large Value Transfer System” or “LVTS”) in February 1999.

The central mechanisms through which the Bank currently implements monetary policy are the LVTS and a 50-basis-point operating band for the overnight interest rate adopted by the Bank in mid 1994. Currently, the Bank targets the level of excess settlement balances in the LVTS at a minimum of $50 million. Any participant in the LVTS with a deficit funds position should therefore be aware that there will be one or more participants with offsetting surplus positions that are potential counterparties for transactions at market rates. The Bank encourages these transactions by paying an interest rate on positive balances held overnight by LVTS participants at the lower limit of its operating band and charging an interest rate on overdraft loans to LVTS participants at the upper limit of the band (which is also the Bank Rate). Thus the overnight rate should stay within the operating band since participants are aware that they can earn at least the lower limit of the band on positive balances and need not pay more than the upper limit to cover shortfalls. Moreover, the Bank is prepared to enter into overnight buyback transactions to reinforce its target rate at the midpoint of the operating band. Through its influence on the interest rate for overnight funds, the Bank is able to influence other short-term interest rates, the exchange rate, aggregate demand and, ultimately, inflation.

31


 

The Bank controls the level of LVTS settlement balances available to the financial system by adjusting the level of Government deposits held at financial institutions through twice-daily auctions of Government cash balances.

The Act provides for regular consultation between the Governor of the Bank and the Minister of Finance as well as for a formal procedure whereby, in the event of a disagreement between the Government and the Bank which cannot be resolved, the Government may issue a directive to the Bank as to the monetary policy that it is to follow. The directive must be in writing, in specific terms, applicable for a specified period and published forthwith. This provision in the Act makes it clear that the Government must take the ultimate responsibility for monetary policy, but the Bank is in no way relieved of its responsibility for monetary policy and its execution so long as a directive is not in effect. No directive has ever been issued.

The Payment Clearing and Settlement Act, 1996 gives the Bank formal responsibility for the regulatory oversight of major clearing and settlement systems. Specifically, the Bank will review all eligible systems and identify their potential to cause systemic risk. Systems with this potential are subject to designation under the Payment Clearing and Settlement Act, 1996. Designated systems will have to satisfy the Bank that they have appropriate risk-control mechanisms in place. The Bank may carry out examinations and, in situations where it is judged that systemic risk is being inadequately controlled, the Governor of the Bank may issue directives to a designated system.

The Payment Clearing and Settlement Act, 1996 also gives the Bank new powers to provide certain services. In particular, the Bank can provide a guarantee of settlement to the participants of designated systems.

Other Government Financial Institutions

Export Development Canada (“EDC”) was established on October 1, 1969 for the purpose of facilitating and developing trade between Canada and other countries. EDC is the successor to the Export Credits Insurance Corporation which commenced operations in 1944. Activities were originally limited to insuring Canadian exporters against nonpayments of credits extended to foreign buyers. To further enhance Canada’s growing export trade, EDC has introduced an export loans program, a foreign investment guarantees program and a surety risk protection insurance program. The Federal Business Development Bank was established in 1975 as the successor to the Industrial Development Bank which was established in 1944 as a subsidiary of the Bank of Canada. In 1995, the Federal Business Development Bank was continued as the Business Development Bank of Canada (“BDC”). The purpose of the BDC is to provide financial and management services to small and medium-sized businesses in Canada. The Canada Deposit Insurance Corporation, established in 1967, insures deposits payable in Canada and in Canadian currency at banks and other financial institutions up to $100,000 per depositor. Farm Credit Canada, established in 1959, provides financial and management services to farms and agrifood businesses. The Canada Mortgage and Housing Corporation (formerly the Central Mortgage and Housing Corporation) was incorporated in 1945 to insure mortgage loans made by approved lenders and to make direct mortgage loans.

Chartered Banks

Canada’s banks are all federally incorporated and are regulated under the Bank Act. The Bank Act sets out the rules for the structure and operation of these institutions. It is the current practice in Canada to revise the Bank Act after intervals of approximately five years with the most recent revision taking place in 2001 (see Financial Sector Restructuring below). The Office of the Superintendent of Financial Institutions is the federal agency responsible for supervising banks.

Under the Bank Act, foreign banks are permitted to incorporate subsidiaries by letters patent. In June 1999, legislation was passed to allow foreign banks to establish specialized, commercially focused branches in Canada. Foreign banks can operate full service branches and lending branches. As at

32


 

November 30, 2005, the banking system consisted of 21 domestic banks, 26 foreign bank subsidiaries, 18 full-service foreign bank branches and 5 foreign bank lending branches.

Financial Sector Restructuring

On June 14, 2001, Royal Assent was given to Bill C-8, An Act to establish the Financial Consumer Agency of Canada and to amend certain Acts in relation to financial institutions. Bill C-8, which amended various federal financial sector statutes, reformed Canada’s financial services sector, which includes domestic and foreign banks, trust companies, insurance companies, credit unions and other financial institutions.

Some of the key elements contained in Bill C-8, as well as the measures implemented by non-legislative means such as guidelines and statements of government policy that compliment the legislation, include: a new definition of widely held ownership for federal financial institutions that allows for strategic alliances and joint ventures with significant share exchanges; a new holding company regime which offers financial institutions the potential for greater structural flexibility; a bank merger review process with a formal mechanism for public input; broader access to the payments system to accommodate the entry of life insurance companies, securities dealers and money market mutual funds that meet certain criteria, including regulatory oversight and liquidity; and the creation of the Financial Consumer Agency of Canada to enforce the consumer-related provisions of the federal financial institution statutes.

Monetary Policy and Interest Rate Developments

The ultimate objective of Canadian monetary policy is to promote good overall economic performance through price stability.

In February 1991, the Government and the Bank of Canada (the “Bank”) jointly announced a series of targets for reducing total CPI inflation to the mid-point of a range of 1% to 3% by the end of 1995. This inflation-control target range has been extended a number of times. In May 2001 the 1% to 3% target range was extended to the end of 2006. Monetary policy will continue to aim at keeping future inflation at the 2% target mid-point of this range, both to maximize the likelihood that inflation stays within the target range and to increase the predictability of inflation over the longer term.

The policy instrument the Bank uses to influence monetary conditions is the overnight rate target, which is the mid-point of the Bank’s operating band for overnight financing. The Bank constantly reassesses the level of the overnight rate target necessary to achieve the inflation-control targets.

Since the Fall of 2000, the Bank has moved to fixed announcement dates for the overnight rate target to make monetary policy more effective. Fixed dates have reduced the uncertainty in financial markets associated with not knowing exactly when changes in the overnight rate target may be announced, and contributed to the improved functioning of financial markets. Fixed dates have provided a regular opportunity to emphasize the medium-term perspective of monetary policy and increased the Bank’s transparency, accountability and dialogue with the public.

During 2004, the Canadian economy moved near its production capacity more quickly than anticipated as exports grew vigorously. This near capacity production, along with rising commodity prices, prompted the Bank of Canada to raise the target for the overnight rate by a total of 50 basis points to 2 1/2% in two 25 basis point increments during the second half of the year.

By the start of 2005 the dampening effects on aggregate demand of the appreciation of the Canadian dollar prompted the Bank to slightly lower its expectations for economic growth. Net exports were acting as a drag on the economy, but some sectors (retail, wholesale and housing) were experiencing robust demand while core inflation remained below the Bank’s 2% target. Against this backdrop, the Bank decided to maintain its target for the overnight rate at 2 1/2% for much of 2005.

On its September 7, October 18 and December 6, 2005 Fixed Announcement Dates the Bank raised its key policy rate by 25 basis points each time, bringing the target for the overnight rate to 3 1/4%. Canada’s

33


 

economic growth in the second and third quarter was somewhat stronger than the Bank had been expecting. With the economy operating at full capacity, a reduction in monetary stimulus promotes a better balance between aggregate demand and supply and keeps inflation on target over the medium term.

(INTEREST RATES GRAPHS)

34


 

Membership in International Economic Organizations

As of December 31, 2004, Canada’s paid-up quota in the IMF is SDR 6,369.2 million. On December 31, 2004 one SDR equalled Cdn $1.87.

Canada also participates in the General Arrangements to Borrow (the “GAB”) and the New Arrangements to Borrow (the “NAB”) which provide special financial resources to the IMF. Canada’s total commitment under the GAB and the NAB amount to SDR 1,396.0 million. As of December 31, 2004 there were no loans outstanding to the IMF under the GAB and the NAB.

Canada is also a member of the Organization for Economic Cooperation and Development, a party to the World Trade Organization and a shareholder (through the Bank of Canada) of the BIS. Canada’s participation in other international development institutions is summarized in the table below.

PARTICIPATION IN OTHER INTERNATIONAL DEVELOPMENT INSTITUTIONS

                 
At December 31, 2004

Subscription

Total Paid-in(1)


(in millions of
U.S. dollars)
International Bank for Reconstruction and Development
  $ 5,403.8     $ 334.9  
International Development Association (“IDA”)
           
International Finance Corporation
    81.3       81.3  
Multilateral Investment Guarantee Agency
    56.5       10.7  
Asian Development Bank
    2,183.7       153.9  
Inter-American Development Bank
    4,039.9       173.7  
Caribbean Development Bank
    62.7       13.7  
African Development Bank
    1,085.9       89.2  
European Bank for Reconstruction and Development
    828.6       204.1  

Source: Department of Finance; Annual Reports of Regional Development Banks
(1) Balance of subscription payable only in the unlikely event that there is a call on the institution’s capital.

35


 

TABLES AND SUPPLEMENTARY INFORMATION

The tables and supplementary information under the headings Unmatured Debt, Other Obligations (with Respect to Money Borrowed) and Supplementary Information have been provided by the Department of Finance and the Bank of Canada.

Unmatured Debt

All debt obligations listed below are direct obligations of the Government of Canada and constitute a charge on the Consolidated Revenue Fund of Canada.

(A) PAYABLE IN CANADA IN CANADIAN DOLLARS

MARKETABLE BONDS(1)

                           
Outstanding at
Maturity date Coupon % Issue date(s) Series September 30, 2005





Maturing in 2005-06
                       
 
2005 — Dec. 1
    3     June 13/03 and Aug. 1/03 and Sept. 19/03   XR04   $ 2,540,225,000  
 
        Dec. 1
    8 3/4     Apr. 3/95 and May 15/95 and Aug. 15/95 and Nov. 15/95   A79     5,781,848,000  
 
2006 — Mar. 1
    12 1/2     Mar. 13/84 and Nov. 14/84 and Mar. 19/85   H18     266,514,000  
                     
 
                      8,588,587,000  
                     
 
Maturing in 2006-07
                       
 
2006 — June 1
    3     Dec. 19/03 and Feb. 13/04 and Mar. 12/04 and
Apr. 26/04
  XU33     6,563,001,000  
 
        Sept. 1
    5 3/4     Nov. 14/00 and Feb. 12/01 and June 4/01 and Aug. 20/01   XD18     9,026,584,000  
 
        Oct. 1
    14     June 1/84 and July 11/84 and Aug. 1/84   H26     768,307,000  
 
        Dec. 1
    3 1/4     May 28/04 and Aug. 9/04 and Sept. 17/04   XV16     6,000,000,000  
 
        Dec. 1
    7     Feb. 15/96 and Mar. 29/96 and May 15/96 and Aug. 15/96   VU50     5,866,645,000  
 
2007 — Mar. 1
    13 3/4     June 19/84   H30     192,738,000  
                     
 
                      28,417,275,000  
                     
 
Maturing in 2007-08
                       
 
2007 — June 1
    3     Dec. 10/04 and Feb. 11/05 and Mar. 18/05   XZ20     5,600,000,000  
 
2007 — June 1
    7 1/4     Oct. 1/96 and Nov. 15/96 and Feb. 17/97 and May 15/97   WB60     7,029,817,000  
 
        Sep. 1
    4 1/2     Nov. 19/01 and Feb. 18/02 and May 21/02 and July 22/02 and Aug. 19/02   XJ87     9,725,000,000  
 
        Oct. 1
    13     Aug. 22/84 and Sept. 12/84   H36     467,580,000  
 
        Dec. 1
    2 3/4     June 10/05 and July 29/05 and Sept. 16/05   YA69     7,007,164,000  
 
2008 — Mar. 1
    12 3/4     Oct. 1/84 and Oct. 24/84   H41     578,665,000  
                     
 
                      30,408,226,000  
                     
 
Maturing in 2008-09
                       
 
2008 — June 1
    6     Aug. 15/97 and Nov. 17/97 and Feb. 16/98 and May 15/98   WH31     5,010,390,000  
 
        June 1
    10     Dec. 15/85 and Sept. 1/87 and Feb. 1/88 and Apr. 14/88 and June 1/88 and July 21/88 and Oct. 15/88 and Dec. 15/88 and Feb. 23/89 and June 1/89   H74     3,036,529,000  
 
        Sept. 1
    4 1/4     Nov. 18/02 and Dec. 23/02 and Feb. 24/03 and Mar. 31/03 and Apr. 29/03 and June 2/03 and July 21/03 and Sept. 2/03 and Oct. 14/03   XN99     11,328,000,000  
 
        Oct. 1
    11 3/4     Feb. 1/85 and May 1/85   H52     395,547,000  
 
2009 — Mar. 1
    11 1/2     May 22/85   H58     139,655,000  
                     
 
                      19,910,121,000  
                     
 
Maturing in 2009-10
                       
 
2009 — June 1
    5 1/2     Aug. 17/98 and Nov. 16/98 and Feb. 15/99 and May 17/99   WR13     6,250,192,000  
 
        June 1
    11     Oct. 1/85 and Oct. 23/85 and Oct. 15/87   H68     637,846,000  
 
        Sept. 1
    4 1/4     Dec. 1/03 and Jan. 26/04 and Feb. 23/04 and Apr. 13/04 and May 17/04 and July 26/04 and Aug. 30/04 and Oct. 12/04   XT69     10,100,000,000  
 
        Oct. 1
    10 3/4     June 12/85 and July 1/85 and Sept. 1/85 and Sept. 1/88   H63     256,716,000  
 
2010 — Mar. 1
    9 3/4     Mar. 15/86   H79     83,434,000  
                     
 
                      17,328,188,000  
                     
 

36


 

Unmatured Debt (Continued)
                           
Outstanding at
Maturity date Coupon % Issue date(s) Series September 30, 2005





Maturing in 2010-11
                       
 
2010 — June 1
    5 1/2     Aug. 3/99 and Nov. 1/99 and Feb. 1/00 and Mar. 20/00   WX80   $ 8,064,064,000  
 
        June 1
    9 1/2     Apr. 10/86 and July 1/87 and July 1/89 and Aug. 10/89 and Oct. 1/89 and Dec. 15/89 and Feb. 1/90   H81     2,227,899,000  
 
        Sept. 1
    4     Nov. 22/04 and Jan. 24/05 and Feb. 21/05 and Apr. 26/05 and May 24/05 and July 18/05 and Aug. 29/05   XY54     9,159,034,000  
 
        Oct. 1
    8 3/4     Apr. 28/86   H85     122,706,000  
 
2011 — Mar. 1
    9     July 3/86 and Sept. 2/86 and Oct. 23/86 and Dec. 15/86 and May 1/87 and Mar. 15/88   H87     593,341,000  
                     
 
                      20,167,044,000  
                     
 
Maturing in 2011-12
                       
 
2011 — June 1
    6     May 1/00 and Aug. 1/00 and Oct. 30/00 and Jan. 29/01 and May 7/01 and July 30/01   XB51     12,090,880,000  
 
        June 1
    8 1/2     Feb. 19/87 and Mar. 15/87   H98     616,151,000  
                     
 
                      12,707,031,000  
                     
 
Maturing in 2012-13
                       
 
2012 — June 1
    5 1/4     Oct 29/01 and Feb. 11/02 and April 22/02 and June 25/02 and Aug. 6/02 and Sept. 30/02 and Oct. 15/02   XH22     11,033,315,000  
                     
 
Maturing in 2013-14
                       
 
2013 — June 1
    5 1/4     Nov. 4/02 and Dec. 16/02 and Feb. 10/03 and Mar. 24/03 and May 12/03 and June 25/03 and Aug. 11/03 and Sept. 30/03   XM17     12,000,000,000  
 
2014 — Mar. 15
    10 1/4     Mar. 15/89 and Mar. 30/89 and Mar. 15/90 and July 1/90 and Aug. 1/90 and Feb. 21/91   A23     970,985,000  
                     
 
                      12,970,985,000  
                     
 
Maturing in 2014-15
                       
 
2014 — June 1
    5     Oct. 20/03 and Dec. 15/03 and Feb. 9/04 and
Mar. 22/04 and May 3/04 and June 22/04 and Aug. 16/04 and Sept. 28/04
  XS86     10,867,437,000  
                     
 
Maturing in 2015-16
                       
 
2015 — June 1
    4 1/2     Oct. 18/04 and Dec. 20/04 and Feb. 7/05 and Mar. 14/05 and May 9/05 and June 21/05 and Aug. 15/05 and Sept. 26/05   XX71     10,300,000,000  
 
        June 1
    11 1/4     May 1/90 and May 31/90 and Oct. 1/90 and Nov. 15/90   A34     483,005,000  
                     
 
                      10,783,005,000  
                     
 
Maturing in 2020-21
                       
 
2021 — Mar. 15
    10 1/2     Dec. 15/90 and Jan. 9/91 and Feb. 1/91   A39     1,001,261,000  
                     
 
Maturing in 2021-22
                       
 
2021 — June 1
    9 3/4     May 9/91 and June 1/91 and July 1/91 and Aug. 1/91 and Sept. 1/91 and Oct. 17/91   A43     608,539,000  
 
        Dec. 1
    4 1/4     Dec. 10/91 and Oct. 14/92 and May 1/93 and Dec. 1/93 and Feb. 22/94 and June 21/94 and Sept. 15/94 and Dec. 15/94 and Feb. 2/95 and May 8/95 and Aug. 4/95   L25     5,175,000,000  (2)
                     
 
                      5,783,539,000  
                     
 
Maturing in 2022-23
                       
 
2022 — June 1
    9 1/4     Dec. 15/91 and Jan. 3/92 and May 15/92   A49     550,448,000  
                     
 
Maturing in 2023-24
                       
 
2023 — June 1
    8     Aug. 17/92 and Feb. 1/93 and Apr. 1/93 and July 26/93 and Oct. 15/93 and Feb. 1/94 and May 2/94   A55     6,967,383,000  
                     
 
Maturing in 2025-26
                       
 
2025 — June 1
    9     Aug. 2/94 and Nov. 1/94 and Feb. 1/95 and May 1/95 and Aug. 1/95 and Nov. 1/95 and Feb. 1/96   A76     7,261,659,000  
                     
 

37


 

Unmatured Debt (Continued)
                           
Outstanding at
Maturity date Coupon % Issue date(s) Series September 30, 2005





Maturing in 2026-27
                       
 
2026 — Dec. 1
    4 1/4     Dec. 7/95 and Mar. 6/96 and June 6/96 and Sept. 6/96 and Dec. 6/96 and Mar. 12/97 and June 9/97 and Sept. 8/97 and Dec. 8/97 and Mar. 9/98 and June 8/98 and Sept. 8/98 and Dec. 7/98   VS05   $ 5,250,000,000  (2)
                     
 
Maturing in 2027-28
                       
 
2027 — June 1
    8     May 1/96 and Aug. 1/96 and Nov. 1/96 and Feb. 3/97 and May 1/97 and Aug. 1/97 and Nov. 3/97   VW17     8,411,775,000  
                     
 
Maturing in 2029-30
                       
 
2029 — June 1
    5 3/4     Feb. 2/98 and May 1/98 and Nov. 2/98 and May 3/99 and Oct. 15/99 and Apr. 24/00 and Oct. 16/00 and Apr. 23/01   WL43     13,736,000,000  
                     
 
Maturing in 2031-32
                       
 
2031 — Dec. 1
    4     Mar. 8/99 and June 8/99 and Sept. 7/99 and Dec. 6/99 and Mar. 6/00 and June 5/00 and Sept. 5/00 and Dec. 11/00 and Mar. 5/01 and June 11/01 and Sept. 24/01 and Dec. 10/01 and Mar. 18/02 and June 10/02 and Sept. 16/02 and Dec. 9/02 and Mar. 17/03   WV25     5,800,000,000  (2)
                     
 
Maturing in 2033-34
                       
 
2033 — June 1
    5 3/4     Oct. 15/01 and Jan. 21/02 and Mar. 4/02 and May 6/02 and July 15/02 and Nov. 25/02 and Jan. 20/03 and Mar. 3/03 and Apr. 14/03 and July 14/03 and Aug. 25/03 and Nov. 10/03 and Jan. 19/04 and Mar. 1/04   XG49     13,410,295,000  
                     
 
Maturing in 2036-37
                       
 
2036 — Dec. 1
    3     June 9/03 and Sept. 15/03 and Dec. 8/03 and Mar. 8/04 and June 7/04 and Sept. 7/04 and Dec. 6/04 and May 7/05 and June 6/05 and Sept. 6/05   XQ21     3,500,000,000  (2)
                     
 
Maturing in 2037-38
                       
 
2037 — June 1
    5     July 19/04 and Sept. 14/04 and Nov. 8/04 and Jan. 17/05 and April 11/05 and Jul. 11/05   XW98     4,949,343,000  
                     
 
TOTAL MARKETABLE BONDS PAYABLE IN CANADIAN DOLLARS     259,802,917,000  
     
 
                         
TREASURY BILLS                    
                         
Maturity date(s) Yield % Issue dates



Various maturity dates from Oct. 3, 2005 to Sept. 7, 2006   2.473 to 3.151           Various issue dates
from Oct. 7, 2004 to Sept. 28, 2005
    122,800,000,000  
                     
 
                         
CANADA SAVINGS BONDS(3)        
                                     
Annual
Series Maturity date Coupons % Issue date




  S46       2013 — Nov.  1(4)       1.50 – 7.50       1991 — Nov.  1       367,142,159  
  S47       2014 — Nov.  1(4)       1.50 – 7.50       1992 — Nov.  1       617,313,153  
  S48       2005 — Nov. 1       1.50 – 7.50       1993 — Nov.  1       826,021,373  
  S49       2006 — Nov. 1       1.50 – 7.50       1994 — Nov.  1       1,119,101,129  
  S50       2007 — Nov. 1       1.50 – 6.75       1995 — Nov.  1       793,587,966  
  S51       2008 — Nov. 1       3.00 – 8.75       1996 — Nov.  1       2,316,110,730  
  S52       2007 — Nov. 1       1.50 – 6.50       1997 — Nov.  1       1,770,776,647  
  S53       2007 — Dec. 1       1.50 – 6.50       1997 — Dec.  1       7,418,316  
  S54       2008 — Nov. 1       1.50 – 4.85       1998 — Nov.  1       549,431,324  
  S55       2008 — Dec. 1       1.50 – 4.85       1998 — Dec.  1       43,786,102  
  S56       2009 — Jan. 1       1.35 – 4.85       1999 — Jan.  1       7,787,663  
  S57       2009 — Feb. 1       1.35 – 4.60       1999 — Feb.  1       4,862,742  
  S58       2009 — Mar. 1       1.30 – 4.75       1999 — Mar.  1       9,979,267  
  S59       2009 — Apr. 1       1.30 – 4.75       1999 — Apr.  1       7,003,213  
  S60       2009 — Nov. 1       1.50 – 4.85       1999 — Nov.  1       269,753,257  

38


 

Unmatured Debt (Continued)
                                     
Annual Outstanding at
Series Maturity date Coupons % Issue date September 30, 2005





  S61       2009 — Dec. 1       1.50 – 4.85       1999 — Dec.  1     $ 31,480,311  
  S62       2010 — Jan. 1       1.35 – 4.85       2000 — Jan.  1       10,179,578  
  S63       2010 — Feb. 1       1.35 – 4.60       2000 — Feb.  1       7,226,967  
  S64       2010 — Mar. 1       1.30 – 4.75       2000 — Mar.  1       11,929,650  
  S65       2010 — Apr. 1       1.30 – 4.75       2000 — Apr.  1       15,421,860  
  S66       2010 — Nov. 1       1.50 – 4.85       2000 — Nov.  1       268,408,750  
  S67       2010 — Dec. 1       1.50 – 4.85       2000 — Dec.  1       22,139,332  
  S68       2011 — Jan. 1       1.35 – 4.85       2001 — Jan.  1       10,827,564  
  S69       2011 — Feb. 1       1.35 – 4.40       2001 — Feb.  1       9,019,554  
  S70       2011 — Mar. 1       1.30 – 4.00       2001 — Mar.  1       8,976,690  
  S71       2011 — Apr. 1       1.30 – 4.00       2001 — Apr.  1       6,235,323  
  S72       2011 — Nov. 1       1.50 – 2.00       2001 — Nov.  1       372,103,095  
  S73       2011 — Dec. 1       1.50 – 2.00       2001 — Dec.  1       21,852,453  
  S74       2012 — Jan. 1       1.35 – 2.00       2002 — Jan.  1       5,233,335  
  S75       2012 — Feb. 1       1.35 – 2.00       2002 — Feb.  1       4,719,770  
  S76       2012 — Mar. 1       1.30 – 4.00       2002 — Mar.  1       15,240,452  
  S77       2012 — Apr. 1       1.30 – 4.00       2002 — Apr.  1       11,527,872  
  S78       2012 — Nov. 1       1.50 – 2.00       2002 — Nov.  1       480,124,954  
  S79       2012 — Dec. 1       1.50 – 2.00       2002 — Dec.  1       32,658,692  
  S80       2013 — Jan. 1       1.65 – 2.00       2003 — Jan.  1       10,909,657  
  S81       2013 — Feb. 1       1.55 – 2.00       2003 — Feb.  1       7,259,590  
  S82       2013 — Mar. 1       1.30 – 2.00       2003 — Mar.  1       14,916,226  
  S83       2013 — Apr. 1       1.25 – 2.00       2003 — Apr.  1       14,888,532  
  S84       2013 — Nov. 1       1.50 – 1.75       2003 — Nov.  1       482,017,203  
  S85       2013 — Dec. 1       1.50 – 1.65       2003 — Dec.  1       17,881,589  
  S86       2014 — Jan. 1       1.65       2004 — Jan.  1       4,955,164  
  S87       2014 — Feb. 1       1.55       2004 — Feb.  1       3,427,490  
  S88       2014 — Mar. 1       1.30       2004 — Mar.  1       10,693,667  
  S89       2014 — Apr. 1       1.25       2004 — Apr.  1       4,711,168  
  S90       2015 — Nov. 1       1.50       2004 — Nov.  1       904,514,933  
  S91       2014 — Dec. 1       1.50       2004 — Dec.  1       20,083,417  
  S92       2015 — Jan. 1       1.65       2005 — Jan.  1       7,453,924  
  S93       2015 — Feb. 1       1.55       2005 — Feb.  1       4,355,151  
  S94       2015 — Mar. 1       1.55       2005 — Mar.  1       14,259,123  
  S95       2015 — Apr. 1       1.55       2005 — Apr.  1       6,099,279  
                                 
 
                                  11,583,807,356  
                                 
 
CANADA PREMIUM BONDS(5)
                                     
Annual
Series Maturity date Coupons % Issue date




  P1       2007 — Mar. 1 or Apr.  1       2.75 – 8.50       1997 — Mar. 1 or Apr.  1       76,011,451  
  P2       2008 — Mar. 1 or Apr.  1       2.00 – 4.75       1998 — Mar. 1 or Apr.  1       14,937,688  
  P3       2008 — Nov. 1       1.85 – 5.00       1998 — Nov. 1       1,001,608,489  
  P4       2008 — Dec. 1       1.85 – 4.50       1998 — Dec. 1       94,624,671  
  P5       2009 — Jan. 1       2.00 – 4.50       1999 — Jan. 1       18,858,811  
  P6       2009 — Feb. 1       2.00 – 4.75       1999 — Feb. 1       16,523,614  
  P7       2009 — Mar. 1       2.00 – 6.00       1999 — Mar. 1       58,771,397  
  P8       2009 — Apr. 1       2.00 – 6.00       1999 — Apr. 1       46,871,200  
  P9       2009 — Nov. 1       2.50 – 6.00       1999 — Nov. 1       380,356,286  
  P10       2009 — Dec. 1       2.50 – 6.00       1999 — Dec. 1       109,110,407  
  P11       2010 — Jan. 1       2.50 – 6.00       2000 — Jan. 1       34,266,350  
  P12       2010 — Feb. 1       2.50 – 6.00       2000 — Feb. 1       27,697,950  
  P13       2010 — Mar. 1       2.50 – 6.25       2000 — Mar. 1       62,267,410  
  P14       2010 — Apr. 1       2.50 – 6.25       2000 — Apr. 1       82,454,346  
  P15       2010 — Nov. 1       2.45 – 5.90       2000 — Nov. 1       529,689,913  
  P16       2010 — Dec. 1       2.35 – 5.90       2000 — Dec. 1       103,671,348  
  P17       2011 — Jan. 1       2.35 – 5.90       2001 — Jan. 1       121,165,862  
  P18       2011 — Feb. 1       2.25 – 5.75       2001 — Feb. 1       268,150,063  
  P19       2011 — Mar. 1       2.25 – 4.55       2001 — Mar. 1       30,439,923  
  P20       2011 — Apr. 1       2.00 – 4.55       2001 — Apr. 1       37,833,836  
  P21       2011 — Nov. 1       1.85 – 4.00       2001 — Nov. 1       558,734,011  
  P22       2011 — Dec. 1       1.85 – 4.00       2001 — Dec. 1       75,085,493  
  P23       2012 — Jan. 1       2.00 – 3.50       2002 — Jan. 1       20,312,913  
  P24       2012 — Feb. 1       2.00 – 3.50       2002 — Feb. 1       19,519,900  
  P25