FIRST REPORT ON THE MAIN ESTIMATES 2005-2006

STANDING SENATE COMMITTEE ON NATIONAL FINANCE

SIXTH REPORT

Chair: The Honourable Donald H. Oliver
Deputy Chair: The Honourable Joseph A. Day

March 2005


FIRST INTERIM REPORT ON THE 2005-2006 ESTIMATES

INTRODUCTION 

                        The 2005-2006 Estimates were tabled in Parliament on 25 February 2005 and subsequently referred for review to the Standing Senate Committee on National Finance.  Several meeting dates will be considered for the review of the 2005-2006 Estimates, beginning with an initial examination on 9 March 2005.  During the coming year, the Committee may submit further interim reports and will present a final report on its work before the end of the fiscal year 2005-2006.  At the first meeting, the Hon. Reg Alcock, President of the Treasury Board of Canada, outlined and explained the main features of the 2005-2006 Estimates, and answered the Committee’s initial concerns about the federal government’s planned spending for the new fiscal year.  The Minister was accompanied by Mr. Mike Joyce, Assistant Secretary, Expenditure and Management Strategies Sector, and Ms. Laura Danagher, Executive Director, Expenditure Operations and Estimates Directorate.

 

THE 2005-2006 ESTIMATES 

                        As in the past, there are three components to the 2005-2006 Estimates.  They include PART I – The Government Expense Plan, which provides an overview of federal spending by summarizing the key elements of the Part II and by highlighting the major changes.  PART II – The Main Estimates, which is traditionally referred to as the Blue Book, directly supports the Appropriation Act, and lists the resources that individual federal departments and agencies require for the upcoming fiscal year.  It also identifies the spending authorities and the amounts to be included in subsequent appropriations.  Since 1997, PART III has been divided into two sections.  The Report of Plans and Priorities (RPP) provides additional details on more strategically oriented planning and results for each of the departments and agencies.  It focuses on outcomes expected from federal government spending activities.  The 2005-2006 RPPs are to be tabled in Parliament in March 2005.  The Departmental Performance Report (DPR) focuses on results-based accountability by reporting on accomplishments achieved against the performance expectations and results commitments as set out in the Report on Plans and Priorities.  The DPRs are normally tabled in Parliament in the fall of each year.

In the Estimates documents, planned spending is broken down by budgetary and non-budgetary expenditures and is displayed for both voted and statutory expenditures: 

·        Budgetary spending encompasses:  the cost of servicing the public debt; operating and capital expenditures; transfer payments and subsidies to other levels of government, organizations or individuals; and payments to Crown corporations and separate legal entities. 

·        Non-budgetary expenditures (loans, investments and advances) are outlays that represent changes in the composition of the federal government’s financial assets. 

·        Voted expenditures are those for which parliamentary authority is sought through an appropriation bill. 

·        Statutory expenditures are those authorized by Parliament through enabling legislation; they are included in the Estimates documents for information purposes only. 

The 2005-2006 Main Estimates of $187.6 billion present information on both budgetary and non-budgetary spending authorities (see Table I below).  In these Main Estimates budgetary expenditures amount to $185.9 billion.  These budgetary expenditures are further divided between statutory expenditures of $119 billion and voted appropriations of $66.1.  Non-budgetary expenditures total $1.7 billion and are composed of $0.1 billion of voted appropriations and $1.6 billion of statutory expenditures.  As in previous years statutory expenditures make up the largest component (64.7%) of planned spending.
 

Table I 

Total Main Estimates 2005-2006

($ millions) 

 

Budgetary

Non-budgetary

Total

Voted Appropriations

66,050.0

84.5

66,134.5

Statutory Authorities

119,813.4

1,605.6

121,419.0

Total Main Estimates

185,863.4

1,690.1

187,553.5

 Source:  2005-2006 Estimates, pp. 1-2.

 

THE GOVERNMENT EXPENDITURE PLAN – AN OVERVIEW 

In total, the 2005-2006 Main Estimates have increased by $1.5 billion relative to the 2004-2005 Main Estimates:  an increase of $2.6 billion in budgetary spending and a decrease of $1.1 billion in non-budgetary spending.  While not all of the February 2006 Budget items are accounted for in these Main Estimates, because of printing and secrecy constraints, all of the items announced in earlier budgets or fiscal updates are included.  More specifically: 

·        A number of items do not appear in the Estimates because of timing in the Budget decisions or because they depend on the passage of separate legislation;  

·        The estimates do not include funds that are set aside within the Expenditure Plan for operating contingency purposes or for items that are still subject to Parliamentary or Treasury Board approval. 

·        The Estimates do not include the provisions for the revaluation of government assets and liabilities as stipulated in the Economic Statement and Budget Update. 

·        Some spending authorities in the Estimates are expected to lapse.

 

The Minister of Finance’s Economic and fiscal Update of November 2004 sets out the government’s budgetary expenditure plan in the amount of $194.9 billion for 2005-2006.  That plan includes $159 billion of program spending, plus public debt charges of $35.9 billion.  Details of the Budgetary Main Estimates are presented in Table II below.

Table II 

The Expenditure Plan and Main Estimates 2004-2005

(In million of dollars) 

Operating and capital expenditures

43,200

Public debt charges

35,900

Elderly Benefits

28,900

Canada Health and Social Transfers

24,700

Employment Insurance

15,200

Other transfers and subsidies (net)

5,000

Fiscal equalization and territorial transfers

11,300

Other obligations and payments

1,600

Total Budgetary Main Estimates

185,900

Adjustments to reconcile with 2004 Economic

and Fiscal Update*


9,000

Total budgetary expenditures

194,900

 *   Includes adjustments for the impact of accrual accounting, expenses charged to prior years and an anticipated lapse.  It also includes expenses not yet allocated for initiatives which require further development or legislation.

 Source:  2005-2006 Estimates, Part I, page 1-3.

  

CHANGES TO THE ESTIMATES DOCUMENTS 

In this year’s estimates document, there are two major changes in the way the information is presented to Parliament.

 

   A.  Program Spending by Sector 

Beginning on page 1-5 and on through page 1-27 program spending is set out by sector and, within each sector, by federal department and agency.  Senators found that it is a useful additional way of presenting the data in the Estimates.  All program spending is divided among 11 broad categories of expenditures and one residual category.  The information is first summarized in Table 3 on page 1-5, which provides a breakdown of expenditures by sector and also shows the change in spending by sector over the previous fiscal year.

In the subsequent pages, each sector of program spending is examined separately with details on spending by department.  The Committee believes that this presentation of government planned spending contains an abundance of information that is useful to the  Estimates oversight process.  In our view, this material represents a positive addition to the Estimates documents.

 

   B.  Management, Resources and Results Structure 

There is also a significant difference in the departmental displays from past years.  Instead of departments and agencies reporting their Main Estimates according to Business Lines, they are now reporting according to Program Activities.

This change stems from the implementation of the Management, Resources and Results Structure (MRRS) Policy, which takes effect on 1 April 2005.  According to the Treasury Board Secretariat, the MRRS itself is intended to be a useful management tool that provides departments, central agencies and parliamentarians the framework needed to support results-based management practices across the federal government, demonstrate value for money, as well as provide key stakeholders with the information necessary to support decision-making.

The MRRS is built on the Program Activity Architecture (PAA), which is a complete program inventory that links all departmental programs and program activities to the department’s strategic outcomes.  Financial and non-financial information is to be provided at different levels of detail of the PAA.

As a result, the Main Estimates are no longer displayed according to Objectives and Business Lines but according to Strategic Outcomes and Program Activities.  This is the extent of the change:  there is no change to the financial information provided in the Main Estimates.  The financial information is just organized in a different way. 

 

EXAMINATION OF THE 2005-2006 ESTIMATES 

In his opening remarks Minister Alcock began by thanking the Committee for its past diligence in the review of the Estimates documents which is conducive to improving the government’s reporting to Parliament. 

  

   A.  Expenditure Review Committee 

He noted that “… the almost $11 billion in reallocations identified by the Expenditure Review Committee (ERC) is not reflected in the 2005-2006 Estimates.”  The Minister assured Senators that the material would be included in the Supplementary Estimates A to be released at a later date.  He also reminded the Committee that the savings and spending decisions that result from the Expenditure Review process are listed on the ERC Web site.

 

   B.  Improved Reporting to Parliament 

The Minister also reminded the Senators that the 2005 Budget commits the government to further improvements in reporting to Parliament.  He reviewed the recent changes already mentioned above (PAA and MRRS).  According to the Minister this new structure “… provides a framework that supports results-based management, demonstrates value for money and provides stakeholders – including Parliamentarians – with the information needed to support decision-making.”

Mr. Joyce added that:  “The way the Estimates were displayed in terms of the old business lines really did not reflect the way departments were managed.”  The program activities that are now displayed may still be similar to the old business lines, although in many cases they have changed and you now have a display of expenditures that reflects how the department sees its operations.

The 2005 Budget booklet entitled “Strengthening and Modernizing Public Sector Management” indicates that the Treasury Board Secretariat will be consulting with Parliamentarians in the coming months to develop a blueprint for improved reporting to Parliament.  This will affect the Estimates as well as other reports.  The Minister expressed his hope that during this forthcoming exercise, Parliamentarians will comment on the nature of the information that is provided to support Parliament’s role in approving expenditures, as well as on how to improve the effectiveness of the process.  The Committee looks forward to a report on this topic by next fall.

 

   C.  Treasury Board Vote 5 – Government Contingencies 

Treasury Board may provide funding to departments and agencies for unforeseen expenditures.  This type of funding is referred to as the Treasury Board Vote 5 funding or TB Vote 5 funding.  There are two types of TB Vote 5 funding:  permanent and temporary.  Permanent funding is provided for pay list shortfalls such as severance pay and parental benefits, which cannot be predetermined.  Temporary funding is provided for miscellaneous, minor and unforeseen expenditures which were not provided for in the Main Estimates and which are required before supplementary estimates are tabled. 

The manner in which contingency funds are used under the TB Vote 5 has been a recurring concern for the Committee.  In fact, on 6 June 2002, the Committee tabled a report containing nine recommendations regarding the working and implementation of TB Vote 5 funding of departments.  In the spring of 2003, the Committee had on-going discussions with officials from the Treasury Board Secretariat on proposals to change the Treasury Board policy on the use of the TB Vote 5, on the vote wording and on the guidelines for its analysts.  Minister Alcock told the Committee during its hearings on the 2004-2005 Supplementary Estimates (A) that he was considering a number of changes and that he intended to make an announcement shortly after the hearings.

The Committee was interested in reading a new and expanded explanation of the TB Vote on page 1-31 of the 2005-2006 Main Estimates.  This new explanation is almost twice as long as the version which appeared in last year’s Estimates documents.  This new explanation may address some of the concerns raised in the past by the Committee.  However, the vote wording in page 1-85 has not changed from last year.

On 9 March 2005, the Minister provided the Committee with his proposed changes in the wording of TB Vote 5 and in the guidelines governing the work of the Treasury Board analysts.  The Minister stated that he hopes that after consultation with Parliamentarians, the new wording and guidelines would be available for the issuance of the Supplementary Estimates (A) expected in the fall.  The Committee welcomed this development and expressed its desire, after review of the document, to discuss these changes with the Minister.  The Minister indicated that he would be pleased to return to the Committee to hear Senator’s views on the matter.

 

   D.  Policy Reserves 

Senators were interested in the number and purpose of policy reserves used by the government to hold money aside for specific purposes of indeterminate value.  The Minister acknowledged that there were several reserves created for known eventualities of imprecise value.  He referred to the compensation reserve which sets money aside to cover any increased expenses arising from collective bargaining.  He described the contingency reserve which stands at $3 billion.  It is the money set aside by the Finance minister as part of his prudence exercise; the intended use of the reserve is to cover unanticipated budgetary deficits.  He reminded the Committee that any portion not spent is used to pay down the debt.

Mr. Joyce explained that there were a number of reserves that were contained in the fiscal framework but that the actual amounts set aside are not traditionally revealed because they might disadvantage the government, for instance in contract negotiations or in court cases.  He did state that: 

“… the policy reserves do not exist in the way they used to when they were explicit policy reserves.  There are a number – you can see this in the budget, and I think you can guess which ones they would be – where a decision is made to allocate a certain amount of money for a policy purpose.  An example of that last year would have been the security reserve where, because of 9/11, the government set aside in the budget explicitly as planned spending money to deal with security.”

 Of course there is no program to match it for the moment, because the program was unknown.  It was in effect a sort of policy reserve because it was there for use once officials decided what the appropriate response to the security crisis would be.  There was no way of knowing at the time of the Budget exactly which department should get which amounts.

Mr Joyce explained that a process exists to guide decision-makers on how to draw down on that reserve once they have decided how that money should be allocated to the various security concerns.  There is a Treasury Board process that would include items in the Supplementary Estimate because in the Main Estimates the money is unallocated.  The process would be that first, it has to go through the Treasury Board because only the Treasury Board as a cabinet committee can make specific allocations to department budgets.  That Treasury Board decision would result in a proposal to Parliament for a vote item in the Supplementary Estimates. 


 

E.  Fiscal Equalization 2005-2006 

Senators wanted to know why the figure in Table 2 on page 1-3 of the 2005-2006 Estimates differed from the amount given in the documentation accompanying Bill C-24.  In the Estimates document the allocation for equalization payments to the provinces in 2005-2006 is $9.5 billion, or one billion dollars less than the amount provided for through Bill C-24.  Ms. Danagher explained that: 

“The budget items are based on the new arrangements that the Department of Finance has negotiated for some of the new equalization payments.  They require legislation to be passed.  We cannot reflect them in the estimates yet.  The number in the Main Estimates is based on the old arrangements.  It is a forecast based on the old arrangements.  You will see that adjustment coming through the Supplementary Estimates when we provide an update.” 

 

   F.  Settlement and Immigration Programs 

Some Senators pointed out that on page 16 of the Budget Plan there is an amount of $398 million over the next five years to enhance settlement and integration programs and improve client services for newcomers to Canada.  They wished to know if the Minister could indicate how these funds would be distributed among the provinces.  The Minister responded that this money will be subject to some discussion with the minister and the provincial ministers to determine the need.  According to Mr. Alcock “The minister has the resources.  He will have to come to the conclusions about how they will be allocated and come back to us for approval to do that.”

 

   G.  Canadian Firearms Centre 

Senators were interested in the planned spending of the Canadian Firearms Centre.  Specifically, they were interested in an explanation on how the $82.3 million set aside for the Centre in 2005-2006 was achieved and whether other amounts for this purpose existed in other departments or agencies.  The Minister assured the Committee that the $82.3 million is the full amount set aside for this purpose in the Estimates.  It results from some tough decisions to reduce the cost to the number that is in the Estimates.  Some of the savings came from operational changes, cut backs and growing efficiency arising from experience.

 

   H.  Canada Health and Social Transfer 

In 2004, the federal government decided to split the Canada Health and Social Transfer (CHST) into two distinct components – the Canada Health Transfer (CHT) and the Canada Social Transfer (CST).  This split was made in response to concern related to the lack of transparency and accountability of federal transfers for health care.  Some Senators wanted to know whether the federal government planned to do the same for the CHT, which includes post-secondary education, social assistance and early childhood development transfers.  Minister Alcock indicated that the matter is currently under discussion in the government.

 

   I.  Consolidated Specified Purpose Accounts 

Some Senators noticed that according to page 30 of the 2004-2005 Supplementary Estimates (B), the Consolidated Specified Purpose Accounts at the end of the 2004-2005 fiscal year stood at $15.9 billion.  At an earlier meeting, Senators were told that changes in this account were primarily due to Employment Insurance transactions.  Some Senators then noticed that on page 1-4 of the 2005-2006 Estimates the Employment Insurance account at the end of 2004-2005 stood at only $15.5 billion.  Mr. Joyce explained that the discrepancy arises because the Consolidated Special Purpose Accounts in the 2004-2005 Supplementary Estimates (B) is an aggregate of many other different numbers whereas the estimate for the Employment Insurance transfers to persons in the 2005-2006 Estimates only covers EI transactions.

 

   J.  Via Rail Canada Inc. Subsidies 

The 2005-2006 Estimates report a decrease of $22 million in VIA Rail spending.  The Minister explained that the decrease is related to the completion of the company’s $401 million capital investment program in 2004-2005.  Some Senators wondered if the amount included any operating subsidy.  Mr. Joyce confirmed that capital and operating subsidies to Via Rail are combined and reported in the Estimates as one figure.  As some Senators noted, the implication may be that the Company will lose $22 million in operating subsidies which might precipitate route closures.

 

   K.  Office of the Auditor General of Canada 

Some Senators observed that the Office of the Auditor General of Canada is seeking $71.8 million in new appropriation for the 2005-2006 fiscal period.  This represents a decrease of 1.3% or $1 million over 2004-2005.  Mr. Alcock explained that the reduction in planned spending of $995,000 is the result of a technical adjustment in the formula used to calculate the employee benefit plan contributions.  This type of reduction has no impact on operations.

 

   L.  Officers of Parliament 

The Minister was informed that in recent months, the Senate National Finance Committee has examined in some detail the spending plans of several Officers of Parliament.  Some Senators expressed concern that the budgets of the Officers of Parliament may be inadequate for them to carry out their mandate as set by Parliament and that the current method used to determine these budgets may need to be reviewed.  

Minister Alcock acknowledged that this is an issue that he also has had some interest in resolving.  He reminded the Committee that he once chaired the House of Commons Standing Committee on Government Operations and Estimates, which put down a recommendation that the House of Commons undertake a study of this matter in order to come up with a new mechanism of budget setting that dealt with some of the obvious conflicts.  He admitted that Treasury Board Officials have been working with the Office of the Auditor General to examine a range of options.

The Minister indicated that as a result of these discussions, the Treasury Board has made a decision to proceed with a solution.  The government is going to use this year to test out a couple of processes.  He suggested that the Committee may wish to discuss the matter with the officials involved.  Both the Speaker of the House of Commons and the Speaker of the Senate have been approached and he suggested that the chairs of several Parliamentary Committees, including Senate National Finance, should be brought into the discussion. 

Minister Alcock indicated that one possible approach to the problem would attempt to standardize the process of budget determination.  The argument that has begun to be developed is that a standard piece of legislation will be required to define the accountability relationships for all parliamentary officers.  Then the Officers will be able to carry out their roles under the existing legislation independently of the new legislation.  This is the first step in trying to bring the House and the Senate into the oversight of these parliamentary offices.

 

   M.  New Horizons for Seniors 

Some Senators were concerned with the functioning of the New Horizons for Seniors Program (NHSP) at the Department of Human Resources Development (Social Development).  This program is slated to receive $7.8 million in fiscal 2005-2006.  NHSP supports the Government of Canada’s overarching social goals to enhance the quality of life and promote the full participation of individuals in all aspects of Canadian society.  Eligible recipients include:  voluntary, social economy and non-profit sector organizations; community based coalitions, networks and ad hoc committees; municipal governments; band/tribal councils and other aboriginal organizations.  The program, which involves provincial participation in funding and delivery, has some Senators concerned that some provinces may not be following the agreed guidelines.  The Minister was not aware of any problems in the implementation of the program and suggested that these concerns be raised with the minister responsible for the program.

 

   N.  Treasury Board Secretariat 

Some Senators noted that the Treasury Board Secretariat is seeking a net increase of $82 million.  A component of this increase ($38 million) is made up of what is described as “incremental funding requirements.”  Mr. Alcock provided two explanations:  First, a lot of the funding at Treasury Board was in project-related funding that year over year was funded on a temporary and lapsing basis.  A decision was made to solidify that in the ongoing funding of the Treasury Board for the Office of the Chief Information Officer’s Branch.  Second, there is a need to provide the funding support required by the Comptroller General’s office given its new responsibilities in general and for the internal audit in particular.

 

   O.  Standard Object of Expenditure – Information  

One of the standard objects of expenditure listed in the table on page 1-56 is called “Information” and the total for all departments and agencies set aside for the coming fiscal year is $281,532,000.  On page 1-34, the Estimates document explains that this standard object of expenditure is made up of three main categories of expenditures, namely, 1) advertising services, 2) publishing, printing and exposition services, and 3) public relations and public affairs services.  Some Senators wanted to see a breakdown of the $281 million as among those three main categories of expenditures and, if available, the share of these expenses allocated to each department and agency.

Mr. Joyce replied that the standard objects for the upcoming fiscal year in the Main Estimates are estimates that departments provide against those standard objects.  He was not sure to what extent the breakdown of their total estimates between those standard jobs is available for each department.  He did offer to provide the Committee with a detailed breakdown in terms of the previous fiscal year once the public accounts come out.  He also suggested that he may be able to provide a historical trend on spending for these purposes.

Mr. Joyce also reminded the Committee that departmental advertising funds have been centralized.  The funds are now located in one of the reserves maintained by the government.  This advertising reserve “is not a policy reserve but rather a reserve in the fiscal framework for advertising.  The process is such that departments have to go to Privy Council Office to make their claims as to what they want to spend the advertising funds on.  An assessment is done by the Privy Council Office, followed by a cabinet decision on the distribution of those funds.”

According to Minister Alcock: 

“… the process was put in place following the concerns raised about the Sponsorship program.  You will recall that Communications Canada, (which) managed much of that, was disbanded.  There was a desire to exercise greater oversight of the expenditure of those funds and to reduce the overall amount of money being spent.  I believe there was a cut of about $15 million.”

 

   P.  Softwood Lumber 

Some Senators were concerned about the elimination of the Industry Canada contributions under the Softwood Industry and Community Economic Adjustment Initiative.  Last year, this contribution totaled $72 million.  Minister Alcock explained that the program was put in place for a specific purpose, and that the program was due to sunset in the previous fiscal year.  At that time it was extended for one additional year.  He reminded the Committee that this program is “not the solution to the softwood lumber issue, because there are many other things happening in that realm.”  It is “an attempt to deal with some of the immediate effects of shutdowns in certain sectors in the industry.  I believe it was thought that they accomplished everything possible through that program and they are now moving on to other strategies.”

 

   Q.  The Budget and the Estimates 

The Senate Committee on National Finance looks into ways of increasing the accountability and transparency in the way that government finances are presented to all Canadians.  Some Senators expressed a desire to further the Committee’s work on revising the Estimates process so that, as the Minister stated in his opening remarks, “Parliament can more easily oversee government spending.”  One area that raises concerns with some Senators is the problem of the delay in reporting expenditure plans in the Main Estimates because of privacy issues surrounding the preparation of the Budget.  Some senators believe that the Supplementary Estimates are far larger than they need to be and they invited the Minister to consider returning to discuss this and related issues concerning transparency and accountability in determining government expenditure plans. 

The Minister agreed that it would be interesting to engage the Committee in that conversation.  He also agreed the question of the timing of the Budget and the timing of the Estimates is something that should probably be addressed because it does create a problem in the examination of government spending plans.  The Minister stated that he is working with Parliamentary secretaries and committee chairs to bring about changes in the process.  He believes that “It is just the rigidity of the structures we have now, which is part of what we have to change.  In the meantime, we have to live within that structure.”

 

CONCLUDING COMMENTS

These and other matters were discussed during the Committee’s examination of the 2005-2006 Main Estimates.  In the coming months the Committee intends to return to some of these topics and other items in the current Estimates in order to more fully examine the government’s spending plans for the 2005-2006 fiscal year and to report on this work at a future date.

The Standing Senate Committee of National Finance respectfully submits its Interim Report on the 2005-2006 Estimates.


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