Proceedings of the Standing Senate Committee on
National Finance
Issue 21 - Seventh Report of the Committee
THURSDAY, December 3, 1998
The Standing Senate Committee on National Finance has the honour to present its
SEVENTH REPORT
Your committee, to which were referred the Supplementary Estimates (B), 1998-99, has, in obedience to the Order of Reference of Wednesday, November 4, 1998, examined the said estimates and herewith presents its report.
Meetings to review these supplementary estimates were held on Wednesday, November 18 and Thursday, November 26, 1998, at which officials of the Treasury Board Secretariat appeared as witnesses. The broad changes to the government's spending plans are summarised in the two tables attached to this report. The first, entitled Supply to Date for 1998-99 summarises the appropriations that have been approved to date and the new appropriations sought in the current supplementary estimates. Appropriation Act No. 1 has approved $14.7 billion, while Appropriation Act No. 2 added a further $27.9 billion and Appropriation Act No. 3 gave approval for an amount of $1.3 billion. In these Supplementary Estimates (B) 1998-1999 approval is sought for an additional $3.1 billion. If approved this amount will raise total appropriations to $46.9 billion.
The second table at the end of this briefing note, entitled "Summary of Expenditure Framework and Estimates for 1998-99," provides a quick view of the changes proposed by these supplementary estimates. Total planned spending is now expected to come in at about $152.1 billion, which is $6.6 billion more than the original amount listed in the Main Estimates last spring. It also represents a $5.3 billion increase over the figure provided in the Supplementary Estimates (A). Most of the extra spending sought is accounted for by a $4.7 billion increase in budgetary expenditures. Another $648.7 million in non-budgetary expenditures accounts for the remainder of the increase.
From a slightly different perspective, statutory expenditures account for $2.3 billion of the extra $5.3 billion requested, while $3.0 billion must be voted by Parliament. As in recent years, statutory expenditures continue to dominate overall government spending plans. They now constitute 69.2 per cent of the $152.1 billion total estimates for 1998-99. These and other aspects of the estimates were of interests to members of the committee.
Mr. Richard J. Neville, Assistant Secretary, Expenditure Analysis and Operation Sector, Treasury Board of Canada outlined some significant changes in the Estimates and responded to questions from the members of the committee. Mr. Andrew Lieff, Director of the Expenditure Operations Division, assisted him. In his opening remarks, Mr. Neville noted that the current Supplementary Estimates seek Parliament's authority to spend $3 billion on expenditures not specifically identified or sufficiently developed in the 1998-99 Main Estimates. It also provides information on about $2.3 billion in changes to projected statutory spending that Parliament has already approved in legislation. Major items that Mr. Neville highlighted included:
- $874 million requested by the Department of Finance for the Canada Health and Social Transfer payments. This is the arrangement by which funds are transferred to the provinces for health, social and post secondary education purposes.
- A $605 million increase for the Department of Finance to cover additional transfer payments to provinces and territories in response to changes in provincial tax levels, population and tax revenues.
- $628.1 million sought by Fisheries and Oceans Canada and the Department of Human Resources to assist in the restructuring of Canadian fisheries in both the Atlantic and Pacific regions.
- $272.4 millions to 19 ministries to assist them in dealing with the "Year 2000" computer problems.
- $236 million will be given to the Department of National Defence for distribution to the provinces that have qualified for relief under the disaster financial assistance arrangements. Under these arrangements the province in question undertakes relief for the affected crisis region. At a latter date the federal government reimburses the province a proportion of the final cost of relief.
Members raised questions about the Department of Finance's request for an amount of $625.9 million to assist the Bank of Thailand. This request for additional funding stems from subsection 8.3(1) of the Bretton Woods Related Agreements Act under which Canada is asked to provide financial assistance to the Bank of Thailand in the amount of US$ 500 million. At the time of printing this amounted to $625.9 million Canadian. Mr. Neville explained that Canada is joining a number of nations along with the International Monetary Fund, the World Bank and the Asian Development Bank in raising funds to assist the Bank of Thailand. The concerted action is designed to support the stability of the international financial system. Under the Bretton Woods Act, there are limits as to what Canada's obligations to provide assistance are. Canada is limited to a maximum of $2.5 billion U.S. in respect to any particular foreign state, and $5 billion U.S. in respect of all foreign states. Therefore Canada's obligations are limited.
In the Main Estimates 1998-99, the Canadian International Development Agency projected a statutory requirement of $186.1 million for payments to the International Financial Institution Fund Accounts, (IFIs).
In the Supplmentary Estimates (B) 1998-99, the Agency is requesting an additional $56.2 million or a 30 per cent increase over the original statutory requirement. The IFIs involved do not all have the same year-end. This requires Canada to make an estimate of its requirement in the Main Estimates and then as the numbers come in during the year, to make an adjustment through the supplementary estimates.
Members of the committee were also concerned about whether Canada could recoup any portion of the costs involved in the Swiss Air crash investigation. An amount of $7 million has been requested by the Canadian Transportation Accident and Investigation Safety Board to cover some portion of the cost of recovery work off the coast of Nova Scotia. Mr. Neville explained that several departments and agencies were involved including National Defence, the RCMP, the Department of Fisheries and Ocean, the Canadian Coast Guard, et cetera. Each will have incurred costs that may end up as supplementary to their own original estimates. Furthermore, he informed the committee that the costs are usually borne entirely by the government of the country where the accident occurs. This is set out in the Chicago Convention on Civil Aviation. However, Mr. Neville informed the committee that the Safety Board is attempting to recoup some of the costs from the airline and its insurance company. The U.S. is not expected to seek reimbursement for the use of one of its salvage vessels.
The committee continues to be interested in the evolving cost of National Defence with respect to disaster relief. In these Estimates, the amount rises a further $236 million. This is for assistance related to Canadian natural disasters under the Disaster Financial Assistance Arrangement worked out between the provinces and the federal government. The actual amount paid out by the federal government is determined by a relatively complex formula. Mr Neville provided a copy of the formula along with a list of the payments made to each province in past years.
The item "Year 2000 compliance requirements" occurs throughout these Supplementary Estimates "B", and in some departments it is quite a sizeable amount of money. It refers to the efforts of government departments to deal with the potential problems that will arise because of earlier programming practices involving the year 2000. This issue was of considerable interest to the members, in terms of the magnitude of the problem, the efforts being made to correct it, and the security risk involved in hiring outside consultants to do the programming work.
Whenever outside consultants are brought in to correct a programming problem at an institution or business, there is a security risk. If the exercise involves any significant use of outside consultants then the security risk is increased. There are a number of problems that could arise from changing the software in the government's computers. One involves the co-ordination and integration of the system and one involves the security of access to the system. Allowing many different consultants to have access to government computers could compromise the system's security.
The members of the committee were very interested in the particulars of the government's Y2K program. Mr. Neville explained that the Y2K compliance requirements are for government wide mission critical systems (GWMCS) in 19 federal organizations, and amounts to $272.4 million. The primary objective is to remove the financial impediments of departments and agencies resolving the Y2K compliance issue.
GWMCS, are those systems that would have a significant impact on the health, safety, security and economic well being of Canadians should the systems fail. The criteria were established by the Treasury Board Secretariat to determine which departments and agencies would have access to special funds set aside to complete the task involved in correcting their programs. The total funds requested could reach $515 million, which is higher than originally anticipated. The expenditures on Y2K compliance are expected to cover many items including software consultants, new software systems, and new hardware.
The exercise involves other governments and will include the training of individuals to deal not only with the new systems but also with problems that might arise in the event that preventive measures are not completely adequate. There is also a testing phase that is expected to be completed well before the potential for problems arises.
With respect to security issues, Mr. Neville explained that software consultants had to obtain security clearance before entering the premises and before entering the computers. Each department has some responsibility in ensuring the integrity of its system and in supervising the selection and performance of the consultants. The Treasury Board Secretariat monitors the progress on a regular basis. The departments provide monthly updates, and the TBS maintains a dedicated unit that has a broad mandate to ensure that systems within government are well co-ordinated.
Mr. Neville reminded the committee that the Department of National Defence would be responsible for dealing with any major catastrophe that might result from equipment that failed to work because of the Y2K compliance problem.
Under Vote 1b- Operating expenditures, of the Department of Health, approval is sought to spend another $120.6 million. This is a 13.7 per cent increase over the original $879.9 million requested in March. Mr. Neville explained that $50 million of that amount is carry-over funds from the previous fiscal period. The rest involved a host of operational expenditures, including expenses relating to the Y2K compliance program.
Members were also interested in the increased amount sought for the AIDS program. Mr. Neville explained that this involves additional spending of $8.9 million to assist persons that contracted the disease from a spouse or parent.
Mr. Neville informed the committee that the $17.7 million requested under the Manganese-based Fuel Additives Act relates to an out of court settlement with Ethyl Corporation. In response to a recommendation by a dispute settlement panel established under the agreement on internal trade, the federal government lifted its restriction on the inter-provincial trade and import of a gasoline additive known as Methylcyclopentadienyl Manganese Tricarbonyl (MMT). Trade in MMT was restricted under the Manganese-based Fuel Additives Act, which went into effect in June 1997. Since then MMT from existing stocks has continued to be used in gasoline in some provinces. In July 1998, the government agreed to a payment of up to U.S. $13 million ($19.7 million Canadian) to Ethyl Corporation representing its reasonable legal costs and lost profit in Canada as a result of the MMT ban. Ethyl's costs were independently verified, and the government paid Ethyl U.S. $13 million at the end of July.
There were questions about the additional funds requested by the Atomic Energy Control Board and its ongoing obligations to Ontario Hydro. Mr. Neville explained that the AECB has a mission to ensure that the use of nuclear energy in Canada does not pose undue risk to health, safety, security and the environment. Its jurisdiction extends to regulating Ontario Hydro. He also explained the changing nature of inspections in Ontario and the intention of AECB to charge Ontario Hydro directly for these expenses in the future.
Senators were also concern over the relatively large amount requested in these supplementary estimates. Mr. Neville presented a table to the committee that calculated the size of supplementary estimates relative to their respective main estimates. Although these current supplementary estimates are relatively larger than past supplementary estimates, Mr. Neville reminded the committee that it should not infer too much from such an observation as supplementary estimates also vary so much from year to years.
Finally, the committee was interested in the current costs of the APEC Inquiry. Mr. Neville reported that $221,000 was spent in 1997-98, and $768,000 so far in 1998-99. Total cost to date is $989,000. He expects additional requests totalling another $100,000 in the balance of the current fiscal year.
Respectfully submitted,
TERRANCE R. STRATTON
Chairman
SUPPLY TO DATE FOR 1998-99
Three Appropriation Acts have been approved in respect of the
Estimates for 1998-99
| Appropriation Act No. 1, 1998-99 Granted Interim Supply for the 1998-99 Main Estimates equal to an initial allocation of 3/12ths for all votes plus 136 additional proportions
|
$ 14,657,688,320.06
|
| Appropriation Act No. 2, 1998-99 Granted Final Supply for the 1998-99 Main Estimates
|
$ 27,864,445,553.94
|
| Appropriation Act No. 3, 1998-99 Granted Supply for the whole of Supplementary Estimates (A) 1998-99
|
$ 1,289,969,457.00
|
| Total Approved to Date
|
$ 43,812,103,331.00
|
| Supply Awaiting Approval: For the whole of Supplementary Estimates (B), 1998-99
|
3,052,411,179.00
|
| Total for 1998-99
|
$ 46,864,514,510.00
|
SUMMARY OF EXPENDITURE FRAMEWORK AND
ESTIMATES FOR
1998-99
| Expenditure Framework
|
|
| Budgetary Main Estimates
|
$145.5 billion*
|
| Budgetary Estimates to Date
|
$151.4 billion
|
| Projected Budgetary Expenditures
|
$148.6 billion
|
ESTIMATES TO DATE FOR 1998-99
|
|
To be voted
|
Statutory
|
Total
|
| (in thousands of dollars)
|
|
|
|
| Main Estimates Budgetary Non-Budgetary
|
$42,422,644.8 99,489.0
|
$103,037,727.4 (103,016.3)
|
$145,460,372.2 (3,527.3)
|
|
|
$42,522.133.8
|
$102.934.711.1
|
$145,456,844.9
|
| Supplementary Estimates (A) Budgetary Non-Budgetary
|
$1,289,969.5 0
|
0 0
|
$1,289,969.5 0
|
|
|
$1,289,969.5
|
0
|
$1,289,969.5
|
| Supplementary Estimates (B) Budgetary Non-Budgetary
|
$3,029,687.2 22,724.0
|
$1,628,433.9 625,948.0
|
$4,658,121.1 648,672.0
|
|
|
$3,052,411.2
|
$2,254,381.9
|
$5,306,793.1
|
| Total Estimates To Date Budgetary Non-Budgetary
|
$46,742,301.4 122,213.1
|
$104,666,161.3 522,931.7
|
$151,408,462.7 645,144.8
|
|
|
$46,864,514.5
|
$105,189,093.0
|
$152,053,607.5
|
|
|
|
|
|
| *Estimates will always differ from the total
Budgetary Expenditures due to adjustments not reflected in Estimates for such
items as anticipated lapses, budgetary reductions and those expenditures already
recognized in prior years.
|