Proceedings of the Standing Senate Committee
on National Finance
Issue 33 - Evidence
OTTAWA, Thursday, May 6, 1999
The Standing Senate Committee on National Finance met this day at 10:45 a.m., to examine the Main Estimates laid before Parliament for the fiscal year ending March 31, 2000 (briefing session on the supply process).
Senator Terry Stratton (Chairman) in the Chair.
[English]
The Chairman: This morning we are having a briefing session on the supply process from the Treasury Board Secretariat.
Gentlemen, you are to take us through an education process, which we appreciate. At least we will know and understand where you are coming from when you appear here. Please proceed.
Mr. Rick Neville, Assistant Comptroller General, Assistant Secretary, Financial Management Policy and Analysis and Operations Sectors, Treasury Board Secretariat: I am very honoured -- and I stress that word -- to have with me probably the two most knowledgeable people that I know of at the Treasury Board Secretariat on this issue. Today is an opportunity for all of you to ask any questions that you may have and I hope that we will be able to respond. I feel very well informed in this role.
[Translation]
We are before you today to inform you on our practices so that you will have a better understanding of the various phases of Canada's appropriation process.
[English]
We are looking at parliamentary authority and government spending plans. Canada's appropriation process is complicated and not that easy to understand. As I said, I am fortunate to have me with me probably the two best experts at the secretariat who know the process from A to Z. However, it took them a long time to gain their understanding and expertise.
On page 3 of my material there is a flow chart showing the expenditure management system in its entirety. There are a number of components and we will touch on pretty well all of them.
As a starting point, think of a clock at 12, whether it be noon or midnight. You will see Finance-TBS, a budget speech, and the tabling of Estimates Parts I and II. For most of us, the beginning of the cycle is the budget speech tabled in the House by the Minister of Finance in February. If you use that as your starting point, then at least you have a barometer upon which you can either work backwards or forwards. It is the key event. Of course, it is followed by the tabling of the Estimates.
The next page is an overview. There are two main components to the budgeting and resource allocation process. There is the legislative component, which basically authorizes government spending. There is no spending unless authorized by Parliament. Then you have the executive component, which is responsible for the resource allocation process. It is based on a number of key players involved in the actual process. The executive takes the decisions made by Parliament as authority to spend the money and makes allocations to the various departments, which is what you question us on in terms of how we propose to spend the money.
On page 5 is the budget. Again, I will come back to 12 on the clock as being the key box at this moment. As you can appreciate, we do not table a budget without a lot of preparation. Thus, you must back up a little. In the budgetary cycle, if you move the clock hand back to about eight o'clock, you will see at the bottom on the left-hand side, a box with the header, "Finance: House Standing Committee on Finance." Inside the box are the words, "Budget consultation process." In effect, that is when the formal budget process actually begins. In October to December, you have a number of consultations of a "formal" nature that begin the process. If I had to back up, in an informal sense, and I stress the words "informal sense," I would say the process begins in the summer. It may start even earlier than that. The informal process between departments, ministers and deputy ministers, is during the summer. The first formal process is shown on this chart as occurring in October to December, when the budget consultations take place.
As you can appreciate, this is a cycle, and there are several years involved. You also have at that point the Supplementary Estimates for supply coming in for December of the year in progress.
Then you come to the period December to January, when you have a number of cabinet committees, Minister of Finance, Treasury Board, PCO, Finance, and TBS, who carry out the cabinet review of the budget strategy. Thus, the consultations have taken place, and then there is a time to consolidate those findings and decisions and for discussion of the budget strategy among cabinet ministers. That is an important period and there is not a lot of time available. There are a lot of discussions going on. During that period, you see the budget beginning to take shape.
Then in January-February, final budget decisions are taken. The Prime Minister is involved, as is the Minister of Finance, obviously. The final touches are made to the budget. It would probably have been about 80 per cent struck, but the final decisions usually come through the system in late January, beginning of February.
That being said, you look then at having the Minister of Finance deliver the budget speech in the House in the middle of February.
As soon as the speech is tabled, which has all of the aura about it that one would expect, we table the Estimates Parts I and II in the House for discussion and eventual ratification.
At that point, it is important to realize that you have gone through the first phase of putting into play all the mechanisms for obtaining the government's views on the budget. Consultation has taken place. It has been ratified by cabinet, and finalized in terms of final changes and details, by the Prime Minister and the Minister of Finance, after which it is tabled in the House.
The next phase is the legislative process itself. It is a fundamental truth that in the Westminster parliamentary system, no expenditure can be made by the government without Parliament's authority. That is enshrined in section 26 of the Financial Administration Act and section 53 of the Constitution Act. We have always worked under that principle, which is tried and true. That is the philosophy by which we have abided.
Translating the executive level plans into parliamentary or legislative spending authority involves the Estimates themselves and the supply process, which we will talk about. In effect, Parliament approves the amount of money to be spent, and the executive determines the allocation of those funds.
Let us talk about the executive process. The Minister of Finance's budget is tabled in Parliament, usually in February. It includes one or two years of the executive's multi-year fiscal plan, including the revenue forecasts and expenditure plans. Components include planned spending allocated to departments, plus a number of reserves, which is planned spending not allocated to departments, but provided for executive level approvals during the course of the year for new initiatives, changes in expenditure forecasts, and emergencies. You have two main components: what we have explicitly planned for and what we have as reserves. We expect that we will, unfortunately, need to deal with some scenarios and situations that have not been anticipated, and so we provide for some reserves. We will spend some time on that in a moment.
That brings us to the next phase of the process, and that is, tabling of the Estimates documents. Let us look back. The budget speech has been presented and the Estimates have been tabled. We then move to what is called the "Reports on Plans and Priorities." They consist of 83 documents, which are actually little booklets. Those used to be referred to as Part IIIs. We have tried to get away from that terminology, but it is still used. We refer to them as "Reports on Plans and Priorities." They take what is in the Estimates Parts I and II, specifically Part II, and, at a departmental level, bring it down to a much more informative discussion so that everyone can understand what will be spent in a particular department. That being said, overall you have a series of presentations that flows from the budget speech, to the Estimates Parts I and II, to Part III -- the reports on plans and priorities, or RPPs.
At the same time as we are tabling the RPPs during March, one must understand that we need to seek funds for the upcoming year. In terms of the Main Estimates, we are seeking interim supply, which is the amount of money needed to take us from April 1, the beginning of the new fiscal year, to June 30. We need funds in order to permit the government to function while Parliament and the Senate review the Estimates documentation to allow for full supply.
Since we are also closing the fiscal year that we are actually in, you may have a scenario -- we almost always do -- involving Supplementary Estimates for the year in progress, the final ones for that year. During March, we are seeking full supply for the Supplementary Estimates for the closing year. That is happening at the same time as we are thinking of the year ahead.
In the March to June part of the timetable, you are looking at the impact on departments, Treasury Board Secretariat, and the Treasury Board. It is basically preparation and review of departmental business plans. Each department submits detailed business plans to assess work with key issues and in departments, and try to give direction and clarification where required.
Senator Fraser: Are these business plans for what is, by this time, the current year?
Mr. Neville: Yes.
Although, by then you are into the new fiscal year, and we ask departments to include business plans for two years out. You are looking at the current year, obviously, but putting the emphasis on the second year and the out years.
The May period is when the House standing committees assess the Part IIIs in order to determine their questions, comments and suggestions for future years -- and I stress "suggestions for future years" -- as to what could be presented in future Estimates.
Towards the end of May, beginning of June, we seek, in the Main Estimates process approval for full supply. We expect to have that by the end of June. We then have the full supply for departmental and agency spending for the balance of the year.
That brings us through the tabling of the Estimates documents in terms of the timing.
Looking specifically at the documents, when we talk about Estimates on page 9, we are talking about providing information to Parliament in support of the appropriation bill and forecasts of expenditures already approved by Parliament. It is an appropriation bill that is approved.
Appropriations included in specific legislation would have been approved which have an ongoing impact, Forecasts of these statutory appropriations are provided as information as part of the forecast of expenditures included in the Main Estimates. Providing these forecasts of statutory spending helps link the spending authority being sought to planned spending levels shown in the budget. Part I makes a link in the Estimates process between the Estimates Part II document and the budget speech itself. Part IIIs are also based on planned spending.
We refer to ongoing appropriations as "statutory," and they are important. Once Parliament approves a statutory appropriation, expenditures can be made against that appropriation for ever after and it does not need to be approved every year. Parliament has approved statutory appropriations for particular programs -- for example, for transfer payments to the provinces for health programs and employment insurance. As a result, payments can be made out of that statutory appropriation without coming back to Parliament for approval. We come back to Parliament to provide information, and we share that, but we do not need Parliament's approval every year.
For 1999-2000, 70 per cent of the funding in the Main Estimates is based on statutory appropriations, and I will show you a table illustrating that in a moment. Those statutory appropriations include the interest costs of financing the debt, plus major transfer payments to persons and provinces. Those are the major components of statutory votes.
If we turn to page 10, you will see some dollar amounts that help to give you a sense of the magnitude of the statutory expenditures. In the 1999-2000 Main Estimates, we have statutory expenditures of $105.6 billion, representing 70 per cent of the total Main Estimates, and annual appropriations of $45.7 billion, or 30 per cent of a total of $151 billion.
It is important to note that statutory expenditures are ongoing. Once Parliament has approved those, we do not go back for approval every year.
In talking about the supply bill and supply process, we speak in the context of obtaining spending authority from Parliament via annual appropriation bills, i.e., legislation. It covers that portion of the expenditures not already approved by Parliament. The statutory items have already been approved, so these expenditures are the non-statutory components. Annual appropriations are required for approximately, in the case of 1999-2000, 30 per cent of the overall planned spending, primarily to cover the costs of operating departments.
Parliament approves and controls spending authority through individual appropriations or votes for each department.
We have been talking about votes, and I want you to be aware that there are six different kinds. Page 12 shows four of them, and page 13 shows two more.
The first category is what we refer to as "program expenditure" votes. You have seen these many times and have asked questions on them.
This type of vote is used when there is no requirement for either a separate capital expenditures vote or a grants and contributions vote because neither equals or exceeds $5 million. For example, if a department plans on spending $100 million next year from a program expenditurs vote, and their capital expenditures are only $3 million and their grants and contributions expenditures are also only $3 million. Neither exceeds $5 million on its own. Therefore, we do not have separate votesfor the capital or for the grants and contributions. We include these expenditurs in a program expenditures vote for the whole $100 million.
What if the capital expenditures and grants and contributions exceed $5 million between them? Does it matter?
Using the example I gave you, three plus three equals six, which is more than five, but we still would not have separate votes. We would have one program expenditure vote in that particular scenario. There must be capital expenditures over $5 million in order to have a separate vote, or grants and contributions over $5 million to have a vote on that. If the money is less than that individually, there would be no separate vote.
An operating expenditures vote is used when there is a requirement for either a capital expenditures or a grants and contributions vote, or both. In that situation, expenditures of either type must equal or exceed $5 million. For example, let's once again assume the department's expenditures are $100 million. If they have a capital requirement for $6 million, and they have grants and contributions of $3 million, there would be no program expenditures vote, but rather an operating expenditures vote that would include the expenditures for grants and contributions, and a capital expenditures vote. The capital expenditures vote would be for the $6 million, and the operating expenditures vote would be for the remaining $94 million.
A capital expenditures vote is used when capital expenditures in a program equal or exceed $5 million in any one year. If, in the example I just gave you, the department expects to spend more than $5 million on grants and contributions, we take that total amount and set it up as a separate vote. It is straightforward. When there is a requirement for more than $5 million for either capital expenditures or for grants and contributions, we set up a vote.
The most difficult vote to understand is what we call "non-budgetary." These votes are so called because they are not part of the budgetary process per se. This type of vote provides authority for expenditures in the form of loans or advances to, and investments in, Crown corporations, and loans or advances for particular purposes to other governments, international organizations, or persons or corporations in the private sector.
To understand this type of vote, think of a repayment schedule attached to a proposal that would allow for a particular amount to be recovered from a corporation, an international organization, or another government. We treat that as a non-budgetary vote.
We have a sixth category called "special" votes. These are centrally financed votes used to support Treasury Board in performing its statutory responsibilities for managing the government's financial, human, and material resources. A number of authorities go along with it, such as a government contingencies vote and a public sector insurance vote.
We do not know at the beginning of the year how much we will be spending in contingencies, for example, but we need that flexibility to operate. We put it in the Estimates and ask Parliament to approve it. As the need arises during the year, we draw from it, following specific criteria and pending Parliament's approval. Then we come back to Parliament in the Supplementary Estimates process to receive approval for the particular item as well as to report on the temporary allocations made from this vote.
There is also an ongoing funding component in the contingency vote for pay and benefits related costs such as severance and maternity pay, for which departments have not been allocated funds.
The special votes give us some flexibility, but they are mainly intended to deal with Treasury Board's centrally financed initiatives.
Senator Fraser: I am confused about the operating expenditures vote. Is that a separate category, or does it include capital expenditures and grants and contributions votes?
Mr. Neville: I will return to the example I gave earlier of department X that has planned expenditures for one year of $100 million. If the capital expenditures are at $3 million and the grants and contributions are $3 million, we discard the words "capital expenditures" or "grants and contributions" and go with a program expenditures vote of $100 million.
In scenario B, we know the capital will be $6 million. We would take the $6 million out of the $100 million and set up a capital expenditures vote for department X for $6 million. We would leave the balance -- the $94 million -- as an operating expenditures vote.
The Chairman: Perhaps you could explain the public service insurance vote once again.
Mr. Andrew Lieff, Director, Expenditure Operations Division, Expenditure Analysis and Operations Sector, Treasury Board Secretariat: Treasury Board Vote 20 is for employer contributions to insurance plans. That refers to health insurance and the dental plan for public servants. It is for approximately $800 million. Treasury Board is the organization that manages and pays for those plans on behalf of the government. Rather than having this amount allocated to each department for reasons of efficiency and transparency, we have it in a single vote.
There is no special, added authority however that goes along with this vote. There is also another, closely related item. That item has to do with the amounts spent on the employer's share of contributions to public service pensions and to the Canada Pension Plan. These amounts are statutoryand we include them in the Estimates of each department as a flat percentage applied against each department's personnel expenditures. This year it is 21 per cent. To arrive at the percentage, we take the total cost of the employer's share of these pension plans government-wide and divide it by the total personnel budget of the government. We then allocate this amount to departments so that managers and departments realize that there is a higher cost associated with every personnel dollar than there is with a dollar spent on capital or grants and contributions and so that they take this higher cost of personnel into account in their decisions on how they plan to deliver their programs. These amounts are shown in the Main Estimates as "contributions to employee benefit plans" or EBP.
Mr. Neville: Public service insurance relates mainly to health and life insurance plans, of which all public servants are beneficiaries.
I am wary of making analogies, but I always look at Parts I and II of the Estimates as "parents." All of the information contained therein is at a very high level. I refer you to page 14.
Then you look to the right on that page and you see "offspring," 83 of them in this case, which are the departmental reports on plans and priorities. You have 83 of these books, and they are definitely part of the family, but they are specific to a particular department. In the analogy, each "child" would have his or her own book dealing with his or her plans, results and achievements. That is what this book is.
Then on the far right-hand side, you have the performance reports. We also have in the fall, as part of the Estimates family, 83 books again coming out that match up against the 83 books that were tabled in the spring, although the timing is different, and I will spend some time explaining that to you. There are 83 books called "Performance Reports." They detail the performance of the department concerned over the past year.
Then you have something that in a perfect world might not be necessary, but the realities are that we cannot always plan as well as we would like to. We have Supplementary Estimates. In a normal year, we have at least two Supplementary Estimates, (A) and (B), but we have occasionally had more than two. Last year, we had (A), (B) and (C). Therefore, those Supplementary Estimates books with the blue covers supplement the Main Estimates and any previous Supplementary Estimates for the year, in terms of the spending authority sought from Parliament. One must look at the Estimates, plus the Supplementary Estimates (A) and (B) or (C) to get a complete picture of the authorized expenditures for that year.
That is the Estimates family. I do not know if you have ever looked at it this way before, but it might help you to understand that there are a number of components. Each one has a specific raison d'être and we like to think that the system has been sufficiently refined at this point to provide Parliamentarians the information that they need
Getting back to the earlier question on the components, page 15 shows the documentation. It is purpose-oriented and is intended to support the government's appropriation bill. At the end of the day, all this is in support of seeking approval from Parliament, from the House and the Senate, for the government's spending needs for that particular year.
Parts I and II are the government's expenditure plan and the Main Estimates, often referred to as "the blue book." Then there is Part III, which is split into two components, the performance reports and reports on plans and priorities.
Part I is the government's expenditure plan. It is an overview of the planned spending as announced in the budget and links that with the spending authority sought from Parliament in the Main Estimates. In this big book, Part I is basically only 3 or 4 pages. To be precise, it is 4 pages, including the title page. It is not very complicated. It outlines the link between the budget that was presented in Parliament by the Minister of Finance and what is in this Estimates book. It is obvious that you will have some differences, which can be explained as adjustments to reconcile to the budget. We try to make a link between the budget and the Estimates by way of Part I.
Part II is 99.9 per cent of this book. Bear in mind that it is voluminous, and if Part I is only four pages, then the balance is all Part II.
What does Part II contain? It is organized by ministry and provides for each program the following components: the program's objective and description for each business line; the proposed expenditures by business line and type of payment; and a listing of all proposed grants and contributions. It has the information for each department by business line, but at a very high level. You then move down to Part III, where you have a lot more information based on a particular department.
We treat Part III as two separate components. This is a recent development. We did not do this until about two years ago, but now we have divided up Part III. The blue book containing Parts I and II is tabled in February or March. The latest date is March 1. We then come out a few weeks later with the report on plans and priorities component of Part III, for the 83 departments and agencies concerned. The document provides additional information to Part II for the upcoming year and for which the funds are requested in Part II. It provides information on departmental objectives, plans and priorities, and expected results, including links to related resource requirements over a three-year time horizon.
What is interesting here is the report on plans and priorities covers the year in question, the Estimates year, and also two years into the future.
Senator Bolduc: On the expected results for the 83 departments and agencies, how many of them have really quantified targets? I worked on this for many years at the provincial level and it was tough to get them to quantify the expected results. There is a kind of diplomatic game that is played, and the departments sometimes put the figures a little low so that they will not be caught in a squeeze.
Mr. Neville: I mentioned a few moments ago that, until two years ago, we did not have separate performance reports. All we had were the single Part III combining reports on plans and priorities with performance information. If I had had to describe then what we provided as a definition of the report on plans component fo Part III, I would have said things like, "It provides information on the objectives of the department, the plans and priorities of the department, the resource requirements over a three-year timeline," but I would not have used the words "expected results." Today, however, we are using those words as part of the criteria for what goes into the Part III reports on plans and priorities. We do so because in the next document I will be referring to a series of documents called "performance reports." Departments are expected to comment on the results they said they would achieve.
Now, in each one of the Part III reports on plans and priorities, there should be better quantifiable results information, which they expect to be judged on and will be reporting on, than we have seen previously. The challenge is, to what extent are those results meaningful? One could debate that for quite some time, but I think it is getting better each year, and a significant amount of work underway in the Treasury Board Secretariat's Controllership Branch to match the results to the information. We hope that the next series of reports will contain even more meaningful results information.
Progress is being made, and we have better information than we did a few years ago. The telling tale is covered in my next section, the performance reports. The performance reports comment on the accomplishments achieved against the performance expectations and results and commitments set out in the spring plans and priorities report.
The difficulty in explaining the performance reports is in the timing. There are 83 of them and they come out in the fall, September or October. They cover the results of the previous fiscal year ended on March 31. It has nothing to do with the Estimates year. I always have that problem in trying to explain this series of documents. However, when we talk about Parts I, II and III, it is for the current fiscal year.
Let us just take the current cycle. We are in May and the reports on plans and priorities have just come out. We will be reporting on the performance in relation to these, not this year, but in September or October 2000.
Senator Bolduc: That is a good diplomatic answer. However, you did not tell me how many of the 83 reports contain some quantifiable expected results.
Mr. Neville: I expect that all 83 have some quantifiable expected results, as we have been trying very hard over the last year to include some. To what degree is debatable, but we have made much progress. There is still progress to be made.
Senator Bolduc: It is also tough to put relevance into the data because, by definition, some public products are not easily quantifiable.
The Chairman: I wish to tie this issue to the Supplementary Estimates. At this stage, you are talking about performance reports, which measure those things you have identified in your budget. You are actually taking a look at each category and saying yes or no to each item?
Mr. Neville: That is right.
The Chairman: Then a performance report is essentially an explanation of those areas that did not meet, or that exceeded, performance expectations in the previous fiscal year. Am I right?
Mr. Bob Mellon, Manager, Estimates Production Group, Treasury Board Secretariat: That would be the minimum position, senator. The intent of the performance report is not solely to serve as a credit-and-blame type of document. It does not set out points for being a good boy and demerits for being bad. Rather, it tries to situate the department in terms of its overall accomplishments and goals.
The performance report has that element in it and is not simply a variance report. It tries to reflect the department's progress in achieving a broad range of accomplishments over a multi-year period.
The Chairman: I want to tie the supplementary estimates to that issue. Supplementary estimates are those expenditures which are not part of the planned expenditures. They were not planned expenditures, but we exceeded our budget by how many billion dollars last year?
Mr. Neville: My colleague said it best: The Supplementary Estimates are part of the planned spending set out in the fiscal framework when you do not know specifically what the costs will be.
When doing one's personal budget at home, there are fixed and known expenses -- mortgage payments, food and clothing -- but one usually allows for a contingencies reserve. That line is a fixed item but the amount is not known. The government does that as well.
The Chairman: The Minister of Finance usually allows $3 billion?
Mr. Neville: That is one component, yes.
The Chairman: I ask this question because it is relevant to another organization with which I am involved right now. The overall projected contingency would be identified by the Minister of Finance as $3 billion. Within each department, are there also contingencies? Is this the case within those 83 departments? I must ask that.
Mr. Neville: That is a difficult question to answer. I have been a senior financial officer in a major department, responsible for the preparation of the budget and the resource allocation thereof. I would have to say in all sincerity that it would be prudent management to provide for some contingency at the departmental level.
The Chairman: I expect that would be good management practice.
Mr. Neville: Whether I would be showing that to the Treasury Board Secretariat in its totality when I was sitting on the other side of the table, is another question. However, I do think it is prudent management to have some contingency in those 83 reports. Can I identify them now? No.
The Chairman: The best current example I can think of is the Department of National Defence, which is faced with the expenditures for Kosovo. Of course, those will be in the Supplementary Estimates (A), which we expect to appear when?
Mr. Lieff: I hope not until November.
The Chairman: It will be interesting to see them because the amount will be staggering.
You are doing multi-year planning. You are going into a situation expecting an event to occur. Does the department put in an estimate for a planned expenditure in that area?
Mr. Neville: Yes. I would say that that is a valid point. If the department knows they will incur an expenditure, and if they have a good handle on the expected amount, they should be putting in a proviso to that effect.
Mr. Lieff: Mr. Neville referred to the table on page 1-3, which links the overall planned spending of the government to the budget. We have a couple of components there. One is the planned spending forecast by the departments as a normal part of government operations. We tended in the past to refer to that as the "A" base.
In addition, there are the new initiatives announced in the budget, and there is also room for contingencies. There are some items in the budget that clearly describe the specific allocations of the planned expenditures. In other cases, it is not so clear. A number of those cases will also require specific legislation.
There is a difference between the planned spending in this table which corresponds to the planned spending in the budget and the planned spending in the departmental reports on plans and priorities. The Main Estimates Part II is based on the amount of spending authority for which we are ready to seek the approval of Parliament at that particular time. There is planned spending of a certain amount. Within that, we are only ready to come before Parliament with a certain portion. Of the balance for which we are not ready to seek spending authority, some is for contingencies. Some has been allocated, but is not ready to include in the Main Estimates because it needs legislation to implement or further development for consideration by the Treasury Board.
The spending is planned and we show it in the RPPs, but we cannot presume to include it in the Main Estimates. In this regard, there are three or four reasons for Supplementary Estimates. One is to translate the planned spending on which we were not ready to include in the Main Estimates into spending authority approved by Parliament. It was announced in the budget, its goal was clear, but we did not have the legislation ready. One example would be the Atlantic fishery restructuring programs; another, the firearms legislation. The initiatives were announced and spending was planned by we were in no position to come forward and actually seek spending authority.
The other elements are the contingencies, such as floods or the situation in Kosovo.
In addition to these, another reason for Supplementary Estimates relates to Parliament's approval of spending authority by vote. Under the expenditure management system, the executive expects departments to achieve their targets within the overall level of spending authority approved. It is up to the individual ministers and departments to manage within this overall amount regardless of the vote. We help them by seeking your approval to move money between votes. On behalf of those departments, we come back to you and say, "This is not new money, it is money already approved within a vote. It is just in the wrong place to deliver the program." We expect departments to come forward to seek adjustments to the way in which they plan to spend funds by seeking transfers between operating expenditures, capital expenditures and grants and contributions as the year goes on.
Those are the kinds of things happening in Supplementary Estimates and it should all equate back to the planned spending amount announced in the budget at the start of the cycle. We should be able to see the planned spending that was provided for contingencies being drawn down as these situations materialize. We should be able to see the planned spending that was allocated for specific initiatives announced in the budget being translated into the corresponding spending authority. We should also see changes in the allocation of existing spending authority that was approved in the Main Estimates, as money moves between votes.
Senator Fraser: Suppose in the budget speech several new initiatives are announced, and the total money is there in the budget but we do not have the enabling legislation. Over succeeding months this legislation is passed, but it takes some time. The first round of Supplementary Estimates will come in in November. Once the legislation is passed, do we start spending anyway?
Mr. Neville: Let us suppose the legislation is passed in September. A department then knows that Parliament has approved this initiative, but has not approved the funding That is where Supplementary Estimates come in. In the meantime to provide temporary funding, we have a contingencies vote. Departments can come in with a request. We would then loan the money to the department to spend against the approved legislation. We put that funding proposal in the Supplementary Estimates in November and come before Parliament to ask for authority, bearing in mind that the department has already obtained legislative authority for the initiative. Upon Parliament's approval we would then give the department the money, actually increase their vote, and then put the loaned money back into the Treasury Board's contingency vote to start over again.
Mr. Lieff: As well, departments get twelve-twelfths of their supply in June, their full allocation for the year. Therefore, from then on, they have their full spending authority for the entire year. That means that they have more cash than required to meet their immediate requirements, from which they can manage new requirements that arise between June and the approval of the Supplementary Estimates in December.
For example, if the Treasury Board approves inclusion of an item in the Supplementary Estimates for which it will seek parliamentary authority, that approval is essentially Treasury Board's agreement that the department can be assured that we will support their supplementary estimate item in Parliament.
With that assurance, the department can go ahead and start spending from existing spending authority, subject to Parliament approving supply for the item in the Supplementary Estimates. There is some risk to the department in terms of not knowing with absolute certainty that they will receive supply. However, they do know that the executive is committed to seeking Parliament's approval.
Mr. Neville: The simple answer is yes, we do it in exactly the way you suggested.
If we move on to the Supplementary Estimates on page 17, this process is akin to the estimates process per se, but it does have a separate track.
The Supplementary Estimates track involves parliamentary approval for additional authorities, vote transfers, new programs that were not originally put forward in the Main Estimates, debt write-offs, loan guarantees, new or increased grants that were not already provided for, and authorized changes to legislation. It also provides information on new items, including the vote wording and the explanation of why we are seeking those additional funds. We give you an object-of-expenditure breakout, we show you the transfer payments involved, and we show you major capital projects.
Supplementary Estimates also update forecast expenditures on the statutory programs.
I shall now turn to the question of supply timetables.
Senator Lavoie-Roux: I wish to ask you a question about the supplementary budget. It strikes me as though every ministry or department feels that if they run short of money, or they are dreaming up some way to spend more, they can go out and get it. I am not sure that is a very good philosophy to follow when you are trying to balance your budget. All of a sudden, we see that the Governor General and the Senate are asking for more money. Is this not an invitation to use your imagination to spend more money?
Mr. Neville: I see how you could come to that conclusion. However, there are checks and balances in the system. Every request that is part of Supplementary Estimates has gone through a vetting exercise within the Treasury Board Secretariat by the program analysts concerned and then the assistant secretary. Then it goes to Treasury Board ministers, who make a decision on whether to approve it or not.
Vetting has taken place, and in many cases, cabinet discussions have been held. In other instances, the Prime Minister and the Minister of Finance have been involved. There is a rigorous process of review and assessment. That is how it works.
Senator Lavoie-Roux: It seems to me that is an encouragement to the various functionaries, whoever they are, to say, "Let us not lose sleep over this, let us just go and ask for more money."
Of course there will be contingencies that no one could have predicted and there needs to be some flexibility so that urgent needs can be met. However, this needs to be addressed if the general philosophy is, if you run short of money or dream up something new, you go and get more money. No family could administer its budget that way.
The Chairman: I get supplementary estimates from my spouse all the time.
Mr. Neville: However, you are free to say yes or no.
Mr. Lieff: I would return to the earlier discussion about what is in Supplementary Estimates. First of all, there are emergencies. Then there is the planned spending that was announced in the budget but which we were not ready to include in the Main Estimates because we did not have the enabling legislation ready to table or because the department had not sufficiently developed the specific proposal to put it in front of Treasury Board for consideration.
I would expect that a very significant portion of the Supplementary Estimates that you are seeing is simply translating the planned spending that has already been announced in the budget, sometimes for specific initiatives, into the legislative spending authority that is required to make the expenditures, and that we did not ask for in the Main Estimates because the program was not fully developed or the legislation was not in place. A significant portion would be that. We have seen firearms expenditures in the Supplementary Estimates several times precisely for that kind of reason.
Also, some of our practices as a central agency as well required review. Because Supplementary Estimates was an option, perhaps we did not include certain expenditures in the Main Estimates that we could have, which we are now moving to correct.
As an example, the Department of National Defence pays out of one of its votes disaster financial assistance to provinces. We had assumed that the Supplementary Estimates process was the only way to pay for disasters because we did not want to seek a large amount of spending authority for that purpose without knowing what the disasters would be.
However, over the last number of years, we have discovered that a large proportion of the money spent on disasters in any given year is for disasters that took place in previous years because the bills come in after the fact. Yet we asked for that money through Supplementary Estimates even though these amounts could be forecast. This year, for the first time, there is approximately $370 million in the Main Estimates of the Department of National Defence to deal with the previous disasters that we are currently paying for. The forecast costs are known , but we will not be paying them until later this year. Previously we would included that in Supplementary Estimates, but we included it in the Main Estimates this year.
Unless there is a new disaster this year, you will probably not see any additional spending for disaster payments to the provinces in the Supplementary Estimates. Previously we had this item in almost every Supplementary Estimates (A) and (B).There are a few areas like that where we are trying to do a better job in terms of forecasting the costs and including them in the Main Estimates and reducing the Supplementary Estimates.
Again, we have emergencies and the things that are unpredictable. We have the things that are fully predictable and planned for, but on which we are not ready to come forward in the Main Estimates. I will give some examples of those.
We have given our negotiators a mandate for collective bargaining. However, if we put that amount into the Main Estimates, we would be giving away our negotiating strategy, so we cannot do that.
Similarly, there are a number of agriculture programs on which we are negotiating with the provinces. We know the amount of money that we have set aside, and it is in the overall planned spending announced in the budget, but we do not disclose it in the Main Estimates It is definitely in the spending plans of the government, but we will not put it into the Main Estimates until we have reached that agreement, in order not to give away the negotiating strategy or to tie our hands or to presume Parliament's wishes.
There are also other areas in which we negotiate things like compensation for individuals with hepatitis C, federal-provincial cost shared programs, et cetera. We would only see those amounts once agreements are reached, even though funds have been set aside for that purpose.As well, on occasion, while the overall amount may be determined, the allocation to specific departments may not be known until program details are finalized. I would say that the overwhelming majority of the Supplementary Estimates are for items such as these, as well as for moving money that has already been voted to respond to changing priorities, but within the same overallspending authority previously approved.
I will also acknowledge that there are other unplanned items that arise. However, I think that those will be in the minority. If we are doing a good job of explaining, we should be able to show the track from the level of planned spending in the budget to the expenditure items included in the Supplementary Estimates.
Senator Bolduc: There is a third dimension that I would call the "mutually accepted lies" in the process between civil servants of a department and those of the Treasury Board.
Mr. Neville: To continue, there are three supply periods during the year. The first is March 27 to June 23, which is basically the funding for the interim supply period. The next is June 24 to December 10, and the last is December 11 to March 26.
I thought we would refer to the Senate's responsibility as we understand it. It is basically to review, and if appropriate, approve, the passage of the interim and full supply bills for Main Estimates in mid-March and early June; and review, and if appropriate, approve, the passage of the full supply bills for Supplementary Estimates, usually in December and mid-March. The Senate may require testimony from either a minister or Treasury Board officials on the content of the Estimates, be they Main or Supplementary.
In terms of the timing of the Main Estimates, we are required to table this big book in Parliament on or before March 1. The last allotted day in the first supply period is March 26, at which time we would have to have the Appropriation Act for interim supply for the new fiscal year tabled in Parliament. We are looking for approval by then. Then, not later than May 31, we expect that the standing committees will report back to the House. By the last allotted day in the supply period ending June 23, the Appropriation Act for full supply will have been tabled in Parliament and approval will have been received, so that we have the funding for full supply.
On Supplementary Estimates, it is a little different. Again, this is in a year where we only have two Supplementary Estimates, (A) and (B). Supplementary Estimates (A) is the first regular Supplementary Estimates tabled in Parliament. The last allotted day in the supply period in this case is December 10, so we would have an Appropriation Act for Supplementary Estimates tabled in Parliament by then, and hopefully approved.
If we had two Supplementary Estimates in a year, in February or early March we would go with the final Supplementary Estimates tabled in Parliament and the last allotted day in the supply period would be March 26, by which time we would have the Appropriation Act for the final Supplementary Estimates tabled in Parliament, and hopefully full approval for supply.
I thought that overview would give you a better appreciation of Canada's appropriation and supply bill process.
Senator Bolduc: In the Part I of the Estimates, 43 organizations are listed. However, for plans and priorities you have 83. Why is that?
Mr. Mellon: The primary presentation in Part II of the Estimates is based on ministries.
Senator Bolduc: Those that are defined by statute?
Mr. Mellon: Generally speaking, although there may be the odd exception. Essentially, they are all the entities identified in the schedules to the Financial Administration Act. Altogether in Main Estimates there are approximately 110 of them. They encompass departments, agencies, and Crown corporations. Crown corporations do not prepare a departmental performance report or a report on plans and priorities. Only the 83 departments and agencies do that.
The primary presentation you see in Part II is done on a ministry basis. For example, under Canadian Heritage there are 18 entities, but not all 18 would necessarily produce a report on plans and priorities or a performance report, because some of them are Crown corporations and some are outside of the normal reporting requirements. That is why there are 83 versus 24 versus 110. It depends on how you look at the Rubik's cube.
The Chairman: Thank you very much, gentlemen. That was very clear and concise.
The committee adjourned.