To Be Voted			Statutory	Total
Main Estimates
Budgetary		65,252,204,482	118,302,991,481			183,555,195,963
Non-Budgetary		78,278,002	2,686,840,883			2,765,118,885
		65,330,482,484	120,989,832,364			186,320,314,848
Supplementary Estimates (A)
Budgetary		2,919,864,583	(232,574,693)			2,687,289,890
Non-Budgetary		1	-			1
		2,919,864,584	(232,574,693)			2,687,289,891
Supplementary Estimates (B)
Budgetary		1,486,359,010	(876,808,645)			609,550,365
Non-Budgetary		2	(16,825,000)			(16,824,998)
		1,486,359,012	(893,633,645)			592,725,367
Total Estimates To Date
Budgetary		69,658,428,075	117,193,608,143			186,852,036,218
Non-Budgetary		78,278,005	2,670,015,883			2,748,293,888
		69,736,706,080	119,863,624,026			189,600,330,106

(a)       Bracketed figures are decreases.

Source:     Supplementary Estimates (B), 2004-2005, pp. 32-33.

 

                        As stated by Mr. Joyce, spending in the 2004-2005 Estimates documents is consistent with the planned expenses framework established in the most recent fiscal update:

 

“(…) from a fiscal planning perspective, the total Estimates for 2004-2005, including the Main Estimates, the Supplementary Estimates (A) and these Supplementary Estimates, are consistent with the $185.2 billion in planned spending for the 2004-2005 fiscal year announced in the Minister of Finance’s November 2004 Economic and Fiscal Update.”^([2])

 

   C.  Major Items in the Supplementary Estimates (B), 2004-2005 

                        Pages 9 to 13 of the Supplementary Estimates (B), 2004-2005 contain an explanation of the major items included in these supplementary estimates.  The increase in the voted budgetary spending ($1.5 billion) is largely attributable to the following key initiatives: 

·        Various initiatives by the Canadian International Development Agency ($485 million);

·        Increased operating requirements in the Department of National Defence ($405 million);

·        Funding related to the tsunami disaster relief, rehabilitation and reconstruction by the Canadian International Development Agency, National Defence, Foreign Affairs, and Citizenship and Immigration ($256 million);

·        Revised forecast of transfer payments to provincial/territorial governments by the Department of Finance ($185 million);

·        Salary adjustments in a number of departments and agencies ($180 million);

·        Increased funding for Genome Canada under the Department of Industry ($60 million);

·        Spending associated with the 2010 Olympic and Paralympic Winter Games in Vancouver ($60 million);

·        Centrally managed advertising reserve ($59 million).

 

                        The statutory budgetary spending, which is expected to decrease by $0.9 billion, is attributable to the following forecast changes:

·        Decreased forecast for public debt charges ($722 million);

·        Decreased forecast for federal transfer payments to provinces/territories ($535 million);

·        Decreased forecast related to the Consolidated Specific Purpose Accounts ($496 millions);

·        Decreased forecast in income security payments ($138 million);

·        Increased payments under the Canadian Income Stabilization Program ($438 million);

·        Increased payments under Equalization to Newfoundland and Labrador ($222 million);

·        Increased spending related to the June 2004 General Election ($220 million).

 

SUMMARY OF HEARINGS 

   A.  Process for Supplementary Estimates 

                        Mr. Joyce provided useful information to the Committee when he described the process undertaken by Treasury Board in developing the supplementary estimates.  He reminded Senators that supplementary estimates are seeking authorization to spend federal funds in the current fiscal year.  Requests for additional spending initially go through an analysis of the Treasury Board.  Based on this analysis, it is determined that these spending plans are reasonable, particularly given the circumstances and the need to actually get these funds out.

                        More precisely, Mr. Joyce explained that, before any item goes into the supplementary estimates, a submission by a responsible minister must be made to Treasury Board.  Treasury Board analysts review the submission and then make a recommendation to the Treasury Board.  The review examines the reasonableness of the proposal, the appropriateness of the funds and the consistency with Treasury Board policies.  Mr. Joyce stressed that:

 

“The primary concern is that the funds are appropriately allocated, that the department has a program in place to spend them, that they can be spent with prudence and probity and that they are consistent with the rules and regulations of the government and the Treasury Board and that it is not excessive.” 

                        Another aspect of the review by Treasury Board analysts summarized by Mr. Joyce relates to affordability in terms of the federal government’s overall fiscal framework and plans: 

“The primary discipline applied in that process is the ability of the government to live within the planned spending limits that it has set out in the budget and usually the fiscal update that the Minister of Finance presents in the fall.  As the submissions come into Treasury Board, we check that the Supplementary Estimates do fit within the overall fiscal framework and plans of the government.” 

                        Furthermore, Mr. Joyce noted that Treasury Board analysts also examine whether the proposal is designed in the most efficient and effective way to achieve a particular policy objective, but he indicated that departments are given the flexibility they need to implement their plans.

                        With respect to the level of additional funds requested by departments, Mr. Joyce stressed that the role of the Treasury Board analysts “is not to squeeze the department back to some absolute minimum amount of money that the department can assure they can spend.”  In his view, the requests for additional funds in the Supplementary Estimates (B), 2004-2005 are reasonable:

 

“As you know, plans are plans.  I cannot assure you that every last dollar of this will be spent (…).  In our view, the plans [departments and agencies] do are reasonable.  This is why we [the Treasury Board Secretariat] are proposing these amounts to you.”

 

   B.  Operating Budget and Capital Spending Carry Forward 

                        Page 68 of the Supplementary Estimates (B), 2004-2005 provides a list of departments and agencies that are using a budget management practice referred to as the “operating budget carry forward.”  This practice, which is approved by the Treasury Board, allows federal departments and agencies to carry forward from one fiscal year to the next up to 5% of the Main Estimates operating budget.  According to Treasury Board, this practice provides departments and agencies with some flexibility in the management and/or implementation of initiatives over a multi-year planning horizon.

                        Senators asked whether the amount of operating budget that is carried forward by departments/agencies is considered as new money or if it is deducted from what they will receive in their budget for the ensuing year.  Mr. Joyce confirmed that the amount carried forward is added on as new money to the next fiscal year.

                        Some Senators expressed concern about the possibility of irresponsible year-end spending.  Mr. Joyce acknowledged that:  “there is an issue in some cases when you look at the history and you look at the public accounts and the actual lapses that can prove that our judgment and the department’s judgment was not as good as it could have been and that the amount appropriated was excessive.”

                        He stressed, however, that year-end spending was a problem some 10 years ago.  He explained that this problem has been greatly alleviated with the introduction of the operating budget carry forward policy.  In his view, the policy “largely takes away the lack of incentive for a department to spend the money sensibly during the year.  That is an effective policy that has taken away the silly year end spending.”  He assured the Committee that the carry forward provisions, combined with the $1 billion government-wide reallocation initiative of 2004-2005 and the ongoing Expenditure Review Committee exercise, ensure that “the scope for silly year-end spending, or ineffective or irresponsible year-end spending, is very low.”

                        Mr. Joyce also told the Committee that Treasury Board has a policy called “Payables at Year End” and which applies to departments that have entered into a commitment.  It is a legal commitment in the fiscal year, but for a number of reasons the payment can be made later and still be charged to the current fiscal year.  He indicated that this is an accounting policy which is consistent with generally accepted accounting principles.  He further noted: 

“In some respect, it is a minor step of the federal government to introducing accrual accounting in the sense that you are looking at whether a commitment has been made and, rather than actually forcing the payment to be made by 31 March, it allows for a number of instances where the payment can be made later, as long as a certain number of criteria related to the accounting principles have been met.” 

                        With respect to capital spending, Treasury Board also has a carry forward policy.  The policy allows departments and agencies to carry forward up to 5% of capital funds, up to a maximum of $75 million per fiscal year.  Mr. Joyce informed the Committee that this capital spending carry forward policy is relatively old and that Treasury Board is now reviewing capital carry forward requests on a case-by-case basis through a different process called “re-profiling.”  More precisely, he stated: 

“(…) there is no limitation on the capital carry forward.  It is simply looking at the particular situation of a capital project.  If there is a capital project that has a fixed multi year budget, this is not an increase in the total cost, but taking the money they do not need in one year and adding it on to another year within the total of the capital project.  This is not new money in terms of multi year funding.  This is done annually with departments in conjunction with the annual reference level update exercise that is an exercise that the secretariat does in generating the numbers for finance for the fiscal framework and the Main Estimates.  Departments can come in and seek a re-profiling, as we call it, under that policy.  There is no fixed amount because we look at the actual particulars of a particular capital project.  The intent is simply that if a total project over three years cost 100, if the cash profile has changed then we say that is okay as long as there is a reasonable justification provided by the department.”

 

   C.  Projected Statutory Spending 

                        Statutory expenditures are those authorized by Parliament through enabling legislation.  As such, they are not voted on annually as part of the consideration of the Estimates documents; they are thus included in the Estimates documents for information purposes only.  The Supplementary Estimates (B), 2004-2005 include net reductions totalling $893.6 million in projected statutory spending.  These reductions are attributable, among other things, to changes in projected or forecast expenditures.

                        Senators wanted to obtain clarification on these revised forecasts.  They wanted to know whether they resulted from an underestimation of planned spending, a change in legislation, a modification in the funding formula, etc.  With respect to decreased forecast in federal transfers to provinces, Mr. Joyce agreed with the Senators that the information provided in the supplementary estimates is “more indicative rather than clear.”  He further explained: 

“(…) statutory payments like this are basically formula funded.  They are driven by economic and demographic variables; and it is changes in those variables that determine the actual expenditure.  What has happened here is that the Department of Finance has gone through and looked at the particular elements of the formula that are enshrined in the legislation and, based on updated information, has revised its forecasts.” 

                        Mr. Joyce gave the example of Equalization.  He indicated that the estimated equalization payments change as data on the 33 different revenue sources used in the calculation becomes available.  He also stated that the Department of Finance, in response to growing concerns over the adequacy, stability and predictability of the major transfer payments, is reviewing the current system of Equalization and Territorial Formula Financing.  An Expert Panel will be created to conduct an independent review of the two programs.

                        Senators raised similar concerns with respect to the $496 million in “decreased forecast related to the Consolidated Specified Purpose Accounts.”  Page 12 of the Supplementary Estimates (B), 2004-2005 indicates that this decrease “is due to the downward adjustment to the forecast of net Employment Insurance (EI) benefits as well as a reduction in EI administration costs.”  Some Senators wanted to know the reasons behind this downward adjustment.

                        In response to these concerns, Mr. Joyce explained that the reduction in the Consolidated Specified Purpose Accounts is made of two components:  a reduction of $483 million in the forecast of EI benefits and a related reduction of $13 million in EI administration costs.  He further noted that the forecast of EI benefits had to be adjusted downward due to the fact that the Canadian economy grew much more strongly than expected in 2004.  This, in turn, resulted in a higher than expected growth in employment.  He insisted on the fact that the decrease in the Consolidated Specified Purpose Accounts will not result in a denial of EI benefits:

 

“It is a statutory payment and would be looking at the forecasts of the claims.  It is not that people have been denied Employment Insurance but rather it is simply a revised estimate of the number of claims against that program and the costs that will come forward, based on experience throughout this year.”

  

D.  National Defence 

                        Members of the Committee sought clarification in the additional funding requested in the Supplementary Estimates (B), 2004-2005 by the Department of National Defence.  In his response, Mr. Joyce reconciled the information on pages 10 and 159-160 of the supplementary estimates.

                        National Defence is seeking additional funding in a gross amount of about $439 million.  Most of this additional funding (or $405 million) is to be applied against two major initiatives:  $215 million to cover increases in pay and special allowances for Canadian Forces, and $190 million to address financial pressures related to the National Defence Services Program.  The gross amount requested is reduced because some existing authorities in the department are no longer required; these include $246 million under Vote 1 (operating expenditures), $5 million under Vote 5 (capital spending) and $0.2 million under Vote 10 (grants).  Overall, the Department of National Defence is seeking net amount of about $188 million.

                        Senators questioned the reduction in capital requirements as some Defence projects clearly need more equipment and money.  In particular, they were concerned about delays in the Marine Security Operations Centres project.  Mr. Joyce stated he did not believe that these delays were self-imposed but that like many other capital projects, the Defence projects were delayed for reasons beyond control.  The factors external to the Department of National Defence which contributed to these delays include the following:

·        The government-wide salary/wage cap, rescinded in late 2004, resulted in shortages of project management personnel;

·        Backlog of projects from the 2003-2004 government-wide contracting freeze;

·        Delays in obtaining project approvals due to the 2004 federal election.

                        Mr. Joyce also indicated that there have also been delays in internal processes related to project approval, procurement and contracting because of the overall complexity of projects.  In addition, he explained that there are often many different interests involved in large DND capital projects which can result in Canadian International Trade Tribunal challenges and additional project delays.

 

   E.  Canadian International Development Agency 

                        Some Senators were interested in the reduction of some $234 million in the contribution requirements of the Canadian International Development Agency under its Vote 20 (p. 129).  They wanted to know whether this reduction was the result of a shift in government policy or an overestimation of funds needed.

                        Mr. Joyce explained that there is no overall reduction in grants and contributions for 2004-2005.  The reduced requirements are the result of a number of factors, such as a deferral of various project schedules, the postponement of the Algeria Potable Water project due to a delay by the Algerian government in awarding a critical contract, and the violence and instability in Iraq that has prevented the international community from carrying out many reconstruction projects, resulting once again in deferred spending by the Canadian International Development Agency.

 

   F.  Privy Council 

                        Members of the Committee wanted to obtain more information on the $2.9 million sought by the Privy Council Office for policy research.  Mr. Joyce stated that this funding is not for public opinion polling.  He explained that the Council is requesting this funding to support the Policy Research Initiative in delivering on its mandate to advance research on emerging horizontal policy issues relevant to the government’s policy agenda.  Current issues include:  North American linkages; sustainable development; population aging and life course flexibility; and new approaches for addressing poverty and exclusion.  The funding will also support the Policy Research Development Program, which recruits graduate students specializing in policy research into government.

 

   G.  Government Advertising Programs 

                        Page 65 of the Supplementary Estimates (B), 2004-2005 provides information on a horizontal initiative related to government advertising programs.  In total, some 26 departments and agencies are seeking additional funds for advertising purposes amounting to almost $59 million.

                        Mr. Joyce indicated that this horizontal initiative is not related to the former Sponsorship Program and Advertising Activities.  This is a new initiative established by Cabinet in March 2004 aimed at centralizing in the Privy Council the management and approval process for government advertising.

                        Members of the Committee wanted to know what the total budget for the new centralized advertising initiative is and how much will be spent on management.  Senators were also interested in obtaining more information on the effectiveness of previous advertising programs, namely the annual advertising campaign to inform Canadians of the Canada Savings Bond Program.

                        Mr. Joyce informed that the total amount available in the advertising programs is $74.5 million for 2004-2005 and that the remaining balance at the end of the same fiscal year will be about $15.6 million.

                        With respect to the Canada Savings Bond Program, Mr. Joyce indicated that the Department of Finance is currently reviewing the program with a focus on ways to design and deliver it to meet the evolving needs of government and Canadians.  As part of this review, the department commissioned a report by the firm Cap Gemini Ernst & Young.  Program elimination, over a period of years, was one of the options presented in the Cap Gemini Ernst & Young report.

 

   H.  Tsunami Disaster Relief, Rehabilitation and Reconstruction Initiatives 

                        Members of the Committee were interested in the federal government’s disaster relief and rehabilitation assistance package in response to the South Asia tsunami.  In particular, they wanted to obtain clarification about the various amounts presented in the supplementary estimates and in Mr. Joyce’s opening remarks.  For example, on page 129 of the Supplementary Estimates (B), 2004-2005, it is indicated that the Canadian International Development Agency is seeking, under Vote 20, additional funding related to tsunami amounting to $223 million.  Then, on the same page, it is noted that $65 million were also advanced from the Treasury Board Contingencies Vote to provide funding to CIDA for the same purpose.  Further, Mr. Joyce’s opening remarks indicated that $256 million in new funding is being requested in the supplementary estimates due to the tsunami disaster relief, rehabilitation and reconstruction initiatives.

                        Ms. Danagher explained that the federal government has committed to provide a total of $425 million over a five year period in response to the South Asia tsunami.  Of this amount, $265 million is for humanitarian and rehabilitation assistance while $160 million is to be devoted to reconstruction assistance to the affected regions.  Some $256 million have been included in the Supplementary Estimates (B), 2004-2005 and are required by the following four departments and agencies:  CIDA ($223 million), National Defence ($20 million), Foreign Affairs ($9 million) and Citizenship and Immigration ($4 million).

                        Ms. Danagher also indicated that it is CIDA’s intention to commit the $223 million in the current fiscal year, that is before 31 March 2005.  Mr. Joyce also pointed out that, while a payment could be dated later, the commitment and the obligations must be incurred by the end of the fiscal year.

                        With respect to the $65 million provided in advance under the TB Vote 5, Ms. Danagher explained that this amount is included as part of the $223 million sought in the Supplementary Estimates (B), 2004-2005.

 

   I.  Global Health Initiatives 

                        Some members of the Committee were interested in the funding of some federal global health initiatives.  With respect to the Global Fund to Fight AIDS, Tuberculosis and Malaria, Mr. Joyce indicated that the Fund is not part of the Jean Chrétien Pledge to Africa Act (Bill C-9) adopted in May 2004.  It is a concerted, multilateral effort to accelerate global action to tackle AIDS, tuberculosis and malaria by improving access to information, goods and services needed by those suffering from the diseases.  The Fund, which rests on a partnership between governments, civil society, the private sector and affected communities, represents an innovative approach to international health financing.  The Supplementary Estimates (B), 2004-2005 are seeking additional funding for the Fund totalling $140 million.  The funding by all partners of the Fund was estimated at US$50 million for 2004-2005.  Since its inception in 2001, the Fund has committed US$1.5 billion to support 154 programs in 93 countries worldwide.

                        The Supplementary Estimates (B), 2004-2005 also seeks $160 million to advance global immunization through the Global Alliance for Vaccines and Immunization (GAVI).  Mr. Joyce informed the Committee that GAVI is a public-private partnership that brings together governments in developing and developed countries, vaccine manufacturers, non-governmental organizations, research institutes, UNICEF, the World Health Organization, the Bill and Melinda Gates Foundation, and the World Bank.  GAVI provides funding for vaccine and immunization projects and programs to governments that have a gross national income below US$1000 per capita.  Funding decisions are based on governments’ applications and their ability to demonstrate results.

 

   J.  The Public Service Modernization Act 

                        Senators were interested in the implementation of the Public Service Modernization Act.  Mr. Joyce explained that it is a horizontal initiative for which funding is shared between a number of departments and agencies.  More precisely, he indicated that the departments/agencies that seek additional funding in the Supplementary Estimates (B), 2004-2005 to modernize human resources management in the federal public service include the following:  Canada School of Public Service ($2.6 million); Health ($0.1 million); Social Development ($0.2 million); Indian Affairs and Northern Development ($0.05 million); Public Service Human Resource Management Agency of Canada ($5.2 million); Treasury Board Secretariat ($1.2 million); Veteran Affairs ($0.1 million); and Western Economic Diversification ($0.4 million).

                        The question was raised as to whether other economic regional development agencies are not requesting additional funds for the purpose of this initiative.  Mr. Joyce indicated that he would seek information and provide more details in a written response.

 

   K.  Forum of Federations 

                        Page 83 of the Supplementary Estimates (B), 2004-2005 lists, under Vote 10b of the department of Foreign Affairs a new grant of $20 million to be provided to the Forum of Federations “to enhance learning and exchanges on the values and possibilities of federalism in Canada and abroad.”  Senators inquired whether the Forum of Federations was a foundation and if so, what its mandate is.

                        Mr. Joyce confirmed that the Forum of Federations is a foundation.  He indicated that the Forum’s mission is to enable federal countries, experts and interested observers to exchange information, compare experiences and work towards finding solutions for common problems, and to promote governance solutions for other countries interested in exploring federalism options.  This includes:  conferences, roundtables, internships, study tours and youth summer sessions.  The $20 million grant would allow the Forum to achieve a more secure source of revenue by providing additional support over six years for its programs and activities.  The federal government will ask that the funds granted focus on the Forum’s broad objectives as well as specific Canadian foreign policy priorities, in particular using Canadian expertise in promoting good governance and providing assistance to failed and failing states.

 

   L.  The Federal Budget 

                        While Senators commended the excellent progress made in recent years in the presentation of the Estimates documents, they expressed concern in the way the information is presented in Budget documents.  They indicated that, sometimes, it is difficult to locate the information needed.  In other instances, the explanation given in the Budget documents on a particular item is not very clear.

                        Another concern raised by some Senators is the fact that it is very difficult to reconcile budgetary information with data provided in the Estimates documents.  This is particularly true with respect to the Budget Plan and the Main Estimates (or Reports on Plans and Priorities).  In this regard, Mr. Joyce stated:

 

“What is perhaps not as comprehensive as anyone would like is the information in the reports on plans and priorities on the new initiatives in the budget.  That is simply a reflection of budget secrecy, and the fact that with the production deadline that we are obliged to meet with the reports on plans and priorities, departments have limited time to really integrate the new budget spending into the reports on plans and priorities.  There tends to be a lag of one year in terms of the formal documentation that is provided to Parliament.” 

                        Senators were interested in knowing whether the primary amount claimed in the Main Estimates along with the additional funding requirements sought in the two sets of supplementary estimates add up to more than what the federal government had anticipated in its Budgetary Plan.  In his response, Mr. Joyce stated:

 

“The short answer to your question is that normally it is not more.  The government is very committed to live within the fiscal framework and the parameters set out in the budget, particularly a balanced or better budget.  That is the primary fiscal constraint.”

 

CONCLUDING COMMENT 

                        These subject matters were discussed during the Committee’s examination of the Supplementary Estimates (B), 2004-2005 on 8 and 9 March 2005.  The Committee wants to express its sincere appreciation to Mr. Joyce, Ms. Danagher and their colleagues from the Treasury Board Secretariat for the responses they provided in a very timely manner to the wide range of questions raised by Committee members.