*Including alternative payments for standing programs.

**Adjustments to reconcile to the 2006 Budget and the 2006 Economic and Fiscal Update as well as adjustment for the impact of accrual accounting, expenses charges to previous years, and anticipated lapses.

Source: 2007-2008 Estimates, p. 1-5.

Consistent with the November 2006 Economic and Fiscal Update, total planned budgetary expenses are $230.8 billion for the fiscal year 2007-2008.

EXAMINATION OF THE 2007-2008 ESTIMATES

During the course of the Committee's initial hearings of the 2007-2008 Estimates, Senators raised a variety of issues, some of which are discussed below.

A. Growth in Spending

Senators were concerned that government spending may outpace economic growth, noting that the 2007-2008 Budgetary Main Estimates have increased by $12.0 billion, or 6%, relative to the 2006-2007 Budgetary Main Estimates. The President noted that he shares those concerns but that, in his opinion, a more accurate representation of trends in government spending could be obtained by comparing last year's total Estimates (that is, the 2006-2007 Main Estimates and the 2006-2007 Supplementary Estimates (A) and (B)) to this fiscal year's Main Estimates. This comparison shows that the year-over-year increase in total budgetary expenditures is 1.1% or $2.3 billion. The President agreed that there are, however, a number of new spending proposals in the March 2007 Budget, totalling some $4.4 billion, that will be reflected in future Supplementary Estimates. He also noted that as the Budget is presented on an accrual basis of accounting, the cash-based appropriation request associated with certain budget initiatives will be larger, to the extent that funds are requested for capital spending.

B. Progress on Implementing Accrual Budgeting
and Appropriations

The Committee has been interested for some time in the government's progress towards implementing full accrual accounting, as recommended by the Auditor General. Mr. Moloney stated that the government will be responding by April 6, 2007 to reports from two House of Commons Standing Committees that called on the government to present a timetable for moving to accrual appropriations and accrual budgeting within departments.⁽³⁾

C. Reconciliation between Total Budgetary Main Estimates and Total Budgetary Expenses

Senators noted that while budgetary Main Estimates total $210.3 billion, total budgetary expenses equal $230.8 billion. This difference between the two figures is attributed to $6.5 billion in ``Reconciliation'' and $14.9 billion in ``Net Adjustment, from Net to Gross Basis of Budget Presentation''.

When asked to explain the net adjustment factor, Mr Moloney explained that, since the May 2006 Budget, the budget has been presented on a different basis than the Estimates; not only on an accrual versus cash basis, but also a net versus gross basis for accounting. The move to a gross basis was a recommendation of the Auditor General who felt that presenting the Budget and financial statements on a gross basis more properly reflects the nature and size of the Government's revenues and expenses.

Mr Moloney noted that some departments receive monies directly, for example, through user fees. In the Estimates documents, many votes are worded such that those departments have the authority from Parliament to re-spend revenues. Since Parliament is approving access to the Consolidated Revenue Fund to spend additional amounts over and above those revenues, the Estimates are presented on a net basis. Further, he explained that the $14.9 billion adjustment includes three components. The single largest component—$9.3 billion—can be attributed to the Canada Child Tax Benefit. For the purposes of the Estimates, this tax benefit is not voted spending, however it is treated as an expenditure in the public accounts and in the Budget. Other various departmental revenues netted against expenses total $3.7 billion. In addition, the net adjustment includes $1.8 billion in revenues of consolidated Crown corporations. The Senators thanked Mr Moloney for his explanation and suggested that the Treasury Board Secretariat clarify this item in future Estimates documents. He undertook to do so.

D. EcoTrust Initiative

Senators learned that the ecoTrust initiative announced by the government will be funded through anticipated 2006- 2007 budgetary surpluses and will appear in the Public Accounts, to be tabled in October 2007. Mr. Moloney confirmed the Senators` understanding that no monies would be spent without Parliamentary approval; he noted that any amounts to be charged to the Consolidated Revenue Fund for 2006-2007 for this initiative would be included in subsequent Budget Implementation Acts.

E. Progress on Implementing 2006 Expenditure Reduction Initiative

In his opening remarks, the President of the Treasury Board stated that the government has secured $1 billion in savings from ineffective programs to invest in new spending. Mr Moloney explained that $223 million of these savings, identified in previous Estimates documents, have already been realized; the remainder is reflected in reductions to the fiscal framework for the fiscal years 2006-2007 and 2007-2008. Funding had been set aside in the fiscal framework for certain programs that had previously received spending approval by Cabinet. Under the expenditure reduction initiative, a number of these programs are no longer being implemented. Thus, the savings are not, and will not, be included in these or forthcoming Estimates documents. Senators were concerned that this approach was not fully transparent.

CONCLUSION

During its initial meetings on the 2007-2008 Estimates, the Committee debated these and other matters, including: public service staffing; changes to the administration of government grants and contributions; funding for literacy programs; regional development agencies; the status of housing and renovation programs delivered through the Canada Mortgage and Housing Corporation; and the Employment Insurance program. The Committee intends to more fully examine the government's spending plans for the 2007-2008 fiscal year, and will present further interim reports as it continues its work.

The Standing Senate Committee of National Finance respectfully presents its first interim report on the 2007-2008 Estimates.

⁽¹⁾ Part III of the Estimates is divided into two parts: the Reports on Plans and Priorities and the Departmental Performance Reports. Though these documents may be reviewed by the Committee, this generally occurs only when a specific department or agency is being examined.

⁽²⁾ Budgetary expenditures include the cost of servicing the public debt; operating and capital expenditures; transfer payments to other levels of government, organizations or individuals; and payments to Crown corporations. Non- budgetary expenditures (loans, investments and advances) are transactions that represent changes in the composition of the financial assets of the Government of Canada

⁽³⁾ Standing Committee on Government Operations and Estimates, 6th Report: Accrual Budgeting and Appropriations in the Federal Government. December 2006. Standing Committee on Public Accounts, 12th Report: Public Accounts of Canada 2006. December 2006.