To be Voted	Statutory	Total
Budgetary	5,009,790,049	4,187,490,714	9,197,280,763
Non-Budgetary	27,500,001	---	27,500,001
Total	5,037,290,050	4,187,490,714	9,224,780,764

Source:  Supplementary Estimates (A), 2006-2007, p. 43.

 

B.        Major Changes to Budgetary Spending

            The Treasury Board Secretariat officials described for the Committee the major changes to budgetary spending (both voted and statutory) that are detailed in the Supplementary Estimates (A), 2006-2007.  In total, four key government commitments account for approximately 44% of the spending.  These are:

 

·                     the establishment of the Universal Child Care Benefits program – $1.6 billion (statutory);

·                     defence spending – $955.9 million (voted);

·                     the Canadian Agricultural Income Stabilization program – $873 million (statutory); and

·                     transfers to provinces and territories for early learning and child care programs – $650 million (statutory).

 

In addition, the officials highlighted spending in these Supplementary Estimates that the government is proposing for the purposes of preserving and strengthening the health and security of Canadians.  This includes funding for the following items, all of which are voted:

 

·                     Public Security Initiatives – $153 million;

·                     issues relating to increasing passenger volumes in airports – $65.6 million; and

·                     preparation for a potential avian or pandemic influenza – $52.9 million.

 

EXPENDITURE RESTRAINT INITIATIVE

Officials from the Treasury Board Secretariat outlined to the Committee the Expenditure Restraint initiative that was first announced in Budget 2006.  This strategy is to secure $1 billion in savings over two fiscal years, 2006-2007 and 2007-2008.  The officials pointed out that the savings are being achieved through a combination of tighter management of spending and the identification of savings from government programs.

 

Senators were interested to know if the $1 billion target set by the government was determined by statute.  Mr. Moloney confirmed that the $1 billion was not statutory, but stressed that the amount was more than a target: in September 2006, the government announced how it was going to realise the $1 billion in savings through cuts to specific programs and activities.^[2]  These Supplementary Estimates include $223 million of those estimated savings and are shown as separate items because the reductions are to programs or activities for which the government had initially requested spending authority in the Main Estimates.  As described by the officials, the government is required to return to Parliament to indicate that the amounts previously authorized will not be spent as originally indicated. The reductions are listed by department and agency and no specifics are provided. Some of the larger departmental/agency reductions include:

 

·                     Department of Health – $17.6 million;

·                     Human Resources Development and Skills Development – $22 million;

·                     Canada Mortgage and Housing Corporation – $30 million;

·                     Treasury Board Secretariat – $20.9 million;

·                     Statistics Canada – $15 million; and

·                     Industry Canada $28.0 million.

 

The balance of the two-year spending restraint exercise – $777.3 million – represents funding that may have already received Cabinet and Treasury Board approval, but was not yet included in any appropriation bill before Parliament.  Accordingly, departments and agencies may not have any specific spending authority for these programs.  Therefore, the details on the balance will be reflected in future Estimates or in reductions to planned spending not yet in departmental reference levels. 

 

Committee members highlighted two programs that had been identified under the Expenditure Restraint initiative: the Canadian Firearms Program and funding to Status of Women Canada.  Treasury Board Secretariat officials confirmed that $3 million from the Canadian Firearms Program has been identified in these Supplementary Estimates as part of the expenditure restraint initiative.  However, the administrative savings identified by the government in September 2006 in Status of Women Canada are not included in these Supplementary Estimates. In response to a question concerning reductions to administrative budgets, Mr Moloney explained that departments may sometimes request additional operating funds should those cuts affect the sustainability of the operation of the program.

 

Some Senators questioned the relationship between the savings under this Expenditure Restraint initiative and the savings identified by the Expenditure Review Committee in 2005.  Mr. Moloney clarified that the current initiative is a new one:  the savings identified in Budget 2005, a total of $11.9 billion over five years, have already been removed from departmental reference levels.  Thus, the Expenditure Restraint amounts highlighted in these Supplementary Estimates are over and above the amounts announced by the Expenditure Review Committee in 2005.  In addition, Treasury Board Secretariat officials highlighted that one portion of the savings, procurement savings, had not yet been detailed in 2005. They appear in these in Supplementary Estimates as they are now being realized.

 

EXAMINATION OF THE SUPPLEMENTARY ESTIMATES (A), 2006-2007

During the Committee’s hearing on the Supplementary Estimates (A), 2006-2007, Senators raised a number of issues, some of which are discussed below.

 

A.        Regional Responsibilities

Some Senators expressed interest in an item that appeared under several departments: “additional resources related to a reallocation of the Ministry’s regional responsibilities”.  Mr. Moloney explained that this amount refers to the fact that certain Ministers are tasked by the government with regional responsibilities. Senators were pleased to note that in the interest of transparency, these amounts are identified separately in the Supplementary Estimates of the related department rather than consolidated in a central vote.

 

B.        Lebanon Evacuation

The Committee was interested in whether the $63 million listed in these Supplementary Estimates relating to the cost of evacuating Canadian citizens from Lebanon was the final total cost for the evacuation (p. 166).  The officials remarked that the amounts listed under Foreign Affairs and International Trade represent the amount the department is seeking over and beyond the amounts that were available to it through the Main Estimates for this specific purpose.  They also pointed out that the department is still finalizing the bills for this expenditure to ensure that there are no remaining liabilities.   

 

The Treasury Board Secretariat officials also highlighted that the amount presented under Foreign Affairs and International Trade has no bearing on any amounts that other involved departments would have incurred for the evacuation, including the Canadian International Development Agency, Citizenship and Immigration Canada, and the Department of National Defence.  The expenditures of these departments would need to be taken into consideration before a final figure for the evacuation of Canadians from Lebanon could be calculated.  This initiated a discussion on how horizontal items are displayed in the Supplementary Estimates, which will be addressed later in this Report.

 

C.        Defence

Some Senators noted that February 2005 Budget committed to up to $12.8 billion in funding for the Defence budget over five years, while the May 2006 Budget committed a further $5.3 billion over five years. In these Supplementary Estimates, the Department of National Defence is seeking funding of $955.9 million. Mr. Moloney explained that the $955.9 million will be used for various defence initiatives, including $418.1 million in order to strengthen the Canadian Forces’ independent capacity to defend Canada’s national sovereignty and security. This is referred to as the Canada First program. Under this program, a number of funding gaps are identified including training and operational readiness, repair and maintenance of vehicles and equipment, and support for the expansion of the targets for the regular force staffing levels.  The remaining funding will be allocated as follows: support for the Canadian Forces’ role in Afghanistan ($202.6 million); increases to pay and allowances for Canadian Forces members ($177 million); and funding to address the initial elements of some major capital acquisitions ($158.1 million).

 

Senators were also interested in knowing how much of the total $18.1 billion in funding committed by the government through the last two budgets has already been provided to the Department of National Defence.  Mr. Moloney indicated that this reconciliation is complicated given that there are new government accounting practices.  Therefore, these two amounts cannot strictly be added one to the other. He explained that a number of years ago, the government moved to accrual accounting for the purposes of the overall fiscal framework. However, budgets and parliamentary appropriations are still largely based on the cash method of accounting.  The $12.8 billion provided in the February 2005 Budget was the amount of cash outlays that were being committed.  In contrast, the May 2006 budget amount of $5.3 billion represented the actual budgetary amounts over five years. The $12.8 billion represents a cash outlay to cover $7 billion in budgetary spending, over a five year period.[3]  Therefore, between the two budgets there is a total of $12.3 billion in budgetary spending over five years.  Of those amounts, to date the Department of National Defence has accessed a total of $1.1 billion of the budgetary authority and $1.7 billion for cash expenditures. Thus, over the future years, there is remaining amount of $11.2 billion in budgetary spending.  

 

D.        Canada Revenue Agency

Some Senators noted that these Supplementary Estimates transfer $18.2 million from Human Resources Skills Development (Social Development) to the Canada Revenue Agency (CRA). Mr. Moloney explained this is pursuant to the transfer of control and supervision of national collection services and the collection litigations and advisory services from the latter organization to the former. With this transfer, approximately 95% of the government’s collection activities are now centralized within the CRA.   

 

Senators also noted that the CRA is requesting $26.2 million to address legislative, policy, and operational initiatives arising from February 2005 Budget, and $1 million to address further initiatives arising from the March 2004 Budget. According to Mr. Moloney, the most significant measure in the 2005 Budget related to what the CRA refers to as “aggressive international tax planning,” through international transactions and the use of tax havens. The funds requested in these Supplementary Estimates are to provide for additional audit and enforcement activity with the expectation that these activities will return sufficient revenues to the government to offset these expenditures. Other measures from the February 2005 Budget include funding for the administration of a range of disability tax measures and measures relating to tobacco compliance enforcement.  March 2004 Budget measures include funds for completing the operation of the relief for heating expenses from Economic Statement 2000 and funds for the operation of the Saskatchewan Sales Tax Credit.

 

E.        Environmental Programs

            Some Senators noted that these Supplementary Estimates include funding for existing climate change programs.  Nine departments are included for a total of $82.8 million. As Mr. Moloney explained, this represents interim funding to allow the government to transition from existing climate change programming to its new environmental policies and programs. Further, there are no funding requests in these Supplementary Estimates for new environmental programs. Some Senators also noted that, at the same time, funding is being reduced to two programs—the Technology and Innovation Initiative ($10 million) and contributions directed towards electricity distributors in order to promote renewable energy sources ($10.5 million). Mr. Moloney indicated that these cuts are not part of the current Expenditure Restraint Initiative and that Natural Resources Canada would be best positioned to discuss the reductions.

 

F.         Universal Child Care Benefit

Senators noted that these Supplementary Estimates include $1.6 billion in statutory benefits for the Universal Child Care Benefit. An additional separate voted amount of $27.1 million is being sought by four departments (Human Resources and Skills Development (Social Development), Justice, Canada Revenue Agency, and Public Works and Government Services Canada) for administration costs associated with the program. Mr. Moloney explained that the $1.6 billion represents the total cost of the program from the time that it was implemented on July 1, 2006 to the end of the current fiscal year, March 31, 2007. He also explained that about 95% of qualifying parents automatically receive the benefit by virtue of being registered in the Canada Child Tax Benefit database. The remaining 5% of families must actively apply for this benefit, and therefore, the latter administration costs include some advertising expenses.

 

G.        Transfers between Departments

Senators enquired about the transfers between departments that are contained within these Supplementary Estimates.  The Treasury Board Secretariat officials discussed the two ways that transfers appear in the Supplementary Estimates.  The first is a transfer of funds between departments as a realignment of authorities.  As an example of this, Senators discussed a transfer from the Department of National Defence to Environment Canada for investments in search and rescue coordination initiatives (p. 149).  The second way transfers appear in the Supplementary Estimates is as “one dollar items” which seek a change in the existing allocation of funds that were previously authorized in the Main Estimates.  Treasury Board Secretariat officials explained that the purpose of a one dollar item is not to seek new or additional funds, but rather to reallocate or transfer existing spending authorities between votes.  Ms. Danagher further explained that in order for something to be included in an appropriation bill, it must have a dollar item.  Therefore, those items that involve a transfer of spending authority are assigned the nominal value of one dollar.

 

H.        Lapsing Appropriations

Some Committee members were interested in the difference among departments in their authority to lapse appropriations.  As indicated in these Supplementary Estimates, the 2006-2007 Estimates included $100.7 million for the Canada Revenue Agency and $42.8 million for the Parks Canada Agency from 2005-2006 non-lapsing appropriations.  As Ms. Danagher explained, these two agencies have a special two-year appropriation authority which allows them to carry over any unspent funds into the next fiscal year.  The appropriation authority for these two agencies will expire on March 31, 2008, whereas the appropriation authority for all other departments expires on March 31, 2007.  Ms. Danagher noted that while other departments receive spending authorities for one year only, they do have operating budget carry-forward flexibility that allows them to carry- forward up to a maximum of five per cent of their Main Estimates’ voted operating amounts. 

 

This was followed by a discussion about the effectiveness of the carry forward mechanism.  Treasury Board Secretariats confirmed that this mechanism works very well in improving financial management because it removes the incentive to needlessly spend funds remaining at the end of a fiscal year.  The average annual amount carried forward by departments is three per cent, which the Treasury Board Secretariat takes as evidence that departments do not consider the carry-forward authority as an automatic float. 

 

I.          Horizontal Initiatives

A recurring topic during the hearing on these Supplementary Estimates related to horizontal initiatives.  This issue touched many of the items raised by the Committee.  The Committee has in the past commended the Treasury Board Secretariat for the improvements made in the Supplementary Estimates with respect to horizontal reporting.  However, several Senators expressed concern that some items that appeared to be part of a horizontal initiative were not listed as such in these Supplementary Estimates.  Mr. Moloney explained that the only programs that appear in these Supplementary Estimates are those that are seeking new funding.  Therefore, although a program may be part of a horizontal initiative, if it is the only program seeking new funding under a horizontal initiative, it will not appear as such in the Supplementary Estimates.  Senators raised this issue with respect to two initiatives discussed in these Supplementary Estimates: the evacuation of Canadians from Lebanon and the Mackenzie Gas Project.

 

Senators were concerned that the full cost of the evacuation from Lebanon may not be displayed in future Supplementary Estimates because these documents do not display horizontal initiative spending in a cumulative manner.  Therefore, if other departments came forward in the Supplementary Estimates (B) for this activity, the amount being requested in the Supplementary Estimates (A) would not be included in the total requested for the evacuation.  In addition, some Committee members questioned why the Mackenzie Gas Project appeared in the Estimates of several departments but was not listed as a horizontal item. 

 

The Treasury Board Secretariat officials offered two options to address this issue.  The first option could be to note in the text that describes the horizontal initiative that other requests for funding were included in previous Estimates.  This would draw parliamentarians’ attention to the total costs of a horizontal initiative.  The second option would be for parliamentarians to examine the information found in the Departmental Performance Report of the lead department involved in a horizontal initiative to piece together the total costs of a certain initiative. 

 

CONCLUSION

            During its meeting on the Supplementary Estimates (A), 2006-2007, the Committee deliberated on these and other matters, including:  health and public security initiatives and the issue of tax point transfers and tax abatement programs.  The latter is of particular interest to the Committee given its current study on the fiscal balance.  Tax point transfers are a key aspect of the federal social transfer system and the Committee will be examining them in the context of its study on the vertical fiscal imbalance over the coming months.

 

The Standing Senate Committee of National Finance respectfully presents its report on the Supplementary Estimates (A), 2006-2007.