Proceedings of the Standing Senate Committee on
National Finance
Issue 7 - Evidence - Meeting of March 4, 2008
OTTAWA, Tuesday, March 4, 2008
The Standing Senate Committee on National Finance met this day at 9:35 a.m. to examine the Estimates laid before Parliament for the fiscal year ending March 31, 2009.
Senator Joseph A. Day (Chair) presiding.
[Translation]
The Chair: Good day and welcome to this meeting of the Standing Senate Committee on National Finance. My name is Joseph Day. I am the Chair of this committee and I represent the province of New Brunswick in the Senate.
[English]
Welcome to this meeting of the Standing Senate Committee on National Finance. The committee's field of interest is government spending and operations, including reviewing the activities of officers of Parliament and various individuals and groups that help parliamentarians hold the government to account. We hold the government to account by reviewing the estimates of expenditures and funds made available to officers of Parliament to perform their functions, and through budget implementation acts and other matters referred to this committee by the Senate.
Today, we examine the 2008-09 estimates, which were tabled in the Senate on Thursday of last week and immediately referred to this committee for review. As is customary, the committee anticipates that several meetings will be required to complete a thorough review of these estimates, and we will have those meetings throughout the year. We maintain our mandate to examine these estimates throughout the coming fiscal year, which begins on April 1, 2008, and continues to the end of March of 2009.
Our initial examination will begin today with the appearance of two officials from Treasury Board Secretariat. To explain the federal government's planned spending and the main features of these estimates, I am pleased to welcome back Alister Smith, Assistant Secretary, Expenditure Management Sector; and Brian Pagan, Executive Director, Expenditure Operations and Estimates Division.
Welcome, gentlemen. The floor is yours. Although honourable senators have only had the Main Estimates for next year for a few days, I am sure questions will flow from the estimates and your presentation.
[Translation]
Alister Smith, Assistant Secretary, Expenditure Management Sector, Expenditure Operations and Estimates Division, Treasury Board of Canada Secretariat: Thank you, Mr. Chairman, for this opportunity to be here today to speak to you about the Main Estimates 2008-2009 tabled on February 28 last.
[English]
With me today is Mr. Pagan. After my preliminary remarks, both Mr. Pagan and I will be pleased to answer your questions.
Let me begin with an overview of the 2008-09 Main Estimates. I hope you have in front of you the presentation that the clerk distributed. It will outline the purpose of the Main Estimates and situate this fiscal year's Main Estimates in a comparative context.
Page 2 of our presentation outlines the purpose of the Main Estimates, which is three-fold: to support the government's forthcoming request to Parliament for voted authority to spend public funds by presenting information on both budgetary and non-budgetary spending authorities, including all proposed grants and contributions; to identify the spending authorities being sought by individual departments, agencies and appropriation-dependent Crown corporations for the upcoming year, together with a description of their activities and strategic outcomes by program activity and type of payment; and to provide information to Parliament about adjustments to projected statutory spending that have been previously authorized by Parliament.
Page 3 is a graph that provides historical perspective on the Main Estimates and total budgetary spending from 1988-89 through to the current Main Estimates 2008-09. Over the past 20 years, government spending has steadily increased from roughly $120 billion to the $220.6 billion in budgetary expenditures presented in the 2008-09 Main Estimates.
Page 4 shows a high-level overview of federal spending for 2008-09. The budgetary expenditure side of the fiscal framework can be broken down into three principal categories: interest payments on the public debt; major statutory program spending, for example, transfers to other levels of government, including equalization and transfers to persons; and direct program spending. The Department of Finance Canada is largely responsible for the first two categories: interest on the debt and major statutory spending estimates. Treasury Board is responsible for the third category, direct program spending, which currently represents about 36 per cent of total budgetary spending.
Page 5 breaks down the Main Estimates and compares the 2008-09 Main Estimates to the previous year. On the left- hand side, under Budgetary, Non-Budgetary, Voted and Statutory, the grid shows the 2007-08 Main Estimates compared to 2008-09 Main Estimates on the right-hand side. Overall, the 2008-09 Main Estimates have increased by $9.8 billion or 4.6 per cent relative to the 2007-08 Main Estimates. This figure includes an increase of $10.3 billion in budgetary spending and a decrease of $522.8 million in non-budgetary spending. Non-budgetary spending is a much smaller number.
On page 6, to give the committee a closer look at the Main Estimates, we break the number down to total spending by department, by type of payment and program spending by sector. In Part II of the Main Estimates, spending is broken down by department and program activity. With respect to types of payments, we look at transfers to persons and governments, other transfer payments, other operating expenditures and debt, and we also break down the spending by sector.
On page 7, among the departmental initiatives contributing to the $4 billion increase in voted spending, which shows in the table a couple of slides back, the main areas to focus on are listed here. Re-profiling between fiscal years of funds for specific initiatives in 37 departments and agencies is $1.8 billion. The funding to strengthen the independent capacity of the Canadian Forces to defend Canada's national sovereignty and security is $815.2 million. The funding to establish the First Nations Market Housing Fund is $150 million. The funding for additional police officers for the RCMP is $140 million. The funding for RCMP contract policing services to provinces, territories and municipalities is $120 million. Finally, the funding for major capital defence projects, including airlift capacity, tank replacement and howitzers for National Defence is $119 million. All these items, with the exception of re-profiling, you will have seen before in Supplementary Estimates (A) and Supplementary Estimates (B). Those estimates are now carried forward into the Main Estimates.
Page 8 show the Main Estimates broken down by types of payments. There are five categories: transfers to other levels of government, $45.3 billion; transfers to persons, $51.2 billion; other transfer payments and subsidies, $30 billion; departmental operating and capital, $60.4 billion; and public debt, $33.7 billion.
Page 9 shows an array of program spending by sector. We group the 126 organizations that we cover in the Main Estimates into 10 sectors to look at how much is social spending, economic spending and so on.
Overall, the largest portion of program spending is devoted to social programs, which account for $100.7 billion, or 45.7 per cent of total program spending for 2008-09. Of the remainder, spending on public debt charges, international, immigration and defence programs and general government services account for an additional $87.6 billion, or 39.7 per cent of total spending.
Page 10 shows the breakdown in the social sector, which comprises those departments and agencies that deliver programs that aim to promote the health and well-being of Canadians and foster equality of access to the benefit of Canadian society. At 45.7 per cent, spending for social programs represents by far the largest proportion of total program spending. Of that amount, $20.3 billion, or 20.3 per cent, will be for direct program spending, and $80.4 billion, or 79.8 per cent, will be for major transfers such as elderly benefits. Compared to the previous year, this sector's spending in 2008-09 is set to increase by $3.3 billion, or 3.4 per cent.
On page 11, the cultural programs sector comprises those departments and agencies that deliver programs that support the growth and development of Canadian cultural life, participation and equity in Canadian society, the nation's linguistic duality and diverse multicultural heritage, and the preservation of its national parks, historic sites and heritage. Proposed spending in this sector in 2008-09 is estimated at $4 billion, which represents 2.4 per cent of total program spending. Compared to the previous year, this sector's spending is set to increase by $151.7 million, or 3.9 per cent.
Page 12 looks at environmental and resource-based programs. This sector comprises those departments and agencies that deliver programs that promote the sustainable development of Canada's environment, natural resources and agriculture industries. Proposed spending in this sector in 2008-09 is estimated at $8.5 billion, which represents 5.1 per cent of total program spending. Compared to the previous year, 2008-09 spending in this sector is forecast to increase by $620.9 million, or 7.9 per cent.
On page 13, the group of departments, agencies and Crown corporations that constitute the industrial, regional and scientific-technological programs are arrayed. These departments, agencies and Crown corporations deliver programs that foster economic growth and job creation through measures that stimulate private sector investment across Canada, encourage regional development, improve the country's innovation performance and promote a stronger science and technology capability in Canada. Proposed spending in this sector is estimated at $7.2 billion, which represents 4.4 per cent of total program spending. Compared to the previous year, the spending level in 2008-09 is set to increase by $400.6 million, or 5.9 per cent.
On page 14, the transportation sector comprises those departments, agencies and Crown corporations that deliver transportation programs. Proposed spending in this sector is estimated at $1.9 billion, which represents less than 1 per cent of total program spending. Compared to the previous year, spending is set to increase by $209.5 million, or 12.3 per cent.
On page 15, the justice and legal programs sector comprises those departments and agencies that deliver programs covering the administration of justice and law enforcement. Proposed spending in this sector is estimated at $1.7 billion, which represents less than 1 per cent of total program spending. However, compared to the previous year, this sector's spending is set to decrease by $157 million, or 8.6 per cent.
On page 16, the security and public safety programs comprise those departments and agencies that deliver programs intended to close security gaps and ensure that the country's national interests and citizens are protected from risks to personal safety. Proposed spending in this sector is estimated at $7.3 billion, or 4.4 per cent of total program spending. Compared to last year, this sector's spending will increase by $763 million, or 11.7 per cent.
Page 17 shows the international, immigration and defence programs. This sector covers those departments and agencies that deliver programs that support the security of Canadians, defend Canadian interests, promote a stable international environment and project Canadian values and culture in world affairs. Proposed spending in this sector is estimated at $25.8 billion, which represents 11.7 per cent of total program spending. Compared to the previous year, this sector's spending has increased by $1.9 billion, or 7.8 per cent.
Page 18 shows the Parliament and Governor General sector, as we characterize it. It includes the Senate, the House of Commons, the Library of Parliament, the Office of the Ethics Commissioner, the Senate Ethics Officer, and the Office of the Secretary to the Governor General. Proposed spending in this sector in 2008-09 is estimated at $581.9 million, which represents less than 1 per cent of total program spending. Compared to the previous year, this sector's spending is set to increase by $25 million, or 4 per cent.
Page 19 shows the general government services sector, which includes those departments and agencies that provide central services to support the internal operations of government and includes, under the Department of Finance, fiscal equalization and transfers to territorial governments. Proposed spending for this sector in 2008-09 is estimated at $27.9 billion, which represents 12.7 per cent of total program spending. Of this amount, $12 billion, or 42.9 per cent, will be for direct program spending. The remaining $15.9 billion will be for transfer payments that we touched on previously, such as equalization. Compared to the previous year, this sector's total spending has increased by $3.7 billion, or 15.4 per cent.
Finally, a breakdown of program spending by sector is shown in the multicoloured graphic in front of you on page 20 and attempts to provide the committee with some detail, including some of the drivers for change in the sectors. In summary, the largest portion of program spending is devoted to social programs, which account for $100.7 billion, or 45.7 per cent of total program spending. Of the remainder, spending on public debt charges, international, immigration and defence programs and general government services account for an additional $87.6 billion, or 39.7 per cent of total spending.
[Translation]
I will now be happy to answer your questions and address your comments.
[English]
The Chair: Mr. Pagan, do you have anything to add, or are you here as a backup?
Brian Pagan, Executive Director, Expenditure Operations and Estimates Division, Treasury Board of Canada Secretariat: I do not have anything to add at this time, senator.
The Chair: I am sure you will have an opportunity to answer some questions.
Do you have a point of clarification, Senator Eggleton?
Senator Eggleton: With respect to page 20, entitled "Program Spending by Sectors,'' there is reference to "Governor General services'' at 12.7 per cent. Do you mean general government services?
Mr. Smith: Yes.
The Chair: Thank you for clarifying that point.
When you compare these percentage increases, are you looking at the total amount spent in this fiscal year against what is anticipated to be spent in the next fiscal year, or are you looking solely at the Main Estimates, which do not include the Supplementary Estimates?
Mr. Smith: The latter is correct, senator; we are looking at the Main Estimates over the Main Estimates.
The Chair: That is helpful, since we dealt with the Supplementary Estimates (B) last day. At the beginning of the year, usually at budget time, the government does a projection of how much it will spend in a year. Your Main Estimates were at least in preparation, if not made available, while the budget was being prepared and released. Therefore, there may well be certain things in the budget that are not reflected in the Main Estimates. Is that correct?
Mr. Smith: That is absolutely correct, senator. We tabled the Main Estimates on February 28, and we are required to table them by March 1 by House Standing Orders. The budget was released on February 26. Of course, it is a secret document; therefore, one could not take into account budget measures in the Main Estimates.
The Chair: Do you generate any comparisons between what the government projects it will spend in total — and some of it cannot be defined — for the coming fiscal year against what was actually spent in the last fiscal year, something more current than having to wait for the final accounts that come out 18 months after the event?
Mr. Smith: We stay within the fiscal framework. Main Estimates and the Supplementary Estimates altogether will have to conform to the forecast in the budget. With these estimates and with all the spending through 2007-08, we would be in conformity with Budget 2007, the economic update, current up until the new budget. Since we cannot take into account the measures in the new budget, with the 2008-09 Main Estimates we are providing a best-efforts look at the year, not taking into account the full Budget 2008 picture.
I might says that there is a high level of consistency between Budget 2008 and the Main Estimates in that when the Department of Finance Canada is putting together the budget it looks at all the material we have been assembling for our departmental estimates.
The Chair: What is the fiscal framework? You give us a figure here in the Main Estimates. How does that compare to what was in the budget as forecast fiscal spending for the coming year? How do they compare?
Mr. Smith: The fiscal framework includes the revenues, expenditures and estimates of deficit debt that the Department of Finance puts together once a year. The budget is put together on an accrual basis, and it is also put together on a gross as opposed to net basis. There are some differences in the numbers between the budget and Main Estimates. We can break down that difference for you.
If you look at the Main Estimates book on page 1-4, you will see figures for the 2008-09 Main Estimates and a breakdown of the government's expenditure plan. You see the figure of $220.6 billion for the Main Estimates that we presented to you today and the reconciliation with the finance numbers from the October 2007 economic statement. There are some adjustments from the gross basis used in the budget to the net basis we use here. You can see there are differences, and of course they are identified in the footnotes. This is a complex reconciliation.
The Chair: I would like to say that is becoming clearer, but it is the adjustment — the gross basis and the difference between accrual and a monetary basis or cash basis for accounting — that is causing us misery in terms of being able to understand whether the government is increasing expenditures each year, by how much and whether it is staying within its forecast. These are things we would like to be able to compare year over year.
I will not ask any more questions on that matter, but perhaps we could have another session sometime to try and understand more clearly the difference between the documents that we are given to hold the government to account, one based on accrual and the other based on cash or your term of "near cash,'' all of which leads to some difficulty in comparing them.
Senator Stratton: The first bullet on page 7 of your presentation reads:
Re-profiling between fiscal years of funds for specific initiatives in 37 departments and agencies — $1.8 B.
What does "re-profiling'' mean?
Mr. Smith: Every year there are programs where for one reason or another — for example, negotiations with provinces or with other countries — the intended spending cannot take place or equipment cannot be purchased or for a variety of reasons, such as priority, the funding is unlikely to happen. Funds can be re-profiled in some circumstances from the current fiscal year to the next fiscal year. It is not automatic, but they can be re-profiled. That will mean a reduction in the reference level in the first fiscal year and an increase in the reference level in the second fiscal year, all other things considered.
It may be that departments will have the room in the second fiscal year to cover that spending and therefore there is no need to re-profile, but in many cases if the budgets of government departments are fully committed, the funds would be made available in the second fiscal year to cover that high priority.
Senator Stratton: Therefore, the budget was dropped for the current fiscal year and increased in the subsequent fiscal year.
Mr. Smith: Correct.
Senator Stratton: I would ask you to look at page 10 regarding social programs, specifically the Department of Indian Affairs and Northern Development. The forecast has dropped from $6.2448 billion to $6.2165 billion. Could you give me an explanation? I understand that a water management strategy is ending.
Mr. Smith: That is right.
Senator Stratton: Is that what those numbers reflect?
Mr. Smith: Right. There are quite a few changes that make up the net change here. I could start to run through some of them for you.
First, there are some increases as well as decreases. On the increase side, there is $91.3 million for increased demand for Indian and Inuit programs; $52.1 million for the First Nations Infrastructure Fund; and a whole series of transfers to Aboriginal Business Canada from Industry Canada.
The decreases are the sunsetting of funding for the First Nations Water Management Strategy; reductions in the planned cash flow for the negotiation, settlement and implementation of some specific and comprehensive claims; and the sunsetting of funding for some elements of the Action Plan for Safe Drinking Water.
At the same time, there are other changes reflecting the capital side.
Senator Stratton: Why would the government sunset a water management strategy for drinking water? Is that channelled someone else?
Is that channelled somewhere else?
Mr. Smith: In fact, I believe that was the program of the previous government. There is a new approach to clean drinking water. There has been an action plan and an expert panel. A number of further steps have been taken and new funding has been provided. It represents a transition.
Senator Stratton: We are not seeing the disappearance of that strategy; we are seeing a recreation in another form.
Mr. Smith: That is correct.
Senator Stratton: Finally, on page 15, under the heading "Justice and Legal Programs,'' we again see the Department of Indian Affairs and Northern Development and a budget for the current fiscal year of $596.7 million, dropping to $294.7 million in 2008-09. That is a substantial change.
Mr. Smith: In part it reflects some of the changes to Indian Residential Schools Resolution Canada. The $302- million decrease in spending for that office results primarily from the inclusion in the Main Estimates of other major one-time undertakings, including grants to the Aboriginal Healing Foundation. There are some offsetting changes there on the cash side. Clearly, there have been many payments as well out through the —
Senator Stratton: This substantial reduction reflects the payout surrounding the school question.
Mr. Smith: Right.
The Chair: Last year there was the payout surrounding the school question, as Senator Stratton put it, and since that has been done, the amount this year is less because you do not need to include the school payout; is that the answer?
Mr. Smith: That is my understanding.
Mr. Pagan: That is it, senator. In the 2007-08 Main Estimates there were several one-time undertakings related to residential schools, including the grant to the Aboriginal Healing Foundation. Those grants have been made, and therefore the Main Estimates for 2008-09 are reduced by the amount of that one-time funding.
The Chair: Thank you for clarifying that point.
Senator Ringuette: Before I continue the questioning on the Main Estimates for 2008-09, I would like to reiterate that we are still lacking answers to the questions from your previous appearance before this committee. We discussed a time frame, and I want to reiterate that Supplementary Estimates (B) will not be — if I can help it — approved in the Senate until we have answers to these questions. I understand that sometimes it is not easy for you, but imagine how difficult it is for us to get answers. I just wanted to reiterate that message.
Mr. Smith: We are writing to the committee this week. We have also been in touch with a number of departments gathering information on these specific questions. We fully intend to be able to respond this week to all of the questions you have asked us. We have been in touch with the clerk and the researcher of the committee and have copied them as well on the letters we have sent to departments to get some of the specifics.
The Chair: We look forward to receiving that information. You understand that the supply bill that flows from Supplementary Estimates (B) cannot pass until we have the report done. We cannot do the report until we get your undertakings.
Mr. Smith: Absolutely.
The Chair: It all builds on one another, and we have this week and next to get that done.
Mr. Smith: Absolutely.
The Chair: Thank you.
Senator Ringuette: On page 10 of your presentation, there is a major decrease in the funding for HRSD. Could you explain what that is?
Mr. Smith: I think I can. There is a $1.9 billion decrease due to the trust account established in 2007-08 for the Indian residential school payments. Some of these changes are somewhat complicated, but there is a net budgetary spending reduction at HRSD of $1.4 billion. Mainly that is due to the way the trust account was established for the common-experience payment under the Indian residential school program.
Senator Ringuette: On page 13, there is a $38 million decrease for ACOA, which is the Atlantic Canada Opportunities Agency. There is $107 million less for the CEDQ. I do not see the status of FedNor or Western Economic Diversification Canada, the two other economic development agencies. Could you explain the decrease in these two and what the relative numbers are for the other two?
Mr. Pagan: In Budget 2006 and 2007, the government committed to major infrastructure commitments and programs. Successively, over the past two Main Estimates, infrastructure programming that had been part of programming in CEDQ, ACOA and Western Economic Diversification is being wound down or otherwise transferred to the new Office of Infrastructure of Canada.
Senator Ringuette: I specifically remember that the kinds of transfer you are talking about was done in 2007-08, so it should not be in 2008-09.
Mr. Pagan: In some cases, there can be a direct transfer "in year'' of responsibility and funding; in other cases, there can be agreements where programming is wound down and then that new programming starts up in the new entity, in this case the Office of Infrastructure of Canada.
For the purposes of the 2008-09 estimates, you are seeing decreases in the opening reference levels of the three regional development agencies, but you are seeing a significant increase of 21.7 per cent in the Office of Infrastructure of Canada because that infrastructure programming is now being administered by that one organization. They still have regional programs, but it is being done by the Office of Infrastructure of Canada.
Senator Ringuette: You are removing responsibility from those economic development agencies?
Mr. Pagan: There is some consolidation of responsibility for infrastructure. Of course ACOA, Western Economic Diversification and CEDQ still undertake a number of other economic development activities in their respective regions. However, for the purposes of infrastructure, there has been a consolidation.
For instance, in 2008-09, we are seeing a major addition to the Office of Infrastructure of Canada in the amount of $327.8 million for the new provincial-territorial infrastructure base funding program. That would encompass many of the infrastructure elements previously done by the regional development agencies.
Senator Murray: I do not want to inspire any regional jealousy, but to be helpful, what the officials are talking about is reflected in a $40-million reduction under grants and contributions, a reduction in ACOA's estimate this year over last; whereas if you look at Western Economic Diversification, there is a $9.7 million increase to them under grants and contributions this year over last.
The Chair: Does that imply that ACOA was doing a lot of infrastructure and the West was not?
Mr. Pagan: I would have to check with ACOA, senator, to be able to break down their actual budget. I was speaking specifically to something else.
Senator Ringuette: This requires our committee to further research these issues. For example, we have been talking about Western Economic Diversification, the Quebec development agency and the Atlantic Canada Opportunities Agency. What is happening with FedNor, the Ontario development agency?
Mr. Pagan: I do not have a material note on FedNor, senator.
Senator Ringuette: Can you send us the information? I understand that you are trying to help us with the numbers, but it is more than numbers here. There are distinct policy trends from the federal government dealing with and giving responsibilities for certain development initiatives, removing them from those agencies and giving them to the provincial governments. There is a trend here, and we need to further investigate what is happening in regard to these Main Estimates.
The Chair: As I pointed out earlier, Senator Ringuette, we have the mandate to investigate these Main Estimates throughout the entire year, and that may be an issue we will want to study more thoroughly. We will have the steering committee look at that as a possible topic, but perhaps it should be reflected in our report that this merits a more thorough investigation.
Senator Ringuette: On page 13 under the heading "Transport,'' we see "Office of Infrastructure/Old Port of Montreal Corporation Inc.'' There is quite an increase in funding. Exactly what is it for and does it include the new train service between Toronto and Peterborough announced by the Minister of Finance?
Mr. Smith: I can address the last question. It does not include the new 2007-08 measure for public transit announced in the budget.
Senator Ringuette: This has nothing to do with public transit?
Mr. Smith: It has nothing to do with the budget initiative on public transit. There is an increase in funding for the Old Port of Montreal of $1.1 million, or 5.9 per cent, due to additional capital operations. There is an increase, as you noted, for the Office of Infrastructure of Canada.
Senator Ringuette: How much?
Mr. Smith: Funding for the Office of Infrastructure of Canada will increase by $437.8 million, mainly in the area of contributions and other transfer payments, so it is mainly in contributions.
Mr. Pagan: The net increase to the Office of Infrastructure of Canada of $437.8 million is essentially comprised of three elements: the new provincial-territorial infrastructure-based funding program I spoke of earlier at $327.8 million; the gas tax fund of $197.5 million; and an increase to the municipal-rural infrastructure fund of $12.6 million. Those are partially offset by a number of adjustments and reductions within the Office of Infrastructure of Canada, but the net is an increase of $437.8 million.
The Chair: Was that last figure, Mr. Pagan, $12.6 million for rural infrastructure?
Mr. Pagan: Yes, a net increase to the program.
Senator Ringuette: On slide 16, there is an increase of 11.7 per cent with respect to Public Safety and Emergency Preparedness. What does that entail? Does it also entail the additional incarceration facilities that will be needed because of the new bill that was passed last week in the Senate?
Mr. Smith: We have a detailed breakdown. There is a series of increases for Public Safety and Emergency Preparedness Canada. Some of the increase is for the Canada Border Services Agency, some for CSIS, the National Parole Board, the RCMP and Correctional Service of Canada. My colleague will try to dig this out, but there definitely are new facilities for Correctional Service of Canada. I am not sure if the one you mentioned specifically is on that list of new facilities.
Senator Ringuette: You seem to have a good briefing document. Could you copy that and give it to the clerk for us to look into further?
Mr. Smith: We have a more complete breakdown of Correctional Service of Canada numbers if you wish to know them.
Senator Ringuette: I want to know where they are going to be and what the costs will be. I want to be able to compare that to how much the cost will be for one item that I do agree with, which is additional policing; so yes, I do want that information.
Mr. Smith: We have the figures for additional policing costs and also for Correctional Service of Canada.
Mr. Pagan: To be clear, the question is the increase to Correctional Service of Canada; is that correct? Is that your interest?
Senator Ringuette: Yes.
Mr. Pagan: The Main Estimates for Correctional Service of Canada are increasing by a net of $304.2 million for 2008-09. Of this amount, $200.5 million is in the operating budget, with the remainder in capital. The major changes in the operating budget are composed of increases to the accommodation plan for the agency as approved in the National Capital, Accommodation and Operations Plan submitted to cabinet, and that accommodation plan is $72.4 million.
There is an increase of $54.4 million to enhance security measures and provide additional resources required for food and medical services due to fluctuations in the number and profile change of federal offenders. There are various costs associated with increased costs in health care delivery and prescription drugs within corrective facilities. An item that has previously come to this committee is the transfer of responsibilities for parole decision administration and supervision from the Government of British Columbia to Correctional Service of Canada. That represents the majority of increases to the operating budget of Correctional Services Canada.
With respect to capital, major changes include $89.2 million to address infrastructure improvements, including facilities renewal and development by adding capacity to existing institutions, and there is $18.9 million in re-profiled funding from the capital vote of 2007-08. That re-profile is approximately $19 million.
I do not have a note on construction of a new facility. The notes suggest that it is improvements to existing facilities and expansion of capacity at those facilities.
Senator Ringuette: We do not know if it includes new facilities?
Mr. Pagan: I do not believe that it includes new facilities, but I will confirm that.
Senator Ringuette: Can you tell us how many additional correctional service officers will be added?
Mr. Pagan: Absolutely.
Senator Ringuette: That is a start to looking at the Main Estimates.
The Chair: Many of the specifics with respect to the questions you were asking can be found in the Main Estimates at page 1-23. I thought I would bring that to the attention of honourable senators. There is still embellishment and further information that Mr. Pagan has been able to give us.
Senator Murray: While we have been discussing the estimates, I have also been eyeballing the budget speech and some other budget documents, principally the budget plan. I want to propose to you and to the steering committee that we take a fairly early opportunity, while we have the estimates before us, to call officials from the Department of Finance. We need to discuss some of the policy and program changes that were announced in the budget. If we call them fairly soon, we can get a head start on the budget implementation bills that are coming inevitably anyway. Given the kind of questions on policy and programs that some of us have, it would neither be practical nor fair to ask Treasury Board officials who are here to discuss the estimates. However, I will ask some of those questions anyway.
The Chair: Thank you for putting that on the record.
Senator Murray: Do you happen to know whether we can expect a budget implementation bill this spring?
Mr. Smith: I would be surprised if we would not have it this spring. I am not aware of any reasons why we would not have it this spring.
Senator Murray: Perhaps we should have finance officials appear before anyway in the near future.
Do you have a note there indicating what the difference is between the present Millennium Scholarship Fund and the new program that was announced in the budget?
Mr. Smith: We do not because it is a budget issue.
Senator Murray: In terms of the increased funds that are going into the new program, they will be in a supplementary estimate?
Mr. Smith: That is correct.
Mr. Pagan: To clarify, I assume that this new program will be either included in the budget implementation act or the subject of its own enabling legislation. Therefore, information will appear as a statutory item. I do not believe that it would be part of the voted appropriation by Parliament. That would remain to be confirmed with the Department of Finance Canada.
Senator Murray: Not this year. It will come under statutory spending?
Mr. Pagan: Yes, statutory spending.
Senator Murray: Right, going forward.
A word about the new Employment Insurance regime: Do you happen to know what the size of the surplus is in the EI fund presently? The technical answer is that there is no such separate fund.
Mr. Smith: The EI fund is consolidated with government expenses, so you are right. Technically, that is the correct answer.
Senator Murray: It does not exist.
There is a lot of history to this matter. As you know, there used to be an EI fund with quite a large surplus. As I recall, the Auditor General told us that we had to include it in the books of the government under "Revenues.'' I would be surprised if it was not in the ballpark of about $50 billion or $60 billion; I may be wrong. We could do the arithmetic by looking at the EI fund under the column "Revenues from EI Premiums'' and then "Expenses.'' For example, this year, if you look at the government expense plan, you will find that Employment Insurance is costing the government $15.1 billion. If you go to the "Outlook for Budgetary Revenues'' in the budget plan, it is $16.5 billion. More than a $1 billion surplus is projected for this year alone. This has been going on for some considerable time.
If I read the plan correctly, going forward, the government will put $2 billion or so into a fund just as a cushion, and surpluses — that is, revenues over expenses in the EI fund — will be invested so that the income will be used when there is a downturn or for EI benefits going forward. It is an interesting concept, but, in view of the size of what I call the surplus that is there now, the government will not give any of that back or invest any part of it except for the $2 billion in the new fund.
Mr. Smith: The fact that the funds would still be consolidated would make this fiscally neutral, if I understand your question correctly.
Senator Murray: Make what fiscally neutral?
Mr. Smith: The change to the EI Crown corporation, the proposed Canada employment insurance financing board. If the funds remain consolidated over all government spending, these changes —
Senator Murray: But I do not think they will, will they? That is not what I read in the budget. Perhaps I have this wrong, but on page 71 of the budget plan, we see "Implementing an improved EI premium rate-setting mechanism.''
Mr. Smith: Funding for the rate-setting mechanism would be in this new Canada employment insurance financing board.
Senator Murray: Yes, under the heading "Improved Management and Governance of Employment Insurance,'' the budget plan states:
To enhance the independence of premium rate setting and to ensure that EI premiums are used exclusively for the EI program, the Government is creating a new, independent Crown corporation, the Canada Employment Insurance Financing Board (CEIFB). It will have the following key responsibilities. . . .
The document then lists the following responsibilities: managing a separate bank account; implementing a new rate- setting mechanism; and maintaining a cash reserve. It then states that the proposed CEIFB will be a Crown corporation that will report to the Minister of Human Resources and Social Development.
Who will have the say about EI programs and EI benefits — not just the money going to the unemployed, but all the related programs now that that are funded under EI? Do you know that?
Mr. Smith: No. This takes us into the realm of HRSDC and the Department of Finance, and we should not really comment on it. I believe this is Crown corporation will report to the Minister of Human Resources and Social Development and will have an independent board of directors. The $2 billion is to provide a separate bank account, and the mechanism for premium rate setting will be established on the basis of that fund, which is established under the proposed Canada employment insurance financing board.
Senator Murray: I think we can get at the policy even in advance of the budget implementation bill, which will presumably set up this Crown corporation or there will be a separate bill to do that.
Senator Ringuette: On the EI issue and the story of consolidation, I think that you are the people who could provide us with information regarding the consolidated fund. In the last 20 years, what has been the consolidated surplus from EI? In addition, with respect to the 1980s and early 1990s, what has been the consolidated deficit from EI and the federal budgets? Could we have that table?
Mr. Smith: The Department of Finance would be the people to ask for that. We can ask on your behalf, if you wish.
Senator Ringuette: Thank you.
Senator Murray: On the issue that Senator Ringuette raised about infrastructure and ACOA, this is another policy question that we want to raise. I do not want to be dogmatic about it, but these regional entities were set up, in particular ACOA, to take charge of the federal role in economic development in that region.
Obviously, a key component of that is infrastructure. In the old days, going well back to DREE, DRIE and ACOA, there were sectoral economic development agreements between the federal and provincial governments in that region, for example, in highways, transport, tourism and fisheries. Those have gone by the board. There are other ways in which the federal government invests its money. Whether it is an improvement to take the infrastructure role away from ACOA and put it somewhere else is something I think we would want to address. We want to look into it and have, I hope, an open mind about it.
The Chair: Will the new Office of Infrastructure of Canada now be looking nationally, as infrastructure is under the Department of Public Works?
Senator Murray: That has always been a problem. One of the reasons we set up the regional agencies in the first place is that in some of the national departments and agencies there tends to be an orientation toward economic activity in the centre of the country.
Mr. Pagan: I indicated previously that successive governments, both Liberal and Conservative, have made quite a commitment to infrastructure programming over the last decade. We see in the 2008-09 Main Estimates a net increase to the Office of Infrastructure of Canada of $438 million. It is fair to say that this reflects a consolidation of infrastructure programming so there can be efficiencies and economies of scale, but that department can speak to that.
That is not to say that the regional development agencies are completely out of the business of infrastructure. If you look at the information for ACOA at page 3-3 of Part II of the Main Estimates, you will see their program activity, architecture and the fact they do have program activity for infrastructure programming that sets out the results they expect to achieve. When we break down the total ACOA budget for 2008-09 of $328.2 million, there remains an infrastructure programming element of almost $1 million. Therefore, they are in the business, but their resources are being supplanted by a considerable increase in another area of government.
Senator Murray: That is fair enough. We would want to look into that with the appropriate ministers or officials. The question is, with regard to Atlantic Canada, who calls the shots on the strategic decisions that will be made on matters such as infrastructure and to what extent ACOA itself has a real role? They are taking money away from ACOA and putting it into this consolidated fund for infrastructure. As I said, I do not want to prejudge it, but we ought to look at it. That is all I say.
The Chair: I made a note of that.
Could you tell us whether the Office of Infrastructure of Canada is under the Department of Public Works or Transport Canada?
Mr. Pagan: It is under Transport Canada.
The Chair: I see it here under "Transport,'' which is normally involved with infrastructure at ports, airports and so forth. Is that all the Office of Infrastructure of Canada does? The other types of infrastructure that you heard Senator Murray talk about, such as tourism, do not fit under transport.
Mr. Pagan: Senator, if we look at the Office of Infrastructure of Canada at page 24-15 of Part II of the Estimates, we see their program description, which includes infrastructure investments. It looks at potable water, wastewater treatment, highways, municipal roads and bridges, transit, cultural and recreational facilities. There is also a reference to infrastructure with environmental implications. It is quite a broad reach, but, again, the department would be in the best position to speak to its priorities.
The Chair: That is helpful, Mr. Pagan, and you are right. We will bring them in and find out what expertise they have in these new areas they are taking over.
Mr. Smith: On page 24-16, you can see the scale of the contribution agreements and where they are also aimed, for example, border infrastructure, municipal-rural infrastructure and Canada Strategic Infrastructure Fund. There is a wide range of initiatives.
Senator Murray: There are some beautiful words in the budget plan about the North: "awe-inspiring beauty,'' "abundant resources,'' "self-reliant individuals,'' "healthy, vital communities,'' "northern tradition of respect for the land,'' and so forth. I presume the writer is being paid by the word. However, there is absolutely no report on any progress regarding a resource revenue-sharing agreement with the Northwest Territories. That has been going on for more than 20 years. It is difficult to explain. Anyway, that is another issue we can talk about.
Finally, in respect of the value of the Crown's share of offshore resources off the Atlantic coast, Mr. Flaherty has indicated that Canada and Nova Scotia agreed a while ago to a committee which has been set up and is working to calculate the value to Nova Scotia of the Crown's share. Naturally, there is speculation in the Nova Scotia media to the effect that this will be a bonanza for Nova Scotia of some hundreds of millions of dollars. I certainly share that hope. Mr. Flaherty was asked about it, and he said that, yes, he knew the negotiations were going forward, and yes, he had made some prudent provisions somewhere or other just in case. Do you happen to know where he has hidden that money?
Mr. Smith: No, senator, I do not.
[Translation]
Senator Chaput: On page 19 of your presentation, I note that the amount of funding allocated to Heritage Canada has decreased. To what can we attribute this decrease in funding, from $119 million to $110 million?
Mr. Pagan: This figure represents the overall Heritage Canada budget. According to my notes, the largest increase in funding in any one area for this department is $18 million.
[English]
This amount goes to the Local Arts and Heritage Events and Activities Program.
[Translation]
An additional $15 million is being provided for official languages program development. A total of $13.7 million is earmarked for Canada's participation in international exhibitions such as Expo 2010 in Shanghai and Canada's possible participation in Expo 2012.
Senator Chaput: These are funding increases. Correct?
Mr. Pagan: Yes. These increases were made possible as a result of $49.5 million in savings resulting from the reprofiling of funds between fiscal years for the construction of facilities for the 2010 Vancouver Winter Games.
Senator Chaput: The five-year Official Languages Action Plan is slated to end in March 2008. In the Budget Speech, no specific amounts were mentioned. The only thing written was "to be determined.''
As I see it, this means that the government has yet to decide how much to allocate in future to this program. Once the departments have decided what program funding levels should be, how will they go about getting this funding, if it is not included here in the Estimates?
Nine federal departments, including Heritage Canada, allocate money out of their budgets to the Official Languages Action Plan. In the past, Heritage Canada allocated a total of $12 million to the Plan, with other departments kicking in various amounts. If overall funding levels have yet to be decided, will the funding come in the form of transfers? How does it work?
Mr. Pagan: Basically, there are three stages to approving a program. First, the department submits the broad outlines of a program to Cabinet. The program in question can involve other departments, or it may be a centralized program. However, the minister has the final say about the program.
Second, a submission is made to Treasury Board and approval of the program specifics is sought. These details include the necessary resources, staff and transfers to other departments.
Finally, Parliament is asked to approve the funding, that is to include an item in the supplementary estimates allocating funding to departments managing this program.
So then, if the specifics have yet to be decided, they may well be included in the next supplementary estimates for the upcoming fiscal year.
Senator Chaput: Generally speaking, how long does this process take? Six months? One year?
[English]
Mr. Smith: In this case, looking at the budget language, the consultation process has just recently been concluded by Mr. Lord, and the budget says that over the next year or so the government will build on previous investments through development of a new action plan that will respond to the needs of official languages. I think it will be more tied to the timing here —
Senator Chaput: Of the final report?
Mr. Smith: — than of our processes for funding.
Senator Chaput: Your process of funding, as a rule, when it is not tied to a report can take what, six months to a year?
Mr. Smith: It will depend on when the issues are ready for funding. We need cabinet approval, Treasury Board approval, before they go into supplementary estimates or Main Estimates. We come in at the end of the process after the policy is pretty much decided.
Mr. Pagan: At this time our supply calendar for fiscal year 2008-09 is at the very beginning stages of development. We do intend on presenting a spring supplementary estimates this year for the first time in several years. That is intended to bring forward to Parliament for approval those programs that have been sufficiently developed since the Main Estimates were initiated in the fall and completed at the end of January.
We would also expect, as per our custom, to table supplementary estimates at some point in the fall. Those would be the two nearest windows for heritage or for any other department to bring forward new proposals.
The Chair: If that is a change in the process, is this peculiar to this year for some reason, or do you anticipate that from here on we should anticipate a supplementary estimate in the spring?
Mr. Smith: Senator, we would like to have a supplementary estimate in the spring on a continuing basis. It will be a very tight time frame because the items have to go through Treasury Board ministers in early April in order to bring the items into Supplementary Estimates (A) to put before Parliament in May. It is very tight, but we do think it will help alleviate some of the funding pressure on departments that have to wait until the fall for funding. I believe it was a recommendation of this committee to try to work with the structures. We will give it a try and we intend to keep it going if it is successful.
The Chair: We will have interim supply from April 1 until June. We will have Supplementary Estimates (A) in that time frame, somewhere between April 1 and June, and then we will have the full supply on the Main Estimates sometime before we adjourn at the end of June.
Mr. Pagan: That is right.
The Chair: This committee will be quite busy visiting with you.
Senator Di Nino: On page 8, the types of payment, there is a reduction of more than $1 billion on the payment you call "public debt.'' I am assuming that is a reduction in interest.
Mr. Smith: Senator, I believe it is more a reduction in the expected stock of interest-bearing debt. There is certainly a reduction in interest rates as well, but I think the stock is probably what is driving this reduction, according to my notes.
Senator Di Nino: For the people out there who may be watching this television broadcast at three o'clock in the morning, what do you mean by that?
Mr. Smith: The cost of these payments on the debt are due to interest rates but also the amount of debt that is outstanding. The amount of debt outstanding is shrinking, and as we make further headway in paying down the debt, that interest bill comes down overall. You can see that the interest bill will come down even if interest rates did not change as long as the stock of debt is declining.
Senator Di Nino: That is precisely what I was trying to get at. In other words, am I to understand that a great deal of that, if not most of that, is due to the fact that the debt has really come down?
Mr. Smith: That is my understanding.
Senator Di Nino: The graphs that you have prepared are very useful and informative, but the meat is really in the Main Estimates. I started to look at some of the details. A large number of the payments are in foreign currencies, U.S. dollars, euros, sterling, Swiss francs. How do you provide for that when are you budgeting and looking at the figures? You cannot foretell what the currencies will be doing. Do you make some provision or do you just accept it as it comes?
Mr. Smith: That is a very good question, indeed, and one probably better for my finance colleagues to try to answer. It is difficult to anticipate these currency changes and to make provisions accordingly for them because of course all our accounts are in Canadian dollars. In some cases we benefit because the Canadian dollar goes up and our payments are in other currencies; therefore, they cost less to us in Canadian-dollar terms. In other cases, a declining Canadian dollar would have the opposite effect, and it is complex and difficult to try to forecast these changes.
Mr. Pagan: There are certain instances where departments are protected from currency fluctuations.
Senator Di Nino: Do you buy instruments?
Mr. Pagan: No, we do not get into arbitrage, hedging or anything of the sort. There is an agreement with the Department of Foreign Affairs and International Trade, of course, because all of their operations are overseas. The purchasing power of the department's budget is protected from currency and inflation fluctuations in foreign countries through an agreement with the Department of Finance Canada that compensates the organization for losses and gains as a result of these adjustments.
This committee will have seen, in the past, the impact of those adjustments, up or down, through supplementary estimates. If the department is in a net or positive position that year, then there are funds available to the department that offset their requirements. If they are in a deficit, then they may come forward seeking a supplementary authority to meet their overseas commitments.
When we speak of major capital projects, major defence acquisitions, computer systems and the like that are in foreign currency, it is a requirement of the major capital project planning process to have a number of reserves, including currency reserves. There is flexibility built into some of these major acquisitions of defence systems and the like that cushion the department — in this case DND — from impacts of currency fluctuations.
Aside from those two specific instances, everything else that we speak of in terms of foreign currency is managed by the Department of Finance Canada.
Senator Di Nino: When you say "cushion the department,'' obviously it does not cushion the total budget expense. We could gain or lose. My question was really related to whether the Department of Finance or Treasury Board, if rates were expected to change that would affect us negatively, would actually be in the market purchasing instruments to reduce the potential downfall. You are saying, no, you do not do that.
Mr. Smith: Senator, I think we should refer this question to our colleagues at the Department of Finance. Looking at page 249 of Annex 2 of the budget plan — and you may not have that with you —
Senator Di Nino: No, I do not have it.
Mr. Smith: — it describes "Foreign Currency Funding'' and the operations of the Exchange Fund Account, which is used to assist in the protection of the external value of the Canadian dollar. There is a quick description of some of the instruments used in foreign exchange markets.
Senator Di Nino: I will take a look at that.
Mr. Smith: I think my colleagues at Department of Finance should address that question.
Senator Di Nino: I had two specific questions when I was going through this interesting book called the 2008-09 Main Estimates. I was struck by one under the heading "Justice'' on page 17-3. There is an 8 per cent reduction in the cost to run the Supreme Court of Canada. I wonder if you could tell us what that relates to.
Mr. Pagan: My notes show a reduction of $2.7 million in the proposed budget due to the completion of a computer upgrade project: modernization of the courtroom, audiovisual, IT project.
Senator Di Nino: It was a capital expenditure that was dealt with, not a reduction in operating cost.
Mr. Pagan: It was a one-time initiative. I am just looking at Justice Canada here. They do not have a capital vote. You only require a capital vote if your requirements are in excess of $5 million. At that level of funding, they would have borne that cost out of their operating program.
Senator Di Nino: It is a one-time expense.
Mr. Pagan: Yes.
Senator Di Nino: On page 11-2, under "Foreign Affairs and International Trade,'' we see the heading "Ministry Summary'' and a note stating:
Payments to Export Development Canada, discharge obligations pursuant to Section 23. . . .
There is about a $600 million reduction from the previous year. What would that be about?
Mr. Smith: I do not know specifically. This is the Canada Account. This is Government of Canada business that is conducted through the Export Development Corporation. These payments do vary from time to time based on the discharge of obligations one way or another. It may be the end of payments for a particular project. In other cases it may be an increase in payments being conducted through EDC, which comes in under Foreign Affairs and International Trade for Canada's business. Some of these are long-term projects. We would have to drill down to know exactly the reasons or variety of factors that may have resulted in that reduction.
Senator Di Nino: Is this payment of insurance, in effect, for particular transactions gone bad?
Mr. Smith: I do not know. I do not believe so, but we can try to find out more about this. I think these estimates through Canada Account do tend to move around quite a bit, depending on the previous financings of various things over the years and large exports that EDC has undertaken for us.
Senator Di Nino: When do you actually account for capital expenditures: at the point of commitment or on a cash basis?
Mr. Smith: This takes us back to accrual accounting again. In these estimates, we are accounting in cash for capital assets. If a capital asset is purchased, the purchase price shows up in the Main Estimates in the year in which the purchase was made.
On an accrual basis in the budget, that asset is amortized over time. If it is a $1 million purchase over a 10-year lifetime, it would show up as one-tenth of the purchase price. We are dealing with cash accounts here and cash appropriations still. Therefore, capital is still recorded on a cash basis.
Senator Murray: I will not ask a question of the officials with regard to the community development trust. However, I am reminded that when the Deputy Minister of Intergovernmental Affairs was here some weeks ago, he undertook to provide a progress report that we would like to see. I would like to know whether the trustee has been selected for this $1 billion fund that is to be distributed among the provinces over a three-year period to come to the aid of workers and communities that have been hard hit by economic downturn, whether the trust has been set up and whether other provinces — in addition to New Brunswick and Saskatchewan — have signed on.
If your staff would get in touch with intergovernmental affairs and see if we can get that material before the supply bill comes in, I might be moved to make a speech congratulating the government on its efficiency and alacrity and apologize for suggesting, as I did, that the tulips would be blooming before much of the money found its way into the hands of the designated beneficiaries.
The Chair: You will recall, Mr. Smith and Mr. Pagan, that that question was raised at your last appearance here. I would like to confirm that the $1 billion is not in the Main Estimates for next fiscal year but came out of the fiscal year just ending, 2007-08; is that correct?
Mr. Smith: That is correct. That is our understanding. The Minister of Finance and the Deputy Minister of Intergovernmental Affairs were here and provided testimony on this subject.
My understanding is, and the budget confirms it, that this is to be 2007-08 spending as opposed to 2008-09.
The Chair: Would you be aware whether the money has flowed from the consolidated fund of the Government of Canada to a trustee at this stage?
Mr. Smith: I am not aware of that. I do not think that has occurred yet.
The Chair: It has not occurred yet?
Mr. Smith: To my knowledge, it has not occurred yet.
The Chair: Further information in that regard would be helpful because we are coming up to closing out the fiscal year. This committee will file a report in that regard. We still have some outstanding issues and would like to find out what is happening.
Mr. Smith: I believe the Deputy Minister of Intergovernmental Affairs undertook to come back to the committee with some information on progress, as Senator Murray said. They are the responsible body.
The Chair: We understand that from a policy point of view. From the point of view of cash flowing from the government, you are the people we ask and the ones who keep us informed. Notwithstanding your comment, again, if you learn of any money flowing, we would be interested in knowing that.
Mr. Smith: I understand, senator.
The Chair: This concludes this meeting of the Standing Senate Committee on National Finance. We thank Mr. Smith and Mr. Pagan for representing the Treasury Board Secretariat and helping us out. We did not get into the question as to why the appropriation for Treasury Board Secretariat is a significantly larger amount of money, but we believe that is because of the change in accounting and the cross-department issue.
Mr. Pagan: To clarify, as you recall, through supplementary estimates in 2007-08, two new central votes were created: one for an operating budget carry forward of $1.2 billion and one for departmental pay list requirements of $500 million. Parliament has approved those votes and monies were allocated to departments in 2007-08. They are showing up in the Main Estimates for the first time. That accounts for the $1.7 billion increase to Treasury Board, but it is not Treasury Board money. It is money that will be allocated directly to departments once their requirements have been confirmed by ministers.
The Chair: Our understanding is that the increase is due to the new cross-department vote. I just thought it important to put that comment on the record because we did not want to have you appear before us and forget to question you on that significant increase in your appropriation.
The committee adjourned.