47 Elizabeth II, A.D. 1998, Canada

Journals of the Senate


Issue 48 - Appendix

Tuesday, March 24, 1998
2:00 p.m.

The Honourable Gildas L. Molgat, Speaker


Tuesday, March 24, 1998

The Standing Senate Committee on National Finance has the honour to present its

THIRD REPORT

Your Committee, to which were referred Supplementary Estimates (B), 1997-98, has, in obedience to the Order of Reference of Wednesday, March 18, 1998, examined the said estimates and herewith presents its report.

Your Committee held meetings to review these supplementary estimates on Wednesday, March 18 and Thursday March 19, 1998, at which officials of the Treasury Board Secretariat appeared as witnesses. Two additional explanatory tables provided by the Treasury Board form part of this report. Together they summarised the major changes in the federal government's financing requirements in fiscal 1997-98. The first table, entitled: Summary of Expenditure Framework and Estimates for 1997-98 displays the various totals as they appeared in the three major financing documents: the Main Estimates, 1997-98, the Supplementary Estimates (A), 1997-98 and the Supplementary Estimates (B), 1997-98. The second table entitled: Supply to Date for 1997-98, shows the three Appropriation Acts passed in fiscal 1997-98, and their respective amounts. It also shows the amount sought in the present Supplementary Estimates.

Supplementary Estimates (B) are the second and last supplementary estimates of the 1997-98 fiscal year that ends on March 31, 1998. While the Supplementary Estimates (A) called for an increase of $3,478.1 million, the Supplementary Estimates (B) report a $3,848.6 million reduction in requirements. This brings the final Estimate for 1997-98 to about $149.2 billion, which is below the original estimate of $149.6 billion. Of the total estimates of $149.2 billion only 31.3% or $46.6 billion of this total final estimates was subject to a vote. The balance ($102.6 billion) is composed of statutory expenditures, mostly ($102.3 billion) in statutory budgetary expenditures.

Mr. Richard Neville, assistant secretary, Expenditure Management Sector, made an opening statement in which he outlined some of the significant changes contained in these Supplementary Estimates. He also responded to questions from the Members of the Committee. In his opening statement, Mr. Neville noted that these estimates contained about $1.1 billion of unforeseen expenditures that required Parliaments attention. It also contains several changes in projected statutory items.

Among the major items requiring parliamentary approval he included $148 million for three departments and agencies in relation to the recent ice storm in central and eastern Canada. Another major item requiring approval was a total of $121.8 million for eleven departments and agencies relating to departure incentives for public service employees. A final example of a major item for which appropriation is sought is the $118.8 million that fourteen department and agencies want to carry forward to meet operational requirements originally provided for in 1996-97. This feature allows government managers to carry forward from one fiscal year to the next an amount of up to 5 per cent of the operating budget of the previous fiscal year. Altogether, Mr. Neville highlighted major changes that accounted for $816.6 million (or 77%) of the $1.1 billion that requires approval from Parliament.

Mr. Neville also highlighted the largest change in the statutory expenditures, which involves a $4.5 billion decrease in the public debt charges. He identified three components to this debt charge: the interest charge on the government's long-term bond debt, the level of net borrowing requirements and the cost of borrowing from the public service pension plan. After his opening statement, the Committee member had several questions for Mr. Neville.

One item of interest to the Committee was the $21 million listed under Professional and Special Services in the Department of Justice. This amount is in addition to the increase of $9 million reported in the Supplementary Estimates (A) 1997-98. The Treasury Board official explained that this amount was for computer software development required for implementation of the Firearms Act. He noted that normally it is difficult to identify the type of professional services that might be paid under this item because the government essentially classifies all professionals as consultants. In this instance he was personally familiar with this item and could identify the type of service that was purchased. Mr. Neville explained that the ongoing need to adjust cost for this item is because the program's implementation cost could not be precisely forecast. He reminded the Committee that the Minister had already indicated that the Canadian Firearms Registration System would cost $85 million over five years starting in 1995-96 and a further $33.9 million in other costs for Bill C-68. It is the rate at which this total $118.9 million will be spent over five years that cannot be precisely known. Hence there will be items like the $21 million in the Justice department that will arise as the Firearms Act is actually implemented. It should be clearly understood that this item does not include the cost of professional service provided by the regular employees of the department.

The Committee observed that there was a $37.2 million increase in cost relating to reduced airport lease revenues. Mr. Neville explained that there are several factors that contributed to the overall reduction in projected airport lease revenues including: increases in payments in lieu of taxes, decrease in passenger volume, the timing of payments, accelerated transfers, and chattel sales. He then proceeded to explain, in some detail, how each of these factors affected the government's lease revenues.

The Committee was also interested in obtaining further information on the recently announced Millennium Fund. It learnt that this new initiative has a time line that extends for several years. The accounting for this initiative, based on the government's policy, will be to account for it in the 1997-98 fiscal year, subject to a number of conditions. However, an actual request for appropriation must go through Parliament and will likely appear in the Supplementary Estimates or the Main Estimates. The earliest that this could happen is in the 1998-99 fiscal period.

Under Vote 10b, the Canadian Heritage Department is seeking an additional appropriation of $36.2 million. This spending authorisation is sought to provide financial support to a number of private and public groups. One of the largest items in this vote is the $16.5 million sought to provide increased support for the 1999 Pan American Games in Winnipeg. Committee members were interested in the criteria used to determine the level of federal funding that will be available for hosting an international sporting event. Mr. Neville explained that the criteria have only recently been developed, whereby the federal government will commit itself to 35% of eligible costs. In the case of the Winnipeg Pan-American games, the total cost is expected to reach $145 million and the federal portion will be $53.5 million. This is slightly greater than 35% because the commitment to Winnipeg was given prior to the formulation of the new criteria.

The Department of Industry is requesting an additional $55.2 million for the Canadian Network for the Advancement of Research, Industry and Education (CANARIE). Mr. Neville explained that this is a longstanding initiative OF THE Department that seeks to enhance research and development in Canada's information network.

In the Department of Finance's Vote 6b, the department seeks to authorise the forgiveness of certain debts and obligations amounting to $49.4 million. Specifically, this involves funds owed to Canada by the Government of the Republic of China. The amount involves the unpaid principal of a loan made to the pre-communist Government of the Republic of China. In response to member's questions Mr. Neville stated that the government does not believe that it will ever recover this principal amount and it is therefore a bit misleading to continue to carry it on the books as an asset of the Government of Canada. He also indicated that the accumulated interest on the loan stood at about $71 million. The communist government of China has never acknowledged any indebtedness incurred by pre-communist governments. Because after 50 years, the Canadian government has failed to collect any portion of this debt, it was decided to write-off the loan.

The Department of Finance has in the last two fiscal periods reported large declines in the funding that it would require in order to pay the public debt charges on government debt. The Committee was curious as to why the Department has not been able to provide more accurate forecast on this expenditure item? Mr. Neville responded by noting that the public debt charge has three component that account for the recent $4.5 billion error in the original estimate of 1997-98 public debt charges. The first component involves forecasting the level of interest rate in the country. In this case the Department anticipated a somewhat higher level in 1997, which led to an overstatement of $1 billion in its requirements for public debt charges. An error of about the same magnitude occurred because the Department also misjudged the governments net borrowing requirements in 1997. However, the largest component of the decrease in public debt charges arose because of a change in accounting practices involving the public service pension plan. Each year the government pays interest on the amount of money it owes to the public service pension plan. The book value of the pension plan was found to considerably exceed the actuarial amount needed for the government to meet its obligation to the plan. It was decided to reduce the value of the plan to the lower level. This change in the book value of the plan has a significant effect on the amount of debt charges that the government would have to pay into the plan. In 1997-98, this amounted to $2.5 billion.

Under Vote 26b, the Canadian International Development Agency is seeking the authority to write-off $23.5 million in debts owed to Canada by four central American countries, namely Honduras, Nicaragua, Costa Rica, and Columbia. Treasury Board officials explained that these amounts are related to the Latin American Debt Conversion Agreement which allows Latin American countries to pay off certain international debts using their own currencies provided that the loans are to fund sustainable development projects. In this case, these four countries have repaid a sufficient amount of their obligations to qualify for the requested level of debt forgiveness.

Mr. Neville attempted to bring the Committee up to date on the cost of providing relief assistance to those parts of Canada affected by the January ice storm. He explained that the current estimated costs of the ice storm stood at $148 million and that the government was presently committed to paying as much as $336 million. He also provided details on how these amounts will be divided among the three affected provinces: Ontario, Quebec and New Brunswick.

Finally, the Committee was interested in knowing how government regulations contributed to increased costs in the operations of departments. Although Mr. Neville could not provide an immediate answer to this question, he did commit himself to obtaining an answer as soon as possible. Although the Committee accepted Mr. Neville commitment, it took opportunity to remind him that for quite some time it has attempted to obtain information on the federal expenses relating to Mr Mulroney's lawsuit. In that matter, the Committee has sought to determine the amount spent, not only to settle the suit, but also the expenses incurred by the various government departments and agencies involved in preparing the government's case. To date it is the Committee's view that the responses that have been provided are unsatisfactory. Mr. Neville acknowledged that this was a long standing request from the Committee and that he would endeavour to obtain the best possible answer to this question.

Respectfully submitted,

ANNE C. COOLS

Deputy Chair


SUMMARY OF EXPENDITURE FRAMEWORK AND ESTIMATES FOR 1997-98

Expenditure Framework:

Budgetary Main Estimates $149.2 billion
Budgetary Estimates to Date $148.8 billion
Projected Budgetary Expenditures $147.5 billion

ESTIMATES TO DATE FOR 1997-98

To be voted

Statutory

Total 
(in thousand of dollars)

MAIN ESTIMATES

Budgetary 42,826,320 106,367,900 149,194,220
Non-budgetary 128,591 232,500 361,091

42,954,911

106,600,400

149,555,311

SUPPLEMENTARY ESTIMATES (A)

Budgetary 2,610,514 858,230 3,468,744
Non-budgetary 9,340 0 9,3 40

2,619,845

858,230

3,478,084

SUPPLEMENTARY ESTIMATES (B)

Budgetary 1,051,228 (4,909,638) (3,858,410)
Non-budgetary 7,869 1,975 9,844

1,059,097

4,907,663

3,848,566

TOTAL ESTIMATES TO DATE

Budgetary 46,488,063 102,316,492 148,804,555
Non-budgetary 145,800 234,475 380,275

46,633,863 102,550,967 149,184,830

SUPPLY TO DATE FOR 1997-98

Two Appropriation Acts have been approved in respect of the Estimates for 1997-98.

Supply Approved to Date:

Appropriation Act No. 1, 1997-98

Granted Interim Supply for the 1997-98 Main Estimates
equal to an initial allocation of 9/12ths for all
votes plus 21 additional proportions
$33,194,135,278.65

Appropriation Act No. 2, 1997-98

Supply for the balance of Main Estimates 1997-98 $ 9,760,775,795.65
Supply for the whole of Supplementary Estimates (A) $ 2,619,854,331.00
Total Approved to Date $45,574,765,405.00
Supply Awaiting Approval:

Supply for the whole of Supplementary Estimates (B) $ 1,059,097,034.00
Total for 1997-98 $46,633,862,439.00