Journals of the Senate
53 Elizabeth II, A.D. 2004, Canada
Journals of the Senate
3rd Session, 37th Parliament
Issue 22 - Appendix
Tuesday, March 23, 2004
2:00 p.m.
The Honourable Daniel Hays, Speaker
Tuesday, March 23, 2004
The Standing Senate Committee on National Finance has the honour to present its
SIXTH REPORT
Your Committee, to which were referred the 2004-2005 Estimates, has, in obedience to the Order of Reference of February 26, 2004, examined the said estimates and herewith presents its first interim report.
Respectfully submitted,
LOWELL MURRAY
Chairman
INTERIM REPORT ON
2004-2005 ESTIMATES
INTRODUCTION
The 2004-2005 Estimates were tabled in the Senate on 24 February 2004 and referred for review to the Standing Senate Committee on National Finance. Several meeting dates have been set aside for the review of the 2004-2005 Estimates, beginning with an initial examination on 9 March 2004. At this meeting, officials of the Treasury Board Secretariat outlined the federal government's planned spending and explained the main features of these Estimates. Appearing from the Treasury Board Secretariat was Mr. Mike Joyce, Assistant Secretary, Expenditure Management and Strategies Sector. He was accompanied by: Ms. Susan Cartwright, Assistant Secretary, Government Operations Sector; Ms. Daphne Meredith, Assistant Secretary, Economic Sector; Mr. Bill Austin, Assistant Secretary, Social and Cultural Sector; and Ms. Laura Danagher, Executive Director, Expenditure Operations and Estimates Directorate. In addition to their presentation, which outlined and explained the main features of the 2004-2005 Estimates, the officials responded to the Committee's initial concerns about the government's planned spending for the new fiscal year.
A second hearing was held on 10 March 2004, at which the Honourable Reg Alcock, P.C., M.P., President of the Treasury Board, answered additional questions raised by the Senators.
This report is the Committee's First Interim Report on the 2004-2005 Estimates. The Committee intends to examine certain aspects of these Estimates in greater depth at a later date and to submit further reports. The Committee will present a final report on its work before the end of the fiscal year 2004-2005.
THE 2004-2005 ESTIMATES
There are four components to this year's Estimates. They include PART I — The Government Expenditure Plan, which provides an overview of federal spending by summarising the key elements of the Part II — Main Estimates and by highlighting the major changes. PART II — Main Estimates, which is traditionally referred to as the Blue Book, directly supports the Appropriation Act, lists the resources that individual federal departments and agencies require for the upcoming fiscal year. It also identifies the spending authorities and the amounts to be included in subsequent appropriations. Since 1997, PART III has been divided into two sections. The Report on Plans and Priorities (RPP) provides additional details on more strategically oriented planning and results for each of the departments and agencies. It focuses on outcomes expected from federal government spending activities. The 2004-2005 RPPs are to be tabled in Parliament on 27 May 2004. The Departmental Performance Report (DPR) focuses on results-based accountability by reporting on accomplishments achieved against the performance expectations and results commitments as set out in the Report on Plans and Priorities. The DPRs are normally tabled in Parliament in the fall of each year.
The 2004-2005 Estimates present information on both budgetary and non-budgetary spending authorities. Budgetary expenditures include: the cost of servicing the federal public debt; operating and capital expenditures; transfer payments to other levels of government, organizations or individuals; and payments to Crown corporations. Non-budgetary expenditures (i.e., loans, investments and advances) are outlays that represent changes in the composition of financial assets of the Government of Canada.
Of the $186.1 billion set out in the 2004-2005 Estimates, $121.0 billion, or 65.0%, are statutory expenditures. The remaining $65.1 billion require Parliamentary approval. In these Estimates, 25 federal departments or agencies plan to spend more than $1 billion in fiscal year 2004-2005. The three largest budgets belong to the Department of Finance ($69.1 billion), the Department of Human Resources Development (Social Development) ($28.6 billion) and the Department of National Defence ($13.3 billion).
The table beginning on page 1-28 of the 2004-2005 Estimates, entitled "Budgetary Main Estimates by Standard Object of Expenditures,'' divides the spending plans of all federal departments and agencies among 12 categories of expenditures. The summary enables a quick comparison of spending intentions among the various agents of the federal government. For instance, although the Department of Finance is requesting the largest appropriation, most of its budget (52.5%) is composed of "public debt charges,'' an item that occurs in no other department's spending plans.
THE GOVERNEMENT EXPENDITURE PLAN — AN OVERVIEW
The Minister of Finance's 2003 Economic and Fiscal Update sets out the federal government's budgetary expenditure plan that amounts to $183.3 billion. That plan includes $147.1 billion in program spending and public debt charges of $36.2 billion. It should be noted that:
A number of items do not appear in the Estimates because of timing in federal Budget decisions or because they depend on the passage of separate legislation;
The Estimates do not include funds that are set aside within the Government Expenditure Plan for operating contingency purposes or for items that are still subject to Parliamentary or Treasury Board approval.
The Estimates do not include the provisions for the revaluation of federal government assets and liabilities as stipulated in the Economic and Fiscal Update.
Some spending authorities in the Estimates are expected to lapse.
Overall, spending in the 2004-2005 Estimates has increased by $10.1 billion relative to the 2003-2004 Estimates. Major items that account for this increase include the following:
(1) Major transfers to other levels of government ($3.3 billion increase, all in the Department of Finance):
$1.5 billion increase for the new multi-year statutory Health Reform Transfer;
$1.2 billion increase for the Canada Health and Social Transfer;
$0.5 billion increase for increased fiscal equalization payments to the provinces and payments to the territorial governments; and
$0.1 billion decrease in recoveries from the Youth Allowance Recovery and Alternative Payments for Standing Programs.
(2) Major transfers to persons (a net increase of $1.0 billion):
$1.1 billion increase for elderly benefits due to increases in Old Age Security and Guaranteed Income Supplement payments; and
$0.1 billion decrease for the statutory downward adjustment to the forecast of net Employment Insurance (EI) benefits and offset by increased costs of EI administration as reported in the Consolidated specified purpose account.
(3) A reduction in public debt charges of $1.4 billion.
(4) Direct program spending ($7.4 billion increase as a result of increases of $3.7 billion in transfer payments and subsidies, $0.2 billion in payments to Crown corporations and $3.5 billion in operating and capital expenditures) including:
$1.0 billion increase to ease pressures on the defence budget;
$800 million increase for initiatives in support of the Agricultural Policy Framework;
$600 million increase for development assistance activities;
$600 million increase for public service employee benefit plans;
$500 million increase for grant and scholarship programs;
$500 million increase for on-going programs, including the implementation of the First Nations Management Strategy and the settlement of certain claims and adjustments; and
$400 million increase to support improvement projects under the Border Infrastructure Fund and the Canada Strategic Infrastructure Fund.
An overview of planned federal expenditures is provided in Table I. The information in Table I is organized differently on page 1-2 of the 2004-2005 Estimates.
Table I
The Government Expenditure Plan and
Main Estimates 2004-2005*
(In million of dollars)
| Operating and capital expenditures | 42,700 |
| Public debt charges | 36,200 |
| Elderly benefits | 27,900 |
| Canada Health and Social Transfers | 20,500 |
| Employment Insurance | 15,500 |
| Other transfers and subsidies (net) | 24,100 |
| Fiscal equalization | 10,900 |
| Other obligations | 5,400 |
| Total budgetary Main Estimates | 183,300 |
| Adjustments to reconcile with Budget | 0 |
| Total budgetary expenditures | 183,300 |
* Forecast expenditures for 2004-2005 are consistent with total planned spending as provided in the 2003 Economic and Fiscal Update.
Source: 2004-2005 Estimates, page 1-2.
CHANGES TO FEDERAL GOVERNMENT ORGANIZATIONS AND STRUCTURE
During 2003-2004, the federal government announced a series of reorganizations of the structure of certain federal departments. These changes are listed on pages 1-73 to 1-80 of the 2004-2005 Estimates. While all changes in the federal government's spending plans are of interest to members of the Standing Senate Committee on National Finance, a number of changes that affect the work of the Treasury Board Secretariat are perhaps more significant because of the Committee's long-standing interest in the workings of the Treasury Board Secretariat (TBS) and in all matters that affect the federal public service.
Effective 12 December 2003, the functions and mandate of the Treasury Board Secretariat have been amended. The TBS, which provides advice and support to Treasury Board Ministers, has had its function and structure streamlined to reflect the Treasury Board's focus on ensuring value for money as well as providing oversight of the financial management functions in federal departments and agencies. The Secretariat also plays a role in ongoing expenditure review.
One change to the operations of the TBS involved adding the Human Resources Modernization Implementation Secretariat, located in the Human Resources Management Office of the TBS, to Schedule I.1 of the Financial Administration Act and renaming it the Public Service Human Resources Management Agency of Canada. The Agency will include the following portions of the TBS:
The Human Resources Management Office (except the Labour Relation and Compensation Operations Division, the Risk Management (Human Resources) Division, the Pension and Benefits Division, and the Compensation Planning Division);
The Official Languages Branch;
The Office of Values and Ethics; and
The Public Service Integrity Office.
The control and supervision of the new Agency has been transferred from the President of Treasury Board to the President of the Queen's Privy Council for Canada.
Another change to the TBS was to transfer the Chief Information Officer Branch to the Department of Public Works and Government Services.
The Comptroller General was also established as a distinct office in the Treasury Board Secretariat to ensure that federal expenditure plans are sound. The federal government directed that the Comptroller General be given functional authority over, and be involved in, the staffing of the comptroller positions in federal departments and agencies. The departmental comptrollers are directed to approve all departmental spending proposals before they are submitted to Cabinet for approval.
Another change introduced in December 2003 that will affect the work of the Treasury Board Secretariat is the creation of the Expenditure Review Committee. This Cabinet Committee was created to conduct a fundamental review of all federal programs and expenditures to ensure that spending remains under control and closely aligned with the evolving priorities of the federal government. The President of the Treasury Board, the Honourable Reg Alcock, P.C., M.P., chairs the Expenditure Review Committee. The Committee is expected to report on its review of all federal government spending by the fall of 2004. While the Treasury Board will continue to deal with federal government spending proposals and management issues on an ongoing basis, the Expenditure Review Committee will conduct a full-scale review of spending. A secretariat, established within the Treasury Board Secretariat, will provide support to the Expenditure Review Committee.
TWO SETS OF ESTIMATES FOR 2004-2005
At the meeting on 9 March 2004, Mr. Joyce informed the Committee that the Treasury Board Secretariat intends to submit revised 2004-2005 Estimates before the end of June 2004. He gave two reasons for this unusual event. The first reason is that the Secretariat will incorporate the final numbers for the resource discussions that are taking place as a result of the 12 December 2003 restructuring of the federal government's departments and agencies. The second reason is to take the opportunity to incorporate additional spending authorities that may result from the 2004 federal Budget, which this year is being tabled after the current set of Estimates. As a result, the revised Estimates will more completely reflect the federal government's spending plans and should reduce the need for subsequent Supplementary Estimates.
Some Senators questioned whether the Treasury Board Secretariat's new timetable with respect to the Estimates would fit with the traditional Estimates schedule of Parliament. A specific concern was that, notwithstanding the possibility of a federal election in the spring of 2004, by the time the Reports on Plans and Priorities and the revised 2004-2005 Estimates are made available, the initial 2004-2005 Estimates will already have been examined by the relevant Parliamentary committees and, according to the rules of the House of Commons, will be deemed to have been reported. Mr. Joyce acknowledged this concern but argued that the Treasury Board Secretariat is attempting to strike a balance between getting the information before Parliament as soon as possible and ensuring that the Estimates are accurate.
EXAMINATION OF THE 2004-2005 ESTIMATES
A. Department of Justice
Some Senators questioned the Department of Justice request seeking $493.8 million under its Vote 1 for "Government Client Services.'' The request represented an increase of 92.7% over the 2003-2004 Estimates. Ms. Cartwright explained to the Committee that the increase was related to granting, to the Department of Justice, Parliamentary authority to spend revenues it received from other federal departments and agencies for legal services. According to Ms. Cartwright, following an expenditure and management review conducted by the Treasury Board Secretariat in 2003, it was discovered that the Department of Justice's practice of spending the revenues it received from federal clients resulted in the department spending more than its annual appropriation. In order to address the need for an authority to re-spend these revenues but continue to provide legal services to other federal departments, the Treasury Board Secretariat proposed an interim solution that would see the Department of Justice deposit all recovered revenues to the federal Consolidated Revenue Fund. Only upon proof of deposit would the Department of Justice be able to draw against this increased appropriation. Ms. Cartwright insisted that although this measure does appear in the 2004-2005 Estimates as an increase to the appropriation for the Department of Justice, the measure is revenue-neutral. It should be noted that Senators first detected this measure in the Supplementary Estimates (B), 2003- 2004.
In response to questions about the process by which federal departments and agencies recover costs internally, officials from the Treasury Board Secretariat reminded the Committee that the principle of internal cost recovery is one where the federal departments look at whether it is appropriate to charge for particular services rendered. There is currently a schedule of rates that guides federal departments on cost recovery.
Under the rubric of Law and Policy, Department of Justice contributions to the provinces to assist in the operation of legal aid systems has increased 51.6% compared to the 2003-2004 Estimates. The 2003-2004 Estimates amount included $2.5 million for Public Security and Anti-Terrorism (PSAT) Legal Aid. Some Senators requested more details on this initiative and wished to know whether it was responsible for the increase in contributions to the provinces. Ms. Cartwright responded that, in December 2001, an annual legal aid fund of $2.5 million was set up to assist jurisdictions in funding legal cases arising from the implementation of the Anti-terrorism Act (formerly Bill C-36). The officials confirmed that the PSAT initiative was responsible for most of the increase in contributions to the provinces.
B. Canadian Tourism Commission
Some Senators noted that funding through appropriations for the Canadian Tourism Commission in 2004-2005 is reduced by almost $5 million compared to the 2003-2004 Estimates. These Senators wished to know if this reduction reflected federal government confidence that tourism in Canada is rebounding and will remain strong. Ms. Meredith told the Committee that 2004-2005 appropriations for the Canadian Tourism Commission were lower compared to the previous year because the Commission received special one-time injections of funding totalling almost $16.5 million in 2003-2004 to address the downturn in the tourism sector related to Severe Acute Respiratory Syndrome (SARS). Ms. Meredith reported that, according to Canadian Tourism Commission forecasts, most of Canada's major travel markets should grow in 2004, though they will not have a full economic recovery before 2006. Still, some reports warn that lingering concerns over SARS and a strengthening Canadian dollar will continue to pose challenges for Canadian travel markets.
Ms. Meredith also told the Committee that some initiatives aimed at stimulating the Canadian tourism and hospitality sector will continue into 2004-2005. These initiatives include $1.5 million in marketing funds devoted to the "I Can'' domestic campaign, as well as $1.6 million in marketing funds for the Canadian Tourism Commission's "leisure marketing program'' to stimulate the lagging market recovery in the short haul market from American border states.
C. Industry Canada
Some Senators made inquiries with respect to the "Contributions under the Softwood Industry and Community Economic Adjustment Initiative,'' which will receive more than $72.3 million in 2004-2005 under Industry Canada. Officials from the Treasury Board Secretariat explained that the amount listed in the 2004-2005 Estimates is the unspent remainder of a $110 million program that was funded through the Supplementary Estimates (A), 2003-2004. The appropriation, which has already been approved by Parliament, was not spent in the expected timeframe and has been carried forward into the next fiscal year, a process called "reprofiling.'' Officials from the Treasury Board Secretariat acknowledged that the information contained in these Estimates was insufficient for Senators to ascertain that the $72.3 million had already been approved by Parliament. The officials offered to re-examine how the Treasury Board Secretariat might further improve their presentation of this type of information. The officials were unable to provide Senators with details of how much was actually distributed to the various regions in 2003-2004 and how much was expected to be distributed for 2004-2005. Ms. Meredith promised to send this information to the Committee at a later date.
D. Atlantic Canada Opportunities Agency
In response to questions on the Atlantic Canada Opportunities Agency's (ACOA) request for new appropriations of $30 million to provide a contribution for the Saint John Shipyard Adjustment Initiative, Ms. Meredith replied that the program was established in 2003 to close and redevelop the Saint John Shipyard site for long-term economic use. According to Ms. Meredith, the initiative is made up of two separate programs. The first is an $8 million redevelopment program to prepare the site for another industrial activity. The second is a $22 million industrial diversification program to facilitate the transition to the new activity. Ms. Meredith was not certain whether the federal government was the sole contributor to the project, but made it clear that the province of New Brunswick was not providing any funding.
Another question raised by Senators was related to the ACOA and the Enterprise Cape Breton Corporation. Some Senators asked why $520,000 in loan repayments, interest and other income was being debited from Enterprise Cape Breton Corporation's budgetary requirements without an offsetting credit appearing anywhere else under the ACOA. The officials from the Treasury Board Secretariat were unsure where these offsetting loan arrangements appeared in these Estimates but agreed to respond to the Committee at a later date.
E. Department of the Solicitor General
(Public Safety and Emergency Preparedness)
Some Senators made inquiries about the amount the Canadian Firearms Centre would be spending on professional and special services and who the recipients of these contracts would be. These Senators also wished to know what revenues the Canadian Firearms Centre would be generating to offset some of the costs. Ms. Cartwright reported that the professional services budget is expected to be approximately $54 million in the 2004-2005 Estimates, largely in support of two contracts for technology systems that enable registration and licensing work. Smaller amounts from the professional services budget will fund a wide range of other services, similar to other federal departments and agencies, such as translation. Due to time limitations, the officials from the Treasury Board Secretariat undertook to send greater details about the suppliers of these professional services and the revenues the Canadian Firearms Centre is expected to generate.
DISCUSSIONS WITH THE HONOURABLE REG ALCOCK, P.C., M.P., PRESIDENT OF THE TREASURY BOARD
In his opening remarks to the Committee, Minister Alcock spoke about the altered structure of the Treasury Board Secretariat following the transfer of certain federal program-related items, such as the Official Languages Branch, the Office of Values and Ethics, the Public Service Integrity Office and the Human Resources Management Office, to the Privy Council Office. Minister Alcock outlined the mandate of the Treasury Board, which now includes re-establishing a distinct Comptroller General Office and a system of comptrollership in Canada, chairing the federal Cabinet's Expenditure Review Committee and maintaining the labour-management function at this time. In addition to these responsibilities, the Treasury Board will be undertaking three studies relating to: (1) the governance of Crown corporations, (2) the provisions of the Financial Administration Act, and (3) the responsibilities and accountabilities of federal Ministers and senior public servants. The Minister indicated that Professor Donald Savoie would be invited to the Treasury Board Secretariat as this year's Simon Reisman Fellow and would assist and advise senior officials on these issues.
With respect to expenditure review, Minister Alcock outlined the components of the process to Senators. First, similar to program review, federal departments are to be assessed against a set of criteria. A second set of criteria will look at the sustainability of certain changes. Finally, departmental activities will be reviewed horizontally — that is, services that are delivered by a number of federal departments to certain client groups will be evaluated for their accountability and the value they provide. This third review applies to operational activities (e.g. procurement, asset management, contracting services, etc.) as well as to federal government programs. The Minister informed the Committee that a report on these reviews would be released in November or December 2004.
Senators were interested in a number of items relating to these Estimates as well as to the changes to the Treasury Board structure. For instance, Minister Alcock was asked to explain the timing of the release of the Estimates, specifically the Supplementary Estimates (A), 2003-2004 and the 2004-2005 Estimates, which are to be revised later in the year. Some Senators were concerned that the timing of these documents was a result of political considerations rather than for the purpose of providing Parliamentarians with needed information. Minister Alcock responded that the unusual timing of recent Estimates documents and the forthcoming release of revised 2004-2005 Estimates reflects the substantial changes that have recently taken place within the federal government. The Committee was assured that the revised 2004-2005 Estimates are intended to provide greater accuracy following the adjusted resource allocations among federal departments.
Some Senators raised the issue of the Treasury Board Secretariat's role in federal public service modernization. Specifically, Minister Alcock was asked how much support the Treasury Board Secretariat would be providing to the initiative of eliminating geographic boundaries in recruitment and hiring for the federal public service. Minister Alcock reminded the Committee that, although he had had some involvement in this matter, issues relating to Bill C-25 (the Public Service Modernization Act) were now the responsibility of the President of the Privy Council for Canada and the Public Service Commission. It was further explained that, while electronic recruitment would allow for a broadening of the selection area, there were practical limitations to maintaining a national area of selection. In the absence of geographical limitations, the number of applications for a position would lead to excessive costs, which, consequentially, would limit resources for other programs.
Some Senators questioned the extent and haste of structural changes being undertaken by the federal government. Other Senators expressed concerns that Parliament had not been consulted or informed before such a significant reorganization took place. Minister Alcock responded by noting that the demands on the federal government to be more responsive and more efficient were increasing tremendously. Therefore, the means and process by which government services are delivered had to be re-evaluated and modified to meet those demands. According to Minister Alcock, expenditure review would assist in this re-evaluation.
The topic of expenditure review was of great interest to some Senators. Minister Alcock was asked how much the review would cost and what the Canadian public should expect as a result of this review. Some Senators also wished to know if the expenditure review would prevent unforeseen escalations of cost, such as with the Canadian Firearms program, or malfeasance, such as with the sponsorship scandal. In response, Minister Alcock told the Committee that while he was unable to give Senators an overall cost, this cost would be revealed in the 2004 federal Budget. Discussions on the results of the review and how to avoid repeating the experience of the firearms program led to the issue of comptrollership. Minister Alcock acknowledged the difficulty of imposing a form of comptrollership that enables the identification and correction of problems at an early stage but at the same time allows Deputy Ministers to run, and be accountable for, their own departments. The Minister also warned that greater levels of control must not interfere with the responsiveness of federal departments and their ability to deliver services.
In response to some Senators' concerns about the possibility of too much supervision of the activities of managers, Minister Alcock made it clear that federal departments lack a system of detecting problems, but that developing the appropriate system would be a significant challenge. Some Senators were interested in how the Treasury Board Secretariat would be evaluating the governance of Crown corporations. Minister Alcock explained that the Treasury Board Secretariat was still in the process of determining how the study on Crown governance would proceed and did not have a definite answer at this time.
Some Senators observed that the Privy Council Office appeared to be directly addressing initiatives from other federal departments, such as Aboriginal programs. These Senators wished to know if this situation represented a trend of increasing concentration of power with the Prime Minister on certain initiatives. Minister Alcock acknowledged that there appeared to be a concentration of decision-making power on a few very specific issues, and argued that this situation was occurring because the Prime Minister wished to see rapid progress on these issues, with the Privy Council Office most likely acting as a "point of decision.'' Nevertheless, Minister Alcock told the Committee that this situation was not a sign that the Prime Minister would be taking on an increasing role in the management of federal departments at the expense of federal Ministers. Minister Alcock did not feel that the recent restructuring of the federal government would lead to a greater concentration of power in the Privy Council Office.
Some Senators wished to have information on the federal government's intentions regarding whistle-blowing legislation. Minister Alcock told Senators that the federal government did plan to draft a whistle-blowing bill, but that this responsibility lay with the Privy Council Office.
Some Senators revisited the issue of federally created independent foundations and asked for comments on their governance and scrutiny. Minister Alcock told the Committee that while he saw value in the use of independent foundations when the federal government wishes to examine and address problems that require a level of expertise, perhaps the reason for the extensive use of independent foundations was increasing distrust of the public sector in the delivery of public services.
Minister Alcock concluded the discussion on the topic of value for money and the challenge of determining what that means in each case. Some Senators agreed that the value of certain federal government goods and services is difficult to quantify and that the Auditor General of Canada may not always be the best evaluator of such goods and services.