55 Elizabeth II, A.D. 2006, Canada

Journals of the Senate
(Unrevised)

1st Session, 39th Parliament

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Issue 11 - Appendix

Tuesday, May 9, 2006
2:00 p.m.

The Honourable Noël A. Kinsella, Speaker

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Tuesday, May 9, 2006

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

SECOND REPORT

Your Committee, to which were referred the 2006-2007 Estimates, has, in obedience to the Order of Reference of Wednesday, April 26, 2006, examined the said Estimates and herewith presents its first interim report.

Respectfully submitted,

JOSEPH A. DAY

Chair

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FIRST INTERIM REPORT ON
THE 2006-2007 ESTIMATES

Your Committee, to which were referred the 2006-2007 Estimates, has, in obedience to the Order of Reference of April 26, 2006, examined the said Estimates and herewith presents its first interim report.

INTRODUCTION

The 2006-2007 Estimates were tabled in the Senate on April 25, 2006 and subsequently referred for examination to the Standing Senate Committee on National Finance. Several meeting dates have been set aside for this examination, beginning with an initial review at meetings on May 2 and 3, 2006. During the coming year, the Committee intends to submit further interim reports and will present its final report on its work before the end of the fiscal year 2006-2007.

At the first meeting, on May 2, 2006, officials from the Treasury Board Secretariat of Canada, David Moloney, Assistant Secretary, Expenditure Management Sector, and Ms. Laura Danagher, Executive Director, Expenditure Operations and Estimates Directorate, appeared before the Senate Committee to testify on the 2006-2007 Estimates. On May 3, 2006, the Honourable John Baird, the President of the Treasury Board of Canada appeared. He outlined the federal government's planned spending for the new fiscal year, 2006-2007.

THE 2006-2007 ESTIMATES

The officials from the Treasury Board Secretariat began their testimony by providing Senators with an overview of the 2006-2007 Estimates, highlighting the unique circumstances surrounding the supply process for the current fiscal year, including the use of Governor General Special Warrants in 2005-2006 and 2006-2007.

The Treasury Board Secretariat officials explained that there are three components to the 2006-2007 Estimates. PART I — The Government Expense Plan and PART II — The Main Estimates are the subject of this interim report from the Committee to the Senate. The third component, Part III, consists of two sets of departmental reports, the Report on Plans and Priorities (RPPs) and the Departmental Performance Reports (DPRs). The RPPs will be tabled in the fall. The Government Expense Plan provides an overview of federal spending by summarizing the key elements of the Part II, and by highlighting major changes in the Estimates. The Main Estimates, traditionally referred to as the Blue Book, directly supports the Appropriation Act, and list the financial requirements for individual federal departments and agencies require for this fiscal year. The Main Estimates identify the spending authorities and the amounts to be included in subsequent appropriations.

In Estimates documents, planned spending is broken down into budgetary and non-budgetary expenditures, and is displayed for both voted and statutory expenditures. Budgetary expenditures include the cost of servicing the public debt; operating and capital expenditures; transfer payments to other levels of government, organizations or individuals; and payments to Crown corporations. Budgetary expenditures amount to $198.6 billion. Budgetary expenditures are further divided into Statutory Expenditures of $128.4 billion and Voted Appropriations of $70.2 billion. Voted expenditures are those for which parliamentary authority is sought through an appropriation bill, while statutory expenditures are those authorized by Parliament in enabling legislation. The latter are included in the Estimates documents for information purposes only. Non-budgetary expenditures, being loans, investments and advances, are transactions that represent changes in the composition of the financial assets of the Government of Canada. In these Estimates they total $1.1 billion and are composed of $0.1 billion of voted appropriations and $1.0 billion in statutory spending. As in previous years, statutory expenditures make up the largest component (64.8 %) of planned spending (see below).

Total Estimates 2006-2007
(in million of dollars)

Source: 2006-2007 Estimates, Table 1, p. 1-2.

THE GOVERNMENT EXPENDITURE PLAN — AN OVERVIEW

The Main Estimates normally provide details on planned government spending for the coming fiscal year based on the broad outline presented in the budget. The 2006 Budget was presented on May 2, 2006, after the tabling of the 2006-2007 Estimates. Treasury Board Secretariat officials explained to the Committee that, as a result, the 2006-2007 Estimates are consistent with the spending plans outlined in the February 23, 2005 Budget and consequently reflect decisions taken by the previous government rather than by the new government¹. However, the Main Estimates for 2006-2007 must be tabled at this time in order to secure interim supply and ensure the continued operations of government given that the funding provided by Governor General Special Warrants would expire on May 15, 2006. Thus, there was not sufficient time to recast the Main Estimates to reflect the priorities of the new government.

In order to deal with the changes in the supply cycle arising from the dissolution of Parliament on November 29, 2005, the House of Commons, on April 4, 2006, adopted a special order structuring how it will deal with supply for the 2006-2007 fiscal year only. This allowed the 2006-2007 Estimates to be tabled on April 25, 2006 and the House of Commons to vote on full supply in December 2006, rather than June 2006, as is normal practice. To allow the continued operations of government, the House of Commons, on May 3, 2006, voted on interim supply for nine months, rather than the usual three. This interim supply bill, C-8, was given first reading in the Senate on May 4, 2006. For the next fiscal year, 2007-2008, the supply cycle will revert to the previously existing process.

It is important to note that while the 2006-2007 Estimates represent the major part of the government's spending plans, any subsequent decisions, such as those announced in the 2006 Budget, will be dealt with in the Supplementary Estimates in October. Moreover, the government has delayed the release of the departmental Reports on Plans and Priorities to the fall to allow departments sufficient time to integrate the 2006 Budget measures.

As a result, these Estimates are consistent with the expense plan laid out in the 2005 Budget that forecasted a 5.3% year-over-year growth in actual budgetary spending for a total planned budgetary expense of $205.1 billion for the fiscal year 2006-2007. Of that amount, $34.4 billion is for public debt charges and $170.7 billion is for program spending. The Treasury Board Secretariat officials explained that the bulk of the spending growth can be linked to increases in statutory spending, particularly in health and equalization transfer payments. With regard to the direct program spending component of the change, the major drivers of the increase are collectively bargained wage and salary increases, spending on defence and spending on public security. Details of the Budgetary Main Estimates are presented below.

The Expenditure Plan and Main Estimates 2006-2007
(in million of dollars)

*Includes adjustments for the impact of accrual accounting, expenses charged to prior years and an anticipated lapse. It also includes expenses not yet allocated for initiatives which require further development or legislation.

Source: Figures compiled from 2006-2007 Estimates, Table 2, page 1-3.

CHANGES TO THE ESTIMATES DOCUMENT

The Treasury Board Secretariat officials informed Senators that, aside from the inclusion of information reflecting the use of Governor General Special Warrants for fiscal year 2006-2007, there is one other major change in the way the information is presented to both Houses of Parliament in these Estimates. The majority of the machinery of government changes announced on February 6, 2006 have been reflected in how spending is displayed. The only exception to this is where the changes were more complex; for example, where it involved moving parts of a program between organizations or, as in the case of the Office of the Registrar of Lobbyists, designating the Office as a separate entity. According to the Treasury Board Secretariat officials, the latter changes will require a rewriting or creation of program activity structures, the creation of new votes and vote wording, and thus Treasury Board approvals, as well as possible legislative amendments. For similar reasons, despite the amalgamation of Foreign Affairs and International Trade, as well as the amalgamation of Human Resources Skills Development and Social Development, these departments are still displayed separately, though sequentially and under the same departmental title in the 2006-2007 Main Estimates. These more detailed changes will be reflected in future Estimates documents.

GOVERNOR GENERAL SPECIAL WARRANTS

When access to the normal process of supply is not possible, Section 30 of the Financial Administration Act confers on the Governor in Council the power to recommend to the Governor General that she authorize payments out of the Consolidated Revenue Fund. This process is known as the Governor General Special Warrant (Special Warrant). Treasury Board Secretariat officials explained Section 30 dictates the three basic conditions that must be met before a Special Warrant may be issued. These are that:

1. Parliament is not in session for the purposes of a general election;

2. there is no other appropriation available from which a payment can be made; and

3. a payment is urgently required for the public good.

Further, Special Warrants can only be issued up to 60 days following the return of the election writs. This is to provide a grace period following Parliament's return so as to ensure that the government's core operations can continue while the Houses put in place the normal supply process before the supply provided under Special Warrants run out.

During the recent election period, four Special Warrants were issued, amounting to $15.6 billion. Of this, $4.2 billion was for the 2005-2006 fiscal year and $11.5 billion was for the 2006-2007 fiscal year. The breakdown is presented below.

Summary of Governor General Special Warrants
2005-2006 and 2006-2007
(in million of dollars)

Source: Statement on the Use of Governor General Special Warrants, p. 17

Section 30 of the Financial Administration Act states that where a Special Warrant is issued, the funds provided shall be "deemed to be included and not in addition to'' the monies appropriated in the next Appropriation Act. Pursuant to this section, the 2006-2007 Estimates reflect those funds provided by Special Warrants for the fiscal year 2006-2007. For the funds provided by the three Special Warrants in the fiscal year 2005-2006, there was no further Appropriation Act for that year. This was because of the dissolution of Parliament on November 29, 2005, which precluded the Houses of Parliament from voting on the 2005-2006 Supplementary Estimates (A). As required by Section 30 of the Financial Administration Act, a Statement on the Use of Governor General Special Warrants was tabled in the two Houses of Parliament. This document summarizes the Governor General Special Warrants issued during the entire period from November 29, 2005 to May 15, 2006.

EXAMINATION OF THE 2006-2007 ESTIMATES

As previously noted, the President of the Treasury Board, the Honourable John Baird, appeared before the Committee on May 3, 2006. During his appearance, President Baird thanked the Committee "for [its] continued scrutiny and guidance in allocating government resources to serve Canadians better.'' He noted the important work that Committee has done over the years in this respect.

During the course of the Committee's initial hearings of the 2006-2007 Estimates, Senators raised a variety of issues, some of which are discussed below.

A. Treasury Board Vote 5, Government Contingencies

Treasury Board may provide funding to departments and agencies for unforeseen expenditures. This type of funding is referred to as the Treasury Board Vote 5 funding, or TB Vote 5 funding. Permanent funding is provided for pay list shortfalls such as severance pay and parental benefits, which cannot be predetermined. Temporary funding is provided for unforeseen expenditures which were not provided for in the Main Estimates and which are required before supplementary estimates are tabled.

The manner in which contingency funds are used under the TB Vote 5 has been an abiding concern for the Committee. These concerns have focused on clarifying how the vote was used, the government's accountability to Parliament on its use, the overly broad wording previously used in the vote itself, and in assuring that the vote is used strictly for urgent requirements². Last year, on March 9, 2005, in response to the Committee's recommendations, the President of the Treasury Board provided the Committee with proposed changes to the wording of TB Vote 5 and to the guidelines which govern the work of the Treasury Board Secretariat analysts. The intention of the previous President of the Treasury Board was that the new wording and guidelines would be ready in the Supplementary Estimates (A) in the fall of 2005³. Ms. Danagher explained that, because of the dissolution of Parliament on November 29, 2005, those guidelines were not adopted by Treasury Board ministers. She noted, however, that the guidelines are currently being implemented as an administrative measure, that is, they are being used by analysts of the Treasury Board Secretariat. Ms Danagher indicated that the guidelines will be approved by the Treasury Board during the summer of 2006. Further, she informed the Committee that the proposed new guidelines incorporate most, if not all, of the Committee's recommendations on this matter.

Some Senators noted with satisfaction that these Estimates reflect the revised vote wording for Treasury Board Vote 5 as recommended by the Committee. The wording on page 1-82 has been modified, replacing the words "minor and unforeseen expenses'' with the words "urgent or unforeseen expenditures.'' In addition, the words "awards under the Public Servants Inventions Act'' have been deleted and the words "grants and contributions not listed in the Estimates and the increase of the amount of grants listed in these, where those expenditures are within the legal mandate of a government organization'' have been added.

B. Funding for the Vancouver Olympics

Some Senators raised questions about the federal government's total financial exposure to the Vancouver Olympics, which has been of interest to the Committee for some time. Some Senators referred to earlier testimony by the Honourable Sheila Copps, then the Minister of Canadian Heritage, indicating that the federal commitment for the Vancouver games would be capped at $310 million for capital and legacy costs. Funding to provide essential federal services such as immigration, customs and security, was capped at $100 million. Mr. Moloney explained that, in addition to the initial commitment, the February 23, 2005 Budget provided new funding for the Olympics, bringing the total federal commitment to date to $497 million. It is expected that further funding of approximately $235 million will be sought in future Estimates.

Some Senators expressed concern about the possibility of cost overruns, which the President promised to relay to his colleagues in the government. Senators were also interested in the processes in place to monitor and control government expenditures in relation to the games. Senators learned that Canadian Heritage has created, within the Department, a Federal Games Secretariat whose responsibilities include managing federal funding to the Olympics.

C. Bill C-48, An Act to authorize the Minister of Finance to make certain payments

In July 2005 Parliament passed Bill C-48, authorizing the Minister of Finance to make certain payments from unplanned surplus funds in excess of $2 billion for the fiscal years 2005-2006 and 2006-2007. Senators inquired about the nature of these arrangements and their accounting in the Main Estimates. Mr. Moloney explained that, since Bill C-48 provided statutory authority for the payments, those expenditures would be reported through the Public Accounts of Canada as statutory spending. They do not, therefore, figure in the 2006-2007 Estimates, with which this report deals. The President noted that the 2006 Budget Plan (page 160) allocates $3.6 billion in costs related to anticipated payments made under Bill C-48, to be paid into third party trusts once the federal books are closed in the fall.

D. Funding Mechanism for Officers of Parliament

On May 19, 2005, during the previous Parliament, the Committee had presented a report regarding the funding of Officers of Parliament. A central concern was that Treasury Board makes decisions on spending requests by Officers of Parliament, as part of the process by which the spending request that go before the Houses of Parliament are developed. This raises possible concerns about the independence of the Offices. One of the Committee's key recommendations to address this concern was to have the process of determining the budgets for Officers of Parliament actively involve Parliamentarians and an advisory panel.⁴ Some Senators were pleased that this recommendation had been implemented in a pilot project by the Treasury Board. The advisory panel considers requests for new funding developed by the Officers of Parliament, and provides Treasury Board with its non-binding recommendations⁵. However, some Senators noted that at present no Senators sit on this advisory panel. During his testimony, President Baird confirmed that the pilot project will continue this year and stated that he would bring the issue of Senators' participation to the Leaders and Speakers of both Houses.

E. Cost of Accountability

Mr. Moloney agreed to provide the Committee with a compilation of costs of the internal audit functions of departments. Senators were interested in learning that pursuant to the accountability measures included in Bill C-2 (the Federal Accountability Act), the May 2, 2006 Budget allocates $57 million for the federal accountability action plan and $16 million for internal audit functions⁶. In response to concerns that Parliament did not have the capacity to be able to hold the government to account, Bill C-2 also creates the position of Parliamentary Budget Officer within the Library of Parliament. The Officer will have explicit responsibility for analysis related to Parliament's consideration of government budgets, as well as the cost implications of Member's bills and parliamentary initiatives. The President has committed to making the establishment of the new Officer a priority following the passage of Bill C-2. Some Senators expressed their interest in working with the new Officer.

F. Governor General Special Warrants

The Committee noted the importance of the four Governor General Special Warrants that were issued during the dissolution of Parliament. Some Senators were interested in knowing whether the Special Warrants could provide supply to a program or organization where authority had not previously existed and questioned if a Special Warrant could be issued to establish new grants or to increase existing grants; Mr. Moloney stated that they could not.

On a related point, some Senators noted that this year's supply process was too accelerated. Recognising that this fiscal year was exceptional, some Senators noted that the process generally does not provide adequate time for full consideration of the Estimates. Some Senators asked the President to consider making changes to the process by which supply bills are introduced in order to address this important issue. On this point, it was noted that the government has significant control of the agenda in both Houses, and should use this to avoid situations in which Parliamentarians are asked to vote on significant sums of money in great haste.

G. Clarity of the Estimates Documents

The Committee expressed continued concern on the lack of clarity in the Main Estimates and in particular, a lack of transparency in the departmental details of the Main Estimates. As an example, FedNor, the federal regional development agency in Ontario, is not separately identified in these Main Estimates, which may leave the impression that the agency is not receiving federal funding in 2006-2007. Mr. Moloney reassured the Senators that FedNor is receiving funding; however, Industry Canada, the department responsible for FedNor, chose not to identify the agency as a separate Program Activity but instead to include it within the core activities of the department.

Some Senators expressed appreciation of past efforts by the Treasury Board to include a section in the Estimates documents that reports expenditures horizontally across departments, and expressed a desire to see a similar section in the Main Estimates. Mr. Moloney stated that although it is possible to compile these tables for the Supplementary Estimates as they typically total less than $10 billion, it is more difficult to arrange $100 billion of program spending in the same manner. However, he indicated that officials of the Treasury Board Secretariat will undertake to do so. Mr. Moloney noted that information on linkages between government departments and agencies on horizontal programs can currently be found in departments' Reports on Plans and Priorities.

H. Budget 2006

Some Senators were interested in reconciling government's spending plans as laid out in the Main Estimates with those outlined in the May 2, 2006 Budget. Programs mentioned included those related to climate change and the environment, the gas tax funding committed under the New Deal for Cities and Communities, and the Toronto Waterfront revitalization initiative. The Committee was informed that the latter two programs will continue. With respect to environmental programs, the Minister of the Environment will shortly be making an announcement regarding an initiative to reduce greenhouse gas emissions. Senators were also interested in knowing whether the increase in the budget of National Defence over the next five years as outlined in the 2006 Budget represented new funds in addition to those announced last fiscal year. The President promised to confirm these details and provide the Committee with a response shortly.

Senators were also interested in the government's planned savings of $2 billion over the next two fiscal years. The President indicated that some savings have already been realised and that there are several criteria laid out in the budget documents that will guide further decisions.

CONCLUSION

During its initial meetings on the 2006-2007 Estimates, the Committee debated these and other matters, including: gender-responsive analysis of the Estimates; national debt reduction; Arctic sovereignty; environment programs; infrastructure funding; the removal of geographic restrictions in the hiring of public servants; and the issue of decentralising the public service. The Committee intends to more fully examine the government's spending plans for the 2006-2007 fiscal year, and will present further interim reports as it continues its work.

The Standing Senate Committee of National Finance respectfully presents its first interim report on the 2006-2007 Estimates.

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¹ Treasury Board Secretariat, Backgrounder: Overview of the 2006-2007 Main Estimates, May 25, 2005.

² On June 6, 2002, the Committee tabled a report containing nine recommendations regarding the working and implementation of TB Vote 5 funding of departments. In the spring of 2003, the Committee had on-going discussions with officials from the Treasury Board Secretariat on proposals to change the Treasury Board policy on the use of the TB Vote 5, on the vote wording, and on the guidelines for its analysts.

³ The dissolution of Parliament on November 29, 2005 for the purposes of the general election precluded the opportunity for Parliament to vote on the 2005-2006 Supplementary Estimates (A).

⁴ Senate National Finance Committee. Twelfth Report: Officers of Parliament (May 2005).

⁵ The House of Commons Advisory Panel on the Funding of Officers of Parliament was established in the fall of 2005.

⁶ Government of Canada. The Budget Plan 2006: Focusing on Priorities (May 2006) p. 52.

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