56 Elizabeth II, A.D. 2007, Canada

Journals of the Senate
(Unrevised)

1st Session, 39th Parliament

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Issue 80- Appendix

Thursday, March 22, 2007
1:30 p.m.

The Honourable Noël A. Kinsella, Speaker

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Thursday, March 22, 2007

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

THIRTEENTH REPORT

Your Committee, to which were referred the 2007-2008 Estimates, has, in obedience to the Order of Reference of Wednesday, February 28, 2007, 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
2007-2008 ESTIMATES

Your Committee, to which were referred the 2007-2008 Estimates, has, in obedience to the Order of Reference of February 27, 2007, examined the said Estimates and herewith presents its first interim report.

INTRODUCTION

The 2007-2008 Estimates were tabled in the Senate on February 27, 2007 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 on March 20, 2007. 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 2007-2008.

On March 20, 2007, the Honourable Vic Toews, the President of the Treasury Board of Canada appeared before the Senate Committee to testify on the 2007-2008 Estimates. He was accompanied by two officials from the Treasury Board Secretariat of Canada: David Moloney, Senior Assistant Secretary, Expenditure Management Sector; and Laura Danagher, Executive Director, Expenditure Operations and Estimates Directorate, Expenditure Management Sector.

THE 2007-2008 ESTIMATES

The President of the Treasury Board began his testimony by providing Senators with an overview of the 2007-2008 Estimates. As in the past, there are three components to the 2007-2008 Estimates. At this time, Part I (``the Government Expense Plan''') and Part II (``the Main Estimates'') are under review by the Committee⁽¹⁾. As he explained, the Main Estimates directly support the Appropriation Act by identifying the parliamentary spending authorities sought by individual departments and agencies for the upcoming fiscal year, along with a description of their activities and strategic outcomes. It also provides information to Parliament regarding adjustments to statutory spending, that is, expenditures that have previously been approved by Parliament.

The 2007-2008 Estimates present information on both budgetary and non-budgetary spending authorities. Table 1 below compares those authorities to the 2006-2007 Main Estimates. The President explained that these Main Estimates provide information on $210.3 billion in total planned budgetary expenditures, including Statutory Expenditures of $135.4 billion and Voted Appropriations of $74.9 billion.⁽²⁾ The Main Estimates also provide information on non- budgetary expenditures equalling $1.4 billion, which are composed of $0.1 billion of Voted Appropriations and $1.3 billion in Statutory Expenditures.

TOTAL MAIN ESTIMATES
($ millions)

Source: 2007-2008 Estimates, p. 1-2

THE GOVERNMENT EXPENDITURE PLAN — AN OVERVIEW

The 2007 Budget was presented 19 March 2007, after the tabling of the 2007-2008 Estimates. The President noted that, as a result, the Estimates do not reflect additional spending plans for the upcoming fiscal year as set out in the March 2007 Budget. They do represent the government's spending plans as announced in the May 2006 Budget as well as the November 2006 Economic and Fiscal Update. These include increased funding for the environment, defence and security, and agriculture and social programs. They also reflect certain reductions as a result of the 2006 $1 billion expenditure restraint exercise. The President also assured the Committee that new spending plans outlined in the 2007 Budget will only be implemented if Parliament approves the Supplementary Estimates as they are tabled over the course of the 2007-2008 fiscal year.

In total, the 2007-2008 Main Estimates have increased by $12.0 billion or 6.0% relative to the 2006-2007 Main Estimates, reflecting an increase of $11.7 billion in budgetary spending and an increase of $256.6 million in non- budgetary spending. $7.5 billion of the $11.7 billion year-over-year increase in budgetary spending in these Main Estimates is attributed to new programs or initiatives that first received funding through the 2006-2007 Supplementary Estimates (A) and (B). These include the Universal Child Care Benefit, funding for National Defence, and support for agriculture and public security programs.

THE EXPENDITURE PLAN AND
MAIN ESTIMATES 2007-2008
($ millions)

*Including alternative payments for standing programs.

**Adjustments to reconcile to the 2006 Budget and the 2006 Economic and Fiscal Update as well as adjustment for the impact of accrual accounting, expenses charges to previous years, and anticipated lapses.

Source: 2007-2008 Estimates, p. 1-5.

Consistent with the November 2006 Economic and Fiscal Update, total planned budgetary expenses are $230.8 billion for the fiscal year 2007-2008.

EXAMINATION OF THE 2007-2008 ESTIMATES

During the course of the Committee's initial hearings of the 2007-2008 Estimates, Senators raised a variety of issues, some of which are discussed below.

A. Growth in Spending

Senators were concerned that government spending may outpace economic growth, noting that the 2007-2008 Budgetary Main Estimates have increased by $12.0 billion, or 6%, relative to the 2006-2007 Budgetary Main Estimates. The President noted that he shares those concerns but that, in his opinion, a more accurate representation of trends in government spending could be obtained by comparing last year's total Estimates (that is, the 2006-2007 Main Estimates and the 2006-2007 Supplementary Estimates (A) and (B)) to this fiscal year's Main Estimates. This comparison shows that the year-over-year increase in total budgetary expenditures is 1.1% or $2.3 billion. The President agreed that there are, however, a number of new spending proposals in the March 2007 Budget, totalling some $4.4 billion, that will be reflected in future Supplementary Estimates. He also noted that as the Budget is presented on an accrual basis of accounting, the cash-based appropriation request associated with certain budget initiatives will be larger, to the extent that funds are requested for capital spending.

B. Progress on Implementing Accrual Budgeting
and Appropriations

The Committee has been interested for some time in the government's progress towards implementing full accrual accounting, as recommended by the Auditor General. Mr. Moloney stated that the government will be responding by April 6, 2007 to reports from two House of Commons Standing Committees that called on the government to present a timetable for moving to accrual appropriations and accrual budgeting within departments.⁽³⁾

C. Reconciliation between Total Budgetary Main Estimates and Total Budgetary Expenses

Senators noted that while budgetary Main Estimates total $210.3 billion, total budgetary expenses equal $230.8 billion. This difference between the two figures is attributed to $6.5 billion in ``Reconciliation'' and $14.9 billion in ``Net Adjustment, from Net to Gross Basis of Budget Presentation''.

When asked to explain the net adjustment factor, Mr Moloney explained that, since the May 2006 Budget, the budget has been presented on a different basis than the Estimates; not only on an accrual versus cash basis, but also a net versus gross basis for accounting. The move to a gross basis was a recommendation of the Auditor General who felt that presenting the Budget and financial statements on a gross basis more properly reflects the nature and size of the Government's revenues and expenses.

Mr Moloney noted that some departments receive monies directly, for example, through user fees. In the Estimates documents, many votes are worded such that those departments have the authority from Parliament to re-spend revenues. Since Parliament is approving access to the Consolidated Revenue Fund to spend additional amounts over and above those revenues, the Estimates are presented on a net basis. Further, he explained that the $14.9 billion adjustment includes three components. The single largest component—$9.3 billion—can be attributed to the Canada Child Tax Benefit. For the purposes of the Estimates, this tax benefit is not voted spending, however it is treated as an expenditure in the public accounts and in the Budget. Other various departmental revenues netted against expenses total $3.7 billion. In addition, the net adjustment includes $1.8 billion in revenues of consolidated Crown corporations. The Senators thanked Mr Moloney for his explanation and suggested that the Treasury Board Secretariat clarify this item in future Estimates documents. He undertook to do so.

D. EcoTrust Initiative

Senators learned that the ecoTrust initiative announced by the government will be funded through anticipated 2006- 2007 budgetary surpluses and will appear in the Public Accounts, to be tabled in October 2007. Mr. Moloney confirmed the Senators` understanding that no monies would be spent without Parliamentary approval; he noted that any amounts to be charged to the Consolidated Revenue Fund for 2006-2007 for this initiative would be included in subsequent Budget Implementation Acts.

E. Progress on Implementing 2006 Expenditure Reduction Initiative

In his opening remarks, the President of the Treasury Board stated that the government has secured $1 billion in savings from ineffective programs to invest in new spending. Mr Moloney explained that $223 million of these savings, identified in previous Estimates documents, have already been realized; the remainder is reflected in reductions to the fiscal framework for the fiscal years 2006-2007 and 2007-2008. Funding had been set aside in the fiscal framework for certain programs that had previously received spending approval by Cabinet. Under the expenditure reduction initiative, a number of these programs are no longer being implemented. Thus, the savings are not, and will not, be included in these or forthcoming Estimates documents. Senators were concerned that this approach was not fully transparent.

CONCLUSION

During its initial meetings on the 2007-2008 Estimates, the Committee debated these and other matters, including: public service staffing; changes to the administration of government grants and contributions; funding for literacy programs; regional development agencies; the status of housing and renovation programs delivered through the Canada Mortgage and Housing Corporation; and the Employment Insurance program. The Committee intends to more fully examine the government's spending plans for the 2007-2008 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 2007-2008 Estimates.

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⁽¹⁾ Part III of the Estimates is divided into two parts: the Reports on Plans and Priorities and the Departmental Performance Reports. Though these documents may be reviewed by the Committee, this generally occurs only when a specific department or agency is being examined.

⁽²⁾ 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. Non- budgetary expenditures (loans, investments and advances) are transactions that represent changes in the composition of the financial assets of the Government of Canada

⁽³⁾ Standing Committee on Government Operations and Estimates, 6th Report: Accrual Budgeting and Appropriations in the Federal Government. December 2006. Standing Committee on Public Accounts, 12th Report: Public Accounts of Canada 2006. December 2006.

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