57 Elizabeth II, A.D. 2008, Canada

Journals of the Senate

2nd Session, 39th Parliament

---

Issue 38 - Appendix

Tuesday, March 4, 2008
2:00 p.m.

The Honourable Noël A. Kinsella, Speaker

---

Tuesday, March 4, 2008

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

SEVENTH REPORT

Your Committee, to which were referred the Supplementary Estimates (B), 2007-2008, has, in obedience to the Order of Reference of Thursday, February 14, 2008, examined the said Estimates and herewith presents its report.

Respectfully submitted,

JOSEPH A. DAY

Chair

---

REPORT ON THE SUPPLEMENTARY ESTIMATES (B), 2007-2008

INTRODUCTION

The Standing Senate Committee on National Finance, to which were referred the Supplementary Estimates (B), 2007-2008, has in obedience to the Order of Reference of 14 February 2008, examined the said Estimates and herewith presents its report.

The Committee held a meeting to review these Supplementary Estimates. On 26 February 2008, officials from the Treasury Board Secretariat of Canada, Alister Smith, Assistant Secretary, Expenditure Management Sector and Brian Pagan, Acting Executive Director, Expenditure Operations and Estimates Division, Expenditure Management Sector, appeared before the Senate Committee to testify on the Supplementary Estimates (B), 2007-2008.

These are the second set of Supplementary Estimates to be issued in this fiscal year ending on 31 March 2008. Unless otherwise stated, all page references are from the Supplementary Estimates (B), 2007-2008 documents.

THE SUPPLEMENTARY ESTIMATES (B), 2007-2008

Supplementary Estimates are tabled in Parliament approximately one month in advance of the related Appropriation Act. They serve a number of purposes. First, they provide information on the government's spending requirements that were not sufficiently developed when the 2007-2008 Main Estimates were tabled, or have been subsequently refined to account for new developments in particular programs or services. Second, they provide Parliament with information on changes in estimated statutory expenditures (i.e., those authorised by Parliament though enabling legislation). Finally, they are used to seek parliamentary approval for items such as: transfers of money between Votes; debt deletion; loan guarantees; new or increased grants; and changes to Vote wording.⁽¹⁾

Pages 36 to 54 of the estimates provide a preview of the related supply bill (Proposed Schedules 1 and 2 to the Appropriation Bill), and include, by department and organization, a list of Vote numbers, the Vote wording, and the requested funds that will be proposed to Parliament for approval. There are two schedules to the Appropriation Bill in these Supplementary Estimates: the first identifies those items for the fiscal year ending 31 March 2008; the second identifies those items for the fiscal year ending 31 March 2009, specifically, multi-year appropriations for the Canada Revenue Agency, the Parks Canada Agency, and the Canada Border Services Agency.

CHANGES TO PRESENTATION

Over the past few years the Treasury Board has made a number of changes in the presentation of the Supplementary Estimates in order to provide "more transparent reporting of financial details and additional tools to facilitate better financial management within departments.'' (p. 7). Several of the more substantive changes are discussed below.

Supplementary Estimates (A), obtained approval to create two new centrally-financed Votes (Central Votes).⁽²⁾

• Operating Budget Carry Forward Vote (Treasury Board Vote 22, p. 22): $1.2 billion in Fiscal 2007-2008

• As part of the Expenditure Management System Renewal,⁽³⁾ Treasury Board has authorised the creation of a new Central Vote for all departmental operating budget carry-forward requirements.

• Since the early 1990's, departments have been allowed to carry forward, from one fiscal year to the next, up to 5% of a department's Main Estimates Operating Budget, based on lapses reported in the Public Accounts of Canada. The intent behind this practice is to provide departments with the additional flexibility they require to use good management and planning rather than to attempt to use up funds in their budgets as the fiscal year draws to its close. Departments had the option of drawing-down their carry forward in the Supplementary Estimates.

• Prior to this change, the operating budget carry forward was identified as a separate initiative in each of the departmental Supplementary Estimates. The intention of the new central Vote — the Operating Budget Carry Forward Vote — is to provide organizations with the ability to receive authorities much earlier, once approved by the Treasury Board. Eighty departments and agencies will receive their funding under these estimates; they are not required to reimburse funding allocated from this Vote.

• Paylist Requirements Vote (Vote 23, p. 24): $500 million

• As part of the Expenditure Management System Renewal, the Treasury Board has also authorised the creation of a new central Vote to address certain paylist costs within government such as severance and parental benefits. These are funded centrally to avoid bias in hiring practices. This Vote will cover funding not provided for under Vote 15, Compensation Adjustments.

In the past, these costs had required a permanent year-end transfer from Treasury Board Vote 5 (the Government Contingency Vote or TB Vote 5). Page 22 lists the new criteria that must be met in order for the Treasury Board to approve access to TB Vote 5 funding as a result of the creation of the new Vote.⁽⁴⁾

As a result of these changes, there are now six central Votes, described on pages 21, 23 and 24: The Government Contingencies Vote (TB Vote 5); the Government-Wide Initiatives Vote; the Compensation Adjustment Vote; the Public Service Insurance Vote; the Operating Budget Carry Forward Vote; and the Paylist Requirements Vote. Allocations from these central Votes under these estimates are detailed on pages 190 to 193.

A. Planned Spending

Treasury Board Secretariat officials began their testimony by providing Senators with an overview of the $4.3 billion in planned spending under the Supplementary Estimates (B) 2007-2008. As Mr. Smith informed the Committee, this spending is consistent with the planned expenses as established in the March 2007 Budget and the October 2007 Economic and Fiscal Outlook. In those documents, planned spending for the 2007-2008 fiscal year totals some $233.4 billion. This amount is made up of the $210.7 billion under the 2007-2008 Main Estimates, $13.6 billion under the Supplementary Estimates (A) 2007-2008 and $4.3 billion under this Supplementary Estimates (B) 2007-2008. This spending is consistent with the planned expenses of $233.4 billion established in the March 2007 budget. This compares to the previous fiscal year, 2006-2007, where the total expenses of the federal government were $222.2 billion and $209.0 billion for the 2005-2006 fiscal year.

In the Estimates documents, planned spending is broken down by budgetary and non-budgetary expenditures and is displayed for both voted and statutory expenditures.⁽⁵⁾ As shown in Table 1 below, the Supplementary Estimates (B), 2007-2008 total $4.3 billion. Of this amount, the federal government is seeking Parliament's approval to spend $1.3 billion, while statutory expenditures are expected to increase by $3.0 billion.

Table 1: Total Supplementary Estimates (A), 2007-2008
(in millions of dollars)

Source: Supplementary Estimates (B), 2007-2008, p. 9.

As Mr. Smith reminded the Senators, the Supplementary Estimates currently before the Committee are asking Parliament's approval to spend funds on several strategic initiatives and key priorities announced in the 2007 Budget and related Cabinet decisions made during 2007-2008. Therefore, he explained that these Estimates represent requested appropriations for proposed spending that was not known or sufficiently developed when the Main Estimates were tabled last year. Among the expenditures tabled for approval, he highlighted the following:

• Major key horizontal initiative (affecting more than one organization) includes:

• Funding to support the Centres of Excellence for Commercialization and Research Program ($163.4 million)

Funding is required for grant payments to the centres of excellence for commercialization and research announced in Budget 2007. The seven centres of excellence are located in Halifax, Toronto, Sainte-Foy, Montreal and Vancouver. They focus on priority areas in research and commercialization, which are key elements of the Entrepreneurial Advantage component of Canada's new Science and Technology Strategy.

• Major specific initiatives include:

• Funding to the Department of Indian Affairs and Northern Development for payment to the Quebec Cree to settle implementation issues respecting the James Bay and Northern Quebec Agreement and related litigation ($1.1 billion)

In 2007, the Government came to an agreement with the Quebec Cree totalling $1.4 billion. The agreement enables Canada to fulfil its obligations towards and improve relations with the Cree and Inuit of Quebec, as well as with the Province of Quebec, with respect to the James Bay and Northern Quebec Agreement. The settlement of the Agreement includes: the Cree taking on certain implementation obligations under the James Bay and Northern Quebec Agreement for the next 20 years (i.e. administration of justice and economic and social development); as well as the modernization of Cree regional governance and the commitment to self-government negotiations.

• Funding to the Canadian International Development Agency for additional grants to international organizations for development assistance, programming against hunger, malnutrition and disease and international humanitarian assistance ($211 million)

This funding represents a realignment of grants and contributions authorities, as a result of a major reallocation exercise within the Canadian International Development Agency (CIDA) to further increase the efficiency and effectiveness of aid delivery. Specifically, authorities were moved from contributions to grants, reflecting a shift of focus within CIDA toward risk-based program-oriented initiatives with trusted partners such as the United Nations and the World Health Organization.

• Funding to the Canadian Mortgage and Housing Corporation for the expansion of market-based approaches to on-reserve housing in First Nations communities through the establishment of the First Nations Market Housing Fund ($150 million)

Budget 2007 announced $300 million for the First Nations Market Housing Fund which is intended to give First Nations people living on-reserves a better chance to own their own home by providing a backstop for private sector loans. The need for adequate, affordable housing in reserve communities is considerable and contributes to the gap in quality of life between First Nations people living on-reserve and other Canadians.

• Funding to the Department of National Defence for increases to pay and allowances for Canadian Forces Members ($88.7 million)

This funding will be used to cover the 2% pay adjustment for non-commissioned members, general service officers and pilots in the ranks of lieutenant-colonel and below; and for medical and dental officers in the ranks of lieutenant and below. The funding increase is required to ensure equity in relation to the national rate of inflation (2%) until such time as collective agreements and service contracts are finalized. Further details on these and other major initiatives are found on pages 10 to 12.

• Statutory budgetary spending is expected to increase by some $2.9 billion and is mainly attributable to forecast changes:

• Payments to the Newfoundland Offshore Petroleum Resource Revenue Fund from the Department of Natural Resources ($1.1 billion)

Statutory payments are made to the Newfoundland Offshore Petroleum Resource Revenue Fund in amounts equal to federal royalty, tax and other miscellaneous revenues generated in the offshore. The $400M increase for 2007-08 is related to increased royalty estimates resulting from increases in oil production and rises in oil prices.

• Compensation from Health Canada for individuals affected with the Hepatitis C virus through the Canadian blood supply before 1986 and after 1990 ($1.0 billion)

The Government has placed funds in trust pursuant to settlement of claims for compensation for individuals infected with the Hepatitis C virus through the Canadian blood supply before 1986 and after 1990. This settlement is based, to the extent possible, on parity with the federal share of compensation for those infected from 1986-1990. For individuals infected with hepatitis C, the compensation amounts range from under $10,000 to over $400,000. In addition to these amounts, eligible class members can apply for damages for past loss of income and loss of services. The number of beneficiaries will be determined as claimants come forward and claims are adjudicated by the trustee.

• Funding from the Department of Agriculture and Agri-Food to help transition producers from the current Business Risk Programming to the new AgriInvest Program ($561.1 million)

The AgriInvest Kickstart Program will provide a one-time federal only payment to all producers in the form of grants and contributions to their AgriInvest savings accounts. $561.1 million in transfer payments will be made to help producers transition from the current Business Risk Management Programming to the new AgriInvest Program.

• Funding to Canada Revenue Agency to provide payments to provinces under the Softwood Lumber Products Export Exchange Act ($437.0 million)

Canada Revenue Agency is responsible for collecting from, and making payments to the provinces based on the charges collected over the course of the application of the Canada-US Softwood Lumber Agreement. It is estimated that $437M will be paid in these Supplementary Estimates to provinces under the Softwood Lumber Products Export Charge Act. These payments have been reduced by several factors including: refunds paid to the softwood lumber industry, costs of the administration and implementation of the Agreement, and costs incurred for any litigation resulting from the Act.

• Newfoundland fiscal equalization offset payments from the Department of Natural Resources ($188.6 million)

Regulations under the fiscal equalization offset payments of the Canada-Newfoundland Atlantic Accord Implementation Act allow Newfoundland and Labrador to be compensated for losses to equalization payments due to increases in offshore oil and gas revenues. The forecast equalization offset payment for 2007-2008 will be approximately $188.6M.

Further detail on statutory spending can be found on pages 12 to 14.

EXAMINATION OF THE SUPPLEMENTARY ESTIMATES (B), 2007-2008

During the Committee's hearing on the Supplementary Estimates (B), 2007-2008, Senators raised a variety of questions related to the planned spending as outlined above, in addition to the operation of the new central Votes. Some of these are discussed below.

A. National Community Development Trust

Senators were interested in obtaining information on the planned expenditures of the recently announced National Community Development Trust. This initiative is designed to help provinces and territories assist communities and workers suffering economic hardship caused by the current volatility in global financial and commodities markets. Canada will assist these vulnerable communities and laid-off workers by investing $1 billion in the National Community Development Trust.

The Trust, to be funded out of the 2007-2008 budgetary surpluses, has a three-year lifespan. A base amount of $10 million will be allocated to each province and $3 million to each territory. The balance of the funding will be allocated on a per capita basis.

Mr. Smith reminded Senators that the funding for this initiative is provided from the fiscal framework, and therefore is not part of these Supplementary Estimates. Also, the announcement came too late for any of the funds already advanced to provinces to be included in the Supplementary Estimates (B) 2007-2008. Finally, Mr. Pagan stated that the appropriations for this initiative were already voted by Parliament. The spending will show up as expenditures from this fiscal year, but only in the Public Accounts for fiscal 2007-2008. Any future spending for this initiative will be reported in future Estimates documents.

B. Centres of Excellence for Commercialization and Research Program

Some Senators were interested in details about the budgets and operations of the establishments funded under the Centres of Excellence for Commercialization and Research Program. These Estimates seek to provide funding in the amount of $163.4 million to the centres of excellence for commercialization and research announced in Budget 2007. Mr. Pagan informed the Committee that the Centres receive their funding the three granting councils. The councils, their Main Estimates 2007-2008 appropriations and the new funding sought in these Supplementary Estimates (B) 2007-2008 are:

• The Social Sciences and Humanities Council — original appropriations of $619 million and an additional $32.6 million sought in Supplementary Estimates (B) 2007-2008;

• The Natural Sciences and Engineering Research Council ($899.5 million and $57.1 million); and

• The Canadian Institutes of Health Research ($822.4 million and $73.5 million).

The Committee was interested in obtaining more information on the activities that will be funded by this appropriation. While the Treasury Board Secretariat will endeavour to provide additional information, the Committee recognizes that it may have to hear from more witnesses to obtain further clarification on the nature of the activities funded by this program.

C. National Defence Pay Allowances

The amount of $88.7 million sought by the Department of National Defence for increases to pay and allowances for Canadian Forces Members was of interest to Senators. Mr. Smith informed the Committee that this funding will be used to cover the 2% pay adjustment for non-commissioned members, general service officers and pilots in the ranks of lieutenant-colonel and below; and for medical and dental officers in the ranks of lieutenant and below. The funding increase is required to ensure equity in relation to the national rate of inflation (2%) until such time as collective agreements and service contracts are finalized.

Senators were concerned that this amount would not be sufficient to cover some of the financial difficulties that were highlighted in recent months regarding the costs associated with the relocation of armed force members and their families. They wanted to know the amount (not including the $88.7 million) that is being allocated to relocation activities involving armed force members. Mr. Smith agreed to refer this question to the Department of National Defence.

D. Cost of Providing Contract Policing

The RCMP is seeking and appropriation of $29.2 million to address shortfalls related to the costs of providing contract policing services. Senators asked the officials to elaborate on this request for additional funding. Mr. Pagan explained that under the Police Service Agreements between the Government of Canada and various provinces and territories, the RCMP is contracted to provide policing services on a cost recovery basis to provinces, territories and municipalities. These funds will be used to resolve a shortfall in the funding for contract policing services and will satisfy the federal obligations under the Police Service Agreements that are based on provincial and territorial incremental service level requirements for the period. He added that the contract policing activity is the largest single program activity, accounting for 60% of the force's personnel and 68% of its operating budget. The funds were requested to resolve some long-standing systemic shortfalls in the funding for contract policing services.

E. Softwood Lumber Products Export Charge Act

A statutory budgetary item reported in these Estimates concerns the amount of $437.0 million sought by Canada Revenue Agency to provide payments to provinces under the Softwood Lumber Products Export Exchange Act. The Canada Revenue Agency is responsible for collecting from, and making payments to the provinces based on the charges collected over the course of the application of the Canada-US Softwood Lumber Agreement. It is estimated that $437 million will be paid in these Supplementary Estimates (B) 2007-2008 to provinces under the Act. These payments have been reduced by several factors including: refunds paid to the softwood lumber industry, costs of the administration and implementation of the Agreement, and costs incurred for any litigation resulting from the Act.

Some Senators are concerned that nearly half a billion dollars was collected from an industry that is experiencing a serious economic downturn in activities. In addition, the Senators note that the funds will be paid to the provincial government, which are under no obligation to pay this money to the affected industry. The officials agreed to ask the responsible department, on behalf of the Committee, to provide more details on the context of the Agreement and on specific program costs and payments.

F. AgriRecovery Program

Funding in the amount of $63.0 million sought for the AgriRecovery Program to provide a coordinated process for federal, provincial and territorial governments to respond to agricultural disasters. The AgriRecovery Program is a disaster relief framework which ensures that producers can count on rapid assistance from Government when affected by small disasters — those that are regional in scope and have a relatively small impact on Canadian industry meaning these disasters can easily be contained and have few trade implications. These funds will be used to support the development of a coordinated process for federal, provincial, and territorial governments to respond rapidly when these types of disasters strike. Senators asked that the official provide some elaboration on the operations of this program and to identify the main issues that give rise to this funding request. Given the level of details sought by the Committee, the officials will have the relevant program officials provide a response directly to the Committee.

G. National Vehicle Scrappage Program

Senators were concerned about delays in the implementation of the National Vehicle Scrappage Program. In 2007 funds of $6 million were appropriated to establish a program that would encourage Canadians to scrap older, high- polluting vehicles. It also provided up to $30 million over two years for incentives to be designed by Environment Canada and Transport Canada, in consultation with stakeholders, to accelerate retirement of these vehicles. Senators wanted the officials to provide the Committee with information on the status of this initiative. The officials agreed to pursue the matter with the responsible departments who will be expected to provide additional information to the Committee at a later date.

H. Canadian International Development Agency

The Canadian International Development Agency (CIDA) is seeking authority to spend an amount of $211 million for additional grants to international organizations for development assistance, programming against hunger, malnutrition and disease and international humanitarian assistance. This funding represents a realignment of grants and contributions authorities, as a result of a major reallocation exercise within CIDA to further increase the efficiency and effectiveness of aid delivery. Specifically, authorities were moved from contributions to grants, reflecting a shift of focus within CIDA toward risk-based program-oriented initiatives with trusted partners such as the United Nations and the World Health Organization.

Senators were concerned about what this policy change implied for Canada's development assistance. Specifically, there is concern that the assistance that might otherwise go to smaller non-government organizations (NGO) operating in specific communities would now go to large organization that, in the view of some Senators may not be as effective in delivering assistance where it is required. The officials reminded the Committee that any detailed information on the impact of this policy initiative would have to come from CIDA. They did acknowledge that the initiative is attempting to rebalance CIDA's development assistance between the smaller NGOs and the larger international organizations. Senators remained unsure that the larger international organization could respond better to changing conditions than can the smaller NGOs.

Senators were also interested in the gender impact of this policy initiative within CIDA. The TBS officials could not be specific on the effect of this policy on gender. However they assured the Committee that the TBS requires that all submissions for funding provide evidence that gender-based analysis was conducted. The role of the TBS is to ensure that the analysis was done, although the officials acknowledged that they are not in a position to evaluate the quality of that analysis. However, the officials did not have any evidence to suggest that CIDA's gender-based analysis is less than expected of any government agency or department.

CONCLUSION

During its meeting on the Supplementary Estimates (B), 2007-2008, the Committee deliberated on these and other matters. As explained above, the Treasury Board Secretariat officials committed to following-up on a number issues.

The Standing Senate Committee of National Finance respectfully presents its report on the Supplementary Estimates (A), 2007-2008.

---

⁽¹⁾ The latter items often do not require additional appropriations and are included in the related supply bill by the notional amount of "one dollar'' since in order to be listed in the bill, an item must have monetary value.

⁽²⁾ Central votes are designed to meet government wide-commitments and constitute the majority of the Supplementary Estimates for the Treasury Board Secretariat.

⁽³⁾ The Expenditure Management System (EMS) is the framework for the development and implementation of the government's spending plans and priorities within the limits established by the Budget. It supports all government spending decisions. On 11 November 2006, the federal government announced that it would be implementing a number of changes to strengthen the EMS, with the goal of ensuring that all government programs are effective and efficient, are focused on results, provide value for taxpayers' money and are aligned with current priorities and responsibilities. For further information, refer to the Treasury Board backgrounder, http://www.tbs-sct.gc.ca/ media/nr-cp/2006/1128_e.asp#backgrounder1.

⁽⁴⁾ No allocations have been made from TB Vote 5 since Appropriation Act No. 3, 2007-2008 (Supplementary Estimates (A), 2007-2008).

⁽⁵⁾ Budgetary spending encompasses the cost of servicing the public debt; operating and capital expenditures; transfer payments and subsidies to other levels of government, organizations or individuals; and payments to Crown corporations; Non-budgetary expenditures (loans, investments and advances) are outlays that represent changes in the composition of the federal government's financial assets; Voted expenditures are those for which parliamentary authority is sought through an appropriation bill; and Statutory expenditures are those authorized by Parliament through enabling legislation; they are included in the Estimates documents for information purposes only.

---