Proceedings of the Standing Senate Committee on
National Finance
Issue 21 - Ninth Report of the Committee
Wednesday, March 12, 1997
The Standing Senate Committee on National Finance has the honour to present its
NINTH REPORT
Your Committee, to which were referred Supplementary Estimates (B), 1996-97, has, in obedience to the Order of Reference of Tuesday, March 4, 1997, examined the said estimates and herewith presents its report.
Your Committee held a meeting to review these supplementary estimates on Wednesday, March 5, 1997, at which officials of the Treasury Board Secretariat appeared as witnesses. Two additional explanatory tables provided by the Treasury Board form part of this report. Together they summarized the major changes in the federal government's financing requirements in fiscal 1996-97. The first table, entitled: Summary of Expenditure Framework and Estimates for 1996-97 displays the various totals as they appeared in the three major financing documents: the Main Estimates, 1996-97, the Supplementary Estimates (A), 1996-97 and the Supplementary Estimates (B), 1996-97. The second table entitled: Supply to Date for 1996-97, shows the three Appropriation Acts passed in fiscal 1996-97, and their respective amounts. It also shows the amount sought in the present Supplementary Estimates.
Supplementary Estimates (B) are the second and last supplementary estimates of the 1996-97 fiscal year that ends on March 31, 1997. While the Supplementary Estimates (A) called for an increase of $924.6 million, the Supplementary Estimates (B) report a $552.4 million reduction in requirements. This brings the final Estimate for 1996-97 to about $157.8 billion, which is only one quarter of one percent over the original estimate of $157.4 billion. Only 30.3% or $47.8 billion of this total final estimates is subject to a vote. The balance ($109.95 billion) is composed of statutory expenditures, mostly ($109.7 billion) in statutory budgetary expenditures.
Supplementary Estimates (B), 1996-97 provide estimates of the spending requirements for 55 departments or agencies of the federal government. It is interesting to note that the two largest changes in funding requirements represent decreases in costs: the $956.0 million in the Finance Department, and the $667.0 million in the Consolidated Specified Purpose Account. These and other aspects of the estimates were of interests to Members of the Committee.
Mr. David Miller, Assistant Secretary, Expenditure Management Sector, Treasury Board of Canada outlined some significant changes in the Estimates and responded to question from the Members of the Committee. He noted that items included in these Supplementary Estimates serve two purpose. They seek Parliament's authority to spend money which, while provided for in the fiscal plan set out in the 1996 budget, was not included in the 1996-97 Main Estimates. This amounts to $816.2 million in these Supplementary Estimates. The second purpose of these estimates, is to provide Parliament with information about changes in projections of statutory spending it has already approved in legislation. Such statutory adjustments found in the Supplementary Estimates "B" account for a $1,368.6 million decrease from the amounts in the Main Estimates and Supplementary Estimates "A" for the current fiscal year.
One major item that Mr. Miller drew to the Committee's attention was the $128.4 million requested by the Department of National Defence for the Disaster Financial Assistance Arrangements. This is an arrangement with the provinces that provides assistance in times of national disasters. Under these arrangements the province in question undertakes relief for the affected crisis region. At a latter date the federal government reimburses the province a proportion of the final cost of relief. In these Supplementary Estimates, the largest component of this amount is the $100 million set aside for the Saguenay flood relief effort. Although the final amount of the province's relief in this disaster is not yet known, the federal government has decide to make an interim payment of $100 million. In response to Members' questions, Mr. Miller explained that this $100 million item represents only a portion of the final amount that will be paid by the federal government for flood relief in the Saguenay region. In the end the federal share is expected to exceed the $100 million listed in this item.
In these estimates the Department of Citizenship and Immigration seeks to increase its budget of $615.0 million by almost 14.4% to $703.6 million. Most of the increase is sought in the form of new voted appropriations of $91.4 million. A major component in this figure is the $63.3 million that is set aside for grants to certain provinces to help defray their cost of providing immigrant settlement services. In answer to questions, the Treasury Board Officials explained that this started off as a $150 million program in the Main Estimates for 1996-07. The $63.3 million represents an opportunity for the federal government to negotiated some changes in responsibility for the provinces. Since these negotiations have not concluded, it is premature to discuss how this money will be allocated by each province.
The Department of Finance reports the largest change in the Supplementary Estimates (B), a $957 million decrease in its statutory budgetary expenditures. This compares with the $810.0 million decrease, that was reported in Supplementary Estimates (A) last September. A number of factors are responsible for the overestimate of expenditures in the Finance Department's budget. For instance on page 54, the Department reports that under the Public Debt program it expects interest and other costs to be down a further $1.0 billion than originally estimated. When this figure is added to the $1.3 billion reduction reported under the same item in Supplementary Estimates (A), the total reduction in the estimated interest and other costs of the public debt for fiscal 1996-97 is $2.3 billion. Although this continues to be welcomed news to Canadians who have become accustomed to seeing large increases in statutory expenditures for interest on the public debt, Members' of the Committee were curious as to what ongoing process has given rise to such inaccurate forecasts.
Treasury Board officials explained that the bulk of the savings on the public debt charges arise from reductions in the level of interest rates. Although, the Finance Department seeks outside guidance on what economic assumptions should underlie its forecasts, it tends to use a conservative approach that often results in slightly higher costs estimates then might be used by the private sector. Consequently, when the interest rates fell in 1996, the Department faced much lower interest costs than it originally expected.
In response to further questioning by Committee Members, Treasury Board officials explained that most of the public debt is now held domestically. Although in the past, the government borrowed significantly from abroad, this is no longer the practice. Consequently, changes in the external value of the Canadian dollar are a less significant concern for those managing the federal government's liabilities.
National Revenue is requesting $54.3 million to apply fiscal measures which were announced in the budget and to prepare the application of the harmonized sales tax. Mr. Miller explained that $23.7 million of that amount is for the implementation of the 1996 federal budget measures. As there are 12 million taxpayers in Canada, changes in the budget that affect taxation will have an impact on National Revenues' income tax collection costs. Another $10 million of the original amount is slated for the implementation of other policies, such as the open skies policy, which will require additional custom and border personnel. Preparations for the harmonized sales tax will costs about $16.6 million.
The Department of Human Resources Development reports that under the Human Resource Investment and Insurance Program it requires a further $145.0 million for the provision of funds for liabilities including liabilities in the form of guaranteed loans under the Canada Student Loans Act. It also shows a $32.2 million decrease for the provision of funds for interest payments to lending institutions under the same Act. Members found these figures intriguing and wanted to know what they represent and how are they might be related?
Treasury Board officials explained that these figures relate to student loans that have gone into arrears, and for which the financial institutions are requesting that the federal government assume its liabilities. Mr. Miller explained that in some instances the former student may have gone into bankruptcy. In other cases, the debtors may simply have moved on without providing a forwarding address. The increase in the costs associated with loans under the Canada Students Loan Act has given rise to the Canada Student Financial Assistance Act. Instead of the federal government guaranteeing the loan, the financial lender is responsible for the loan but the federal government will pay them a premium for the risk of taking on that requirement. In this way the government hopes to minimize its liabilities in this area while ensuring some accessibility to funding for students.
Mr. Miller noted that at the present time the federal government has over $4 billion of receivables from all sources, much of which may be associated with overpayments in different programs. Treasury Board, in conjunction with the major Departments is working at reducing the overall level of receivables.
In his opening remarks, Mr. Miller noted that $119.4 million was being requested by nine departments and agencies for separation programs for public service employees, such as the Early Retirement Incentive and the Early Departure Incentive, including $61 million for National Defence. In response to Members' interest in the subject, Mr. Miller elaborated on the progress of this initiative. He reminded the Committee that the program was originally slated to cost about $2.3 million over the four year period that was to end in fiscal 1997-98. As a result of a second initiative, the period was extended to fiscal 1998-99, and an additional $1 billion was set aside for associated expense. Departments were told that any costs that cannot be controlled because of the necessity to meet reduction objectives would be sought through Supplementary Estimates. The total number of public servants affected by this reduction is expected to be about 55,000.
With respect to the 55,000 persons, Mr. Miller was careful to point out that this is not a lay-off figure. It represents the number of jobs that are no longer a part of the public sector. Although some of these may represent lay-offs and retirements, a significantly large number represent jobs that were transferred over to the private sector.
The Committee was interested in certain items reported under the Commissioner for Federal Judicial Affairs in the Justice Department. $200,000 requested for legal counsel for the defence of judges, and the $375,000 requested for inquiry and other legal costs. Treasury Board explained that the Commissioner is required to go through the processes necessary to review the conduct of judges. Those two figures reflect, in one case the legal counsel cost to defend the judges, and in the other the cost of reviewing the conduct of judges.
Mr. Miller also explained the functioning of the National Judicial Institute, an organization responsible for co-ordinating the judicial education in Canada and for sensitizing judges to current and emerging issues. The Institute is jointly funded by the federal, provincial and territorial governments to an amount of $610,000. The federal share is $280,000.
Another item of interest to the Committee is the almost 10 per cent increase in the Governor General's operating budget. Treasury Board officials noted that this was an unusual request by the Governor General's office, which is normally subject to the same kinds of reductions as other federal department or agencies. A thorough review by the Board confirmed that this increase was required to ensure that the service would be continued. Many of the costs that were identified by the review, were believed to be beyond the control of the department.
Finally there was interest in Heritage Canada's flag program, where individuals received free flags from the Department. The Committee was informed that over a million flags were distributed, at a cost of $15.5 million.
Respectfully submitted
DAVID TKACHUK
Chairman