Proceedings of the Standing Senate Committee on National Finance
Issue 4 - Second and Third Reports of the Committee
Thursday, March 22, 2001
The Standing Senate Committee on National Finance has the honour to present its
SECOND REPORT
Your Committee, to which were referred the 2000-2001 Supplementary Estimates "A" has, in obedience to the Order of Reference of March 1, 2001, examined the said estimates and herewith presents its report.This year, there is only one set of supplementary estimates. The Supplementary Estimates "A" 2000-2001, which were referred to the National Finance Committee on 1 March 2001, were examined on 13 March 2001. Present on behalf of the Treasury Board were Messrs. Keith Coulter and Andrew M. Lieff. In their examination of the Supplementary Estimates Members continued to express an interest in a wide range of issues relating to the Government's planned expenditures.
During this phase of its study of the Estimates, the Committee noted the broad changes to the government's spending plans as are summarized in the two tables attached to this report. The first table at the end of the report, entitled "Summary of Expenditure Framework and Estimates for 2000-2001," provides a quick view of the changes proposed by the Supplementary Estimates "A". During this fiscal period, total planned spending rose from $156.2 billion to $172.6 billion. The bulk of these expenditures, $116.3 billion or 67.4 per cent, are statutory expenditures that do not require a vote.
This $16.4 billion change in total spending as reported in the supplementary estimates represents a 10.5-per-cent increase in the original planned government expenditures for fiscal 2000-2001. This is a substantial change in planned spending over the year and was of immediate concern to the members of the Committee. In general, Senators have difficulty with the extent to which supplementary estimates are used by the government departments. Specifically, Members wondered why the original estimates failed to better capture total planned spending for the current fiscal period. A 10.5-per-cent discrepancy in the estimates seemed an unusually large margin of error.
In their response, the officials noted that the 10.5-per-cent discrepancy essentially reflects the way in which planned expenditures are reported in the Budget and in the Estimates. The Treasury Board reassured the Committee that its officials are focus on the planned spending level of the government, and that they always seeks to ensure that government departments arrive at the planned spending levels indicated by the Budget and the Estimates. How these levels are established and how they change during the fiscal period is determined at the Department of Finance.
With respect to the current figures and the apparent discrepancy, the officials noted that in the February 2000 Budget, the Minister of Finance laid down a budgetary planned spending level of $158 billion. For various reasons, the Main Estimates do not have all of the money actually allocated to departments at the time of the Budget statement. For example, there are funds that are allocated in the budget that still require legislative approval and hence are not listed in the estimates. In March 2000, the Main Estimates listed only $155 billion of the $158.9 billion set out in the budget. In other words, $3.8 billion either did not yet have Parliamentary approval or lacked enough detail for inclusion in the estimates in March 2000.
In the October 2000 Economic Statement, the Minister of Finance added another $3.9 billion to the current year's spending levels, so that the new planned spending number became $161.9 billion. This October increase is accounted for by the $1 .5 billion for the fuel rebate and another $ 1 .5 billion for the health care top-up flowing from the September accord with the provinces. Therefore, about $6.9 billion of the $16 billion was contained in the March Budget and the October Economic Statement but not in the March Estimates. This amount is now stated in the Supplementary Estimates "A".
There is another component to the $16 billion difference observed between the final estimates and the March 2000 estimates. This is the non-budgetary items for performing loans and investments of the government. At this time there is a $1.8 billion amount that reflects the loans that the government is now issuing and bearing on Canada's books for the Canada Student Loans program.
Another part of the $16 billion difference involves a rather complicated issue, that of money being provided for in previous years and being paid for in the current period. This includes the rather large amount for the pay equity payment of $3 billion, which was charged to the deficit and to the surplus in prior years. Another large payment of $2.5 billion was approved by Parliament through the Canada Health Care Act. It was committed to in a prior year and is being spent this year. There was also a revision in the forecast of equalization payments that added another $1.2 billion to the final total.
Altogether, these figures appear to account for the difference between the March 2000 Estimates and the final estimates for fiscal 2000-2001.
A second table at the end of this report, entitled Supply to Date for 2000-2001 summarises the appropriations that have been approved to date. Appropriation Act No 1 has approved $15.6 billion to date, while Appropriation Act No 2 approved another $34.5 billion. Governor General Special Warrants granted additional supply in the amount of $3.5 billion, for a total approved to date of $53.6 billion. The current Supplementary Estimates (A) would add a further $2.6 billion, to increase the total appropriations to $56.3 billion.
Members of the Committee were concerned about the use of Governor General Special Warrants to obtain immediate funds to support the government's ongoing operations when Parliament was dissolved during the election period. Specifically, Members were concerned about the level of financing obtained through Special Warrants. It seemed to go beyond any sense of urgency as prescribed by the legislation governing the use of these instruments. Members were interested in the criteria and the process used to trigger the use of these Warrants.
The officials assured the Committee that every effort was made to avoid any abuse of process during the time that Parliament was not in session. The Treasury Board reviewed all requests for funding through Governor General Special Warrants and in many instances it was able to convince departments to put off their requests until Parliament's return.
The officials reminded the Committee, that the Financial Administration Act (FAA) expressly provides for the use of Special Warrants during an election period. In fact, that is the only time, following the so-called Milliken amendment, that Warrants can be used. In years gone by, the government was able to use Special Warrants during a period of adjournment. That is no longer the case.
Senators were reminded that the Treasury Board had to ensure that the usual government services needed to be provided. Still the Board went through each request, case-by-case, department-by-department, before approving a request for a Special Warrant. When the Board was satisfied that the request for funding met the criteria set out in the FAA, it then sought the Minister's approval. In the end the Treasury Board sought three different issuances of Warrants, none of which were issued during the actual election period.
The Board feels that in terms of the custom, practice and history of the use of Special Warrants, it correctly applied the criteria with respect to each and every one of the items for which they asked for Warrants. Mr Coulter reminded the Members that there are three conditions in the Financial Administration Act governing the use of Special Warrants. These must be satisfied before a Special Warrant can be issued. The first aspect is that Parliament is dissolved following an election call, for a period including up to 60 days following the date fixed for the return of the election writ. The second point is that the payment must be urgently required for the public good. The third factor is that no other appropriation from which the payment can be made exists. Consequently, the Board ensures that it exhausts Treasury Board vote 5, before it moves into a warrant regime.
After much discussion, Senators are left with the feeling that while the Treasury Board made every effort to properly use Governor General Special Warrants, their use and the interpretation of the legislation may have been too broad. For instance, are Special Warrants intended to be used to fund new programs such as the fuel rebate program ? The Committee may want to look into the use of Governor General Special Warrants at a later date, and suggest some corrections.
The Committee also expressed an interest in several other government expenditures. It noticed that the expenditure on the implementation of the gun registry continues to grow well beyond the original estimate. At this time it appears that $489 million has been spent in trying to implement this program. The Board agreed to provide more accurate details on the total spent on this government initiative.
Senators were intrigued by a $5.0 million grant to the endowment fund of the Montreal Symphony Orchestra. Specifically, they wanted to know how such a grant was provided by the Economic Development Agency of Canada for the Regions of Quebec rather than Heritage Canada. The official assured the Committee that the grant was proper and that it complied with the criteria set out by the Development Agency. The Committee is concerned that such a practice makes it difficult for government departments to keep track of overlapping expenditures. For instance, the Committee was reminded that orchestras may well receive federal funding from other agencies such as the Canada Council, Heritage Canada, External Affairs, etc. It has asked the Board to provide further details on the program, specifically regarding the criteria used to approve this grant.
The Committee is also interested in the $140,000 grant to the National Judicial Institute. The Institute is the leading national organization for the continuing education of both federally and provincially appointed Canadian judges. Its budget is fully funded through an agreement among the federal, provincial and territorial governments. Of the total funds required, the federal government contributes half with the provinces and territories splitting the other half pro rata on the basis of the total number of judges per jurisdiction. The total budget of the NJI for 2000-2001 is $537,000, bringing the federal commitment to $268,000. Since, the federal grant stood at only $128,000, an additional $140,000 is required to meet the federal commitment.
Senators continue to be concerned about the relatively high cost of recovery and investigation of the Swissair Flight 111 disaster off the coast of Nova Scotia. This has been a recurring topic of discussion in this Committee as the expenses involved continue to rise. Specifically, Senators are concerned about the international agreement that stipulates that the entire cost of such a recovery operation must be borne by the country in which the accident occurs. Given the volume of traffic that uses Canadian airspace, and given the size of the Canadian landmass, it seems evident that Canada will bear a disproportionate share of recovery and investigation cost of aircraft disasters. There does not appear to be any chance of changing this practice at this time.
Over the years, the Committee has become aware of a host of international obligations that at times involve relatively large and recurring amounts of international debt forgiveness. These expenditures occur in both the Main Estimates and in the Supplementary Estimates. In order to provide an appropriate level of scrutiny on these expenditures, the Committee sought further clarifications about two programs at the Department of Finance. These are two facilities that have been established, respectively, by the World Bank and the International Monetary Fund to help the most indebted countries in the world address their debt problems.
The first is the World Bank's Heavily Indebted Poor Countries Trust Fund, which provides concessional financing and debt reduction relief for about 30 of the poorest countries of the world. They are mostly located in Africa. Canada played a leading role in calling for the creation of this special initiative at the 1995 Halifax summit, and there was an enhancement of the program at the 1999 Cologne summit. The idea is to mobilize donor resources to support relief efforts of the multilateral creditors, in particular those of the African Development Bank. Overall, the initiative is expected to provide about $45 billion in debt relief.
The second program is the International Monetary Fund's Poverty Reduction and Growth Facility, which is available to a larger group of countries, but is based on the same principles. It is designed to help support a balance of payments for low-income and developing countries. Canada has agreed to provide about $400 million in grants to this organization.
The Committee took the opportunity to review the role of the Treasury Board in the overseeing of government expenditures, particularly in respect of government grants. The officials assured the Committee that the Treasury Board takes a very serious interest in the proper management of grants by departments. For instance, when problems arose at Human Resources Development Canada (HRDC) the Treasury Board's first reaction was to assist the Department in clearing up the situation. Second, the Board took a critical look at government-wide aspects of the problem to improve upon the transfer payments policy. In addition, the Board developed a new audit and evaluation policy, which was publicly announced in recent months.
Finally, the Committee continues to be interested in the process by which the Treasury Board sets asides funds to cover large future liabilities. The most recent example involves the $3 billion pay equity settlement. For years, the Treasury Board has made unspecified provisions in the accounts of Canada to pay for this anticipated liability. Although the Committee understands that such sums represent statutory expenditures, and hence do not require ongoing Parliamentary approval, it is uncomfortable with the whole process by which large sums of money are accumulated over time and paid out upon settlement of the law suit without further Parliamentary scrutiny. The Committee will revisit this entire process at length in future hearings.
Respectfully submitted,
LOWELL MURRAY
Chairman
APPENDIX A
SUMMARY OF EXPENDITURE FRAMEWORK AND ESTIMATES FOR 2000-2001
Expenditure Framework:| Budgetary Main Estimates | 155.7 billion |
| Budgetary Estimates To Date | 170.4 billion |
| Projected Budgetary Expenditures | 161.9 billion |
ESTIMATES TO DATE FOR 2000-2001
|
|
TO BE VOTED | STATUTORY | TOTAL |
Main Estimates
| Budgetary | $ 50,096,892 | $ 105,649,742 | $ 155,746,634 |
| Non-Budgetary | 30,939 | 379,498 | 410,437 |
|
|
$ 50,127,831 | $ 106,029,240 | $ 156,157,071 |
| Budgetary | $ 3,509,911 | - | $ 3,509,911 |
| Non-Budgetary | - | - | - |
|
|
$ 3,509,911 | - | $ 3,509,911 |
| Budgetary | $ 2,590,958 | $ 8,471,897 | $ 11,062,855 |
| Non-Budgetary | 43,794 | 1,801,250 | 1,845,044 |
|
|
$ 2,634,752 | $ 10,273,147 | $ 12,907,899 |
| Budgetary | $ 56,197,761 | $ 114,121,639 | $ 170,319,400 |
| Non-Budgetary | 74,733 | 2,180,748 | 2,255,481 |
|
|
$ 56,272,494 | $ 116,302,387 | $ 172,574,881 |
* Estimates will always differ from the Total Budgetary Expenditures due to adjustments not reflected in Estimates for such items as anticipated lapses, budgetary reductions and those expenditures already recognized in prior years.
APPENDIX B
SUPPLY TO DATE FOR 2000-2001
Two Appropriation Acts and three Governor General Special
Warrants
have been approved in respect of the Estimates for 2000-2001
| Supply Approved to Date: |
|
| Appropriation Act No. 1, 2000-2001 |
|
| Granted Interim Supply for the 2000-2001 Main Estimates equal to an initial Allocation of 3/12ths for all votes and 39 votes received additional proportions | $ 15,596,117,039.16 |
| Appropriation Act No. 2, 2000-2001 |
|
| Granted Full Supply for the 2000-2001 Main Estimates | $ 34,531,715,428.84 |
| Governor General Special Warrants |
|
| Granted supply in the amount of | $ 3,509,910,912.00 |
| Total Approved to Date | $ 53,637,743,380.00 |
| Supply Awaiting Approval: |
|
| For the whole of Supplementary Estimates (A), 2000-2001 | $ 2,634,751,741.00 |
| Total for 2000-2001 | $ 56,272,495,121.00 |
Thursday, March 22, 2001
The Standing Senate Committee on National Finance has the honour to present its
THIRD REPORT
Your Committee, to which were referred the 2001-2002 Estimates has, in obedience to the Order of Reference of March 1, 2001, examined the said estimates and herewith presents its interim report.The 2001-2002 Estimates were tabled in the Senate on 1 March 2001 and referred for review to the National Finance Committee. As is customary with this Committee, several meeting dates have been set aside for the review of the Estimates. The Committee's initial examination began on Wednesday evening, 14 March 2001, and is expected to continue at later meetings this spring. At the first meeting, officials of the Treasury Board outlined the government's planned spending and explained the main features of the new Estimates. Appearing from the Treasury Board were Messrs. Keith Coulter, Andrew Lieff, and Kevin Lindsey. In addition to their presentation, the officials answered Members' questions and committed themselves to obtaining additional information on several items of interest to the Committee.
THE EXPENDITURE PLAN - OVERVIEW
This is the first year in a long time that the Estimates are not immediately preceded by a new government budget. The reason is that the government's expenditure plan for 2001-02 was laid out in the October Economic Statement and Budget Update. The Main Estimates reflect the plan presented at that time.There are four components to this year's Estimates. They include PART I, which provides an overview of federal spending by summarising the key elements of the Main Estimates and highlighting the major changes. PART II, which is traditionally referred to as the Blue Book, directly supports the Appropriation Act. It lists in detail resources that individual departments and agencies require for the upcoming fiscal year. It also identifies the spending authorities and the amounts to be included in subsequent appropriations. The Report on Plans and Priorities (RPP) provides additional details on each of the departments and agencies in terms of more strategically oriented planning and results. The RPPs, which will be tabled at the end of March, focus on outcomes expected from government spending activities. Finally, the Departmental Performance Report provides a focus on results-based accountability by reporting on accomplishments achieved against the performance expectations and results commitments as set out in the spring Report on Plans and Priorities. The Performance Reports are released in the fall.
The Minister of Finance's Economic Statement and Budget Update of October 18, 2000 set out the government's budgetary expenditure plan which amounts to $166.3 billion. The plan includes $124.6 billion of program spending, plus public debt charges of $41.7 billion. The Estimates for 2001-2002 present budgetary spending authorities totalling $163.4 billion. This represents 98 per cent of the expenditure plan found in the Economic Statement and Budget Update. It should be noted that the Estimates differ from the total October Budget and Economic Statement presented by the Minister of Finance by an amount of $2.94 billion. There may be several reasons for this difference:
- A number of items do not appear in the Estimates because of timing in the Budget decisions or because they depend on the passage of separate legislation;
- The Estimates do not include funds that are set aside within the 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 government assets and liabilities as stipulated in the Economic Statement and Budget Update.
- Some spending authorities in the Estimates are expected to lapse.
An overview of planned expenditures is provided in Table I below. For a different way of organizing the information in Table I, please see pages 1-3 of the 2001-2002 Estimates, Part I - The Government Expenditure Plan.
TABLE I
THE EXPENDITURE PLAN AND
MAIN ESTIMATES 2001-2002
(In millions of dollars)
| Public debt charges | 41,700 |
| Operating and capital expenditures | 34,335 |
| Elderly Benefits | 25,181 |
| Employment Insurance | 12,247 |
| Canada Health and Social Transfers | 17,300 |
| Fiscal equalisation | 10,479 |
| Other transfers and subsidies | 18,996 |
| Other statutory obligations | 3,118 |
| Total Budgetary Main Estimates | 163,356 |
| Adjustments to reconcile with Budget | 2,944 |
| Total budgetary expenditures | 166,300 |
Of the $165.2 billion set out in the Main Estimates, $112.8 billion, or 68 percent are statutory expenditures. The remainder, $52.4 billion, requires Parliamentary approval. In this year's Estimates, 17 departments or agencies plan to spend over a billion dollars in fiscal 2001-2002. The three largest budgets belong to the Department of Finance ($68.9 billion), the Department of Human Resources Development ($28.2 billion), and the Department of National Defence ($11.4 billion).
Senators began their discussion of the Estimates by reviewing the changes in total planned spending between fiscal 2001-02 and the previous year. Regardless of the reasons provided by the Treasury Board, Senators are troubled by the apparent inability of departments to more accurately forecast government spending. The Main Estimates 2000-2001 originally came in at $156.3 billion. During fiscal 2000-2001, $16.4 billion was added to government expenditures to bring the final estimates total to $172.68 billion. While the Treasury Board officials were able to account for the increase through supplementary estimates, Senators feel that there is too much reliance on this approach to government finances. The Committee would prefer that departments achieve more accurate forecasts, and that more information be provided on amounts not in the estimates but provided for in the Budget. For instance the Main Estimates 2001-2002 project expenditures of $163.4 billion. However, the Budget and Economic Statement of October 2000 allows for spending of $166.3 billion. This additional $2.9 billion needs to be better explained in the estimates documents.
The frequent use of supplementary estimates raises credibility issues in regard to the precision of the Main Estimates. In response, the officials assured Members of the Committee that every effort is made to prepare accurate estimates of the government's expenditure plans for the up-coming fiscal period. The supplementary items are truly the result of items that are new, or for which Parliament has not yet approved expenditures, or for which details are not complete.
A related concern involved the upward drift in government spending. While the figure of $166.3 billion for the Main Estimates 2001-2002 is $6.4 billion less than the final figure of $172.7 billion reported in the Supplementary "A" 2000-2001, it is nonetheless $10.0 billion more than the original estimate reported in the Main Estimates 2000-2001. Senators are concerned about the widespread reports of a slowdown in the global economy. In light of world events, the Committee wonders if the relatively rapid rise in expenditures may come up against declining government revenues.
Members observed that the contributions under the SchoolNet/Community Access Program at Industry were declining from $95.3 million in 2000-2001 to $47.0 million in 2001-2002. The officials reminded the Committee that the program, which assists communities in establishing public Internet access, is designed to provide only start-up assistance. As the objectives of the program are realised, the funding is expected to decline.
Questions were asked about the fact that the level of grants provided by Heritage Canada to organizations to further the use, acquisition and promotion of the official languages has not grown for some time. Officials could not be precise on the methodology that determines the annual allocations, but promised to look into it and report at a later date.
Members were interested in the operations of the Canadian Centre for Management Development (CCMD), which is receiving a $1 million increase in funding for fiscal 2001-2002. This government agency provides training services for senior government managers. There is a perception, as is evident from public statements and from the Throne Speech that there is much concern over public service reform. The CCMD has made a compelling case for a substantial increase in its funding base so that is may contribute to the process of public service reform. Members sought information on the functioning of the Centre and on the composition of its Board of Directors.
Industry Canada is responsible for delivering large sums of money to corporations and institutions in Canada. The Members expressed concern that much of the criteria by which recipients of federal assistance are selected, is outside of the realm of the Department. Two programs were singled out for discussion. The Canada Foundation for Innovation, which administers an endowment fund of over a billion dollars, provides assistance for research projects in universities and hospitals. The Technology Partnerships Canada Program at Industry Canada is expected to distribute $356.8 million in grants to corporations in the coming fiscal year not only for strictly research projects, but also for more commercial endeavours. Members are a bit sceptical about the ability of public servants to select successful commercial activities for government assistance. The Committee has requested additional information on these programs and in particular information on the selection criteria and on their operations.
The Committee is aware that the federal government maintains numerous public structures throughout Canada. Periodically, these federal structures are in need of maintenance. The Committee notes that the Jacques Cartier and Champlain Bridges Inc, a federal Crown Corporation, is currently seeking additional funding to make several repairs to structures that it administers. Specifically, this Crown Corporation manages, controls, operates and maintains the Jacques Cartier Bridge, the Champlain Bridge, parts of the Bonaventure Autoroute, the Pont-Champlain Jetty, the Mercier Bridge and the Melocheville Tunnel, in Montreal. At this time, the Corporation is seeking appropriations of $116.2 million to cover repairs of the bridges, roadways and autoroute under its jurisdiction. Officials agreed to obtain further details on the nature of these repairs.
The Committee remains interested in the relationship between the Canadian International Development Agency and the Canadian judiciary. In particular, the Committee is concerned about the use of funds from CIDA's Canadian Partnership program to finance overseas work done by Canadian judges through the office of the Commissioner of Federal Judicial Affairs. In the past the committee has sought information on grants and contributions given to judges for work undertaken abroad. As the earlier answers have not satisfied the Committee, the officials of the Treasury Board were asked to look further into this matter. Specifically, the Committee is interested in the overall amount spent for this purpose through the office of the Commissioner of Federal Judicial Affairs, the expenditure by project and the authority that permits funds to be spent in this fashion.
In the Department of Agriculture and Agri-Food there is a business line entitled "Strong Foundation for the Sector and Rural Communities" (see pages 2-3 of the Part II). This business line includes activities that enhance the agriculture and agri-food sector's economic viability and self-reliance and that promote the economic development of rural communities. Among other items it includes programs under the Farm Income Protection Act. On pages 2-5 of the Part II, the Department requests $227.3 million for one such program: the Crop Insurance Program. The amount requested in fiscal 2001-2002 is exactly equal to the amount requested in fiscal 2000-2001. Under the Net Income Stabilization Account (NISA), $212.6 million is requested in fiscal 2001-2002, which again is exactly equal to the amount requested in fiscal 2000-2001. Members were concerned about the methods employed to arrive at these figures and whether such estimates affected the level of payouts in the industry. The officials assured the Committee that all legitimate claims were paid regardless of the amount stated in these estimates. They noted that the claims under these income programs displayed large variations from one year to the next, and that the department cannot accurately predict the next year's level. Consequently, it simply includes a reasonable figure for the purpose of preparing the Estimates, and updates the number as hard data comes in during the year.
The Firearm Registry Program continues to draw the interest of the Committee. Specifically, Members were interested in the number of jurisdictions that refused to participate in the initiative and in the costs associated with federal departments and agencies administrating the program in such jurisdictions. Senators were informed that at the present time the provinces of Alberta, Saskatchewan, Manitoba, and Newfoundland and the Yukon, Nunavut, and the Northwest territories are not participating in the program. Officials admitted that some of the costs are not captured if the administrating federal agency simply includes them in its general operating expenses.
Although the officials always attempt to provide immediate answers to Members questions, there remain outstanding matters. The officials offered to provide information at a later date on several topics. At Environment Canada this included: its increasing contributions to environmental and sustainable development projects ($17.96 million), its declining contributions to support Canada's international commitments ($337,300) and its increasing contributions ($18.2 million) to the clean-up of the Sydney Tar Ponds and Coke Oven Sites in the Muggah Creek Watershed. They will also provide details on the funding requirements of the Cape Breton Development Corporation now that the Corporation is winding down operations.
As indicated above, your Committee expects, at a later date, to examine in greater detail various aspects of the government's spending plans.
Respectfully submitted,
LOWELL MURRAY
Chairman