52 Elizabeth II, A.D. 2003, Canada

Journals of the Senate

2nd Session, 37th Parliament

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Issue 43 - Appendix "D"

Tuesday, March 25, 2003
2:00 p.m.

The Honourable Daniel Hays, Speaker

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Tuesday, March 25, 2003

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

FIFTH REPORT

Your Committee, to which were referred the 2003-2004 Estimates, has, in obedience to the Order of Reference of February 27, 2003, examined the said estimates and herewith presents its first interim report.

Respectfully submitted,

LOWELL MURRAY

Chairman

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INTERIM REPORT ON THE
MAIN ESTIMATES 2003-2004

INTRODUCTION

The 2003-2004 Main Estimates were tabled in the Senate on 26 February 2003 and referred for review to the Standing Senate Committee on National Finance. Several meeting dates have been set aside for the review of the Main Estimates, beginning with an initial examination on 19 March 2003. The Committee intends to examine certain aspects of the Main Estimates in greater depth at a later date. At the first meeting, officials from the Treasury Board outlined the federal government's planned spending and explained the main features of the Main Estimates. Appearing from the Treasury Board were Mr. David Bickerton, Executive Director, Expenditure Operations and Estimates Directorate and Ms. Laura Danagher, Senior Director of Expenditure Operations. 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 MAIN ESTIMATES

There are four components to this year's Main Estimates. They include PART I, which provides an overview of federal spending by summarizing 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, and lists in detail the 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 (a component of Part III) provides additional details on each of the departments and agencies in terms of more strategically oriented planning and results. It focuses on outcomes expected from government spending activities. Finally, the Departmental Performance Report (a component of Part III) 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 Main Estimates present information on both budgetary and non-budgetary spending authorities. 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 outlays that represent changes in the composition of financial assets of the Government of Canada.

Of the $175.9 billion set out in the Main Estimates, $117.0 billion, or 66.5%, are statutory expenditures. The remainder, $58.9 billion, requires Parliamentary approval. In this year's Main Estimates, 20 departments or agencies plan to spend over a billion dollars in fiscal 2003-2004. The three largest budgets belong to the Department of Finance ($67.3 billion), the Department of Human Resources Development ($30.7 billion) and the Department of National Defence ($12.3 billion).

The table beginning on page 1-24 of the 2003-2004 Main Estimates, Part II, entitled Budgetary Main Estimates by Standard Object of Expenditures, is an excellent place to begin a general review of the Main Estimates. The spending plans of all departments and agencies are divided among 12 categories of expenditure. The summary provided by the table allows a quick comparison of spending intentions among the various agents of the federal government. For instance, although the Department of Finance is requesting the largest appropriation, most of its budget (56.0%) is composed of ``public debt charges,'' an item that occurs in no other department's spending plans.

THE EXPENDITURE PLAN — AN OVERVIEW

The Minister of Finance's February 2003 Budget sets out the federal government's budgetary expenditure plan that totals $180.7 billion. The plan includes $173.1 billion in budgetary spending and $2.9 billion in non-budgetary expenditures for loans and investments. The balance ($4.7 billion) includes provisions for further spending under statutory programs or for authorities that will be sought through Supplementary Estimates later in the fiscal year. Moreover, it should be noted that:

• a number of items do not appear in the Main Estimates because of timing in the Budget decisions or because they depend on the passage of separate legislation;

• the Main 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 Main Estimates do not include the provisions for the revaluation of government assets and liabilities as stipulated in the Economic Statement and Budget Update; and

• some spending authorities in the Main Estimates are expected to lapse.

Overall, the budgetary spending in the 2003-2004 Main Estimates has increased by $4.8 billion relative to the 2002- 2003 Main Estimates. Most of this increase ($4.3 billion or 90%) is attributable to a host of factors. Foremost are the following:

1. $1,300 million to the Department of Finance for an increase in Public Interest and Servicing Costs;

2. $774 million among all departments and agencies for salary increases;

3. $480 million to Transport Canada, mostly for the creation of the new Canadian Air Transport Security Authority;

4. $450 million to Human Resources Development Canada for direct transfers to individuals due to increases in Old Age Security and Guaranteed Income Supplement payments; and

5. $402 million to the Department of National Defence.

While numerous lesser amounts are found in the Main Estimates, one item remains of special interest to the Committee. A total of $113.1 million is requested for the Canadian Firearms Centre, of which $74 million is for the Department of Justice.

There are also major budgetary decreases totalling $1.5 billion, among which the most significant are:

1. $542 million from Agriculture and Agri-Food Canada as a result of the termination of the Canadian Farm Income Program and the Agricultural Risk Management Program;

2. $245 million from Human Resources Development Canada under the Canada Students Loan Program; and

3. $229 million from all departments and agencies for the statutory adjustment to the reduced forecast of the net EI benefits and offset by increased costs of EI administration.

Three major items account for most of the $800 million change in the non-budgetary Main Estimates:

1. $1,155 million increase due to the anticipated increase in concessional loan disbursements and loan repayments under the Canada Account loan agreements at the Export Development Corporation;

2. $274 million decrease at Human Resources Development Canada because of declines in payments for loans disbursed under the Canada Student Financial Assistance Act due to a change in the method of calculating the growth rate in the demand for these loans; and

3. $43 million decrease in payments to various international financial institutions by the Department of Finance.

An overview of planned expenditures is provided in Table I below. For a different way of organizing the information in Table I see page 1-3 of the 2003-2004 Main Estimates, Part I.

TABLE I

THE EXPENDITURE PLAN AND
MAIN ESTIMATES 2003-2004
(in millions of dollars)

* The difference between the current forecast shown above and the planning assumption of $12,261 million in the 18 February 2003 Budget is reflected in the line entitled ``Adjustments to reconcile to the Budget Plan.''

Source: 2003-2004 Main Estimates, Part I, page 1-3.

EXAMINATION OF THE MAIN ESTIMATES

In their review of the 2003-2004 Main Estimates, Senators attempted to reconcile figures cited in the February Budget with items in the planned expenditures. For instance, under the heading of Investing in Canada's Health Care System, there is a total of $4.6 billion that will be paid to a third-party trust until legislation is passed. Although these funds are booked in 2002-2003, there is no corresponding item in the 2002-2003 Supplementary Estimates (B). Furthermore, Senators cannot find the authority that allows the government to set aside funds in one fiscal year for a program that may or may not be passed by Parliament in a subsequent fiscal year. Senators are concerned that this budget item is similar to the ones that the Auditor General has highlighted in her past reports with regard to the creation of foundations. Specifically, Senators are concerned that toward the end of a fiscal year, the government is advancing money from the surplus to an organization that may be set up for a worthy purpose, rather than to paying down the debt. The Auditor General objected to such practices on the basis of sound accounting practice. Some Senators object to it on the basis of the conventions of Parliamentary government. Though the officials were not able to provide a satisfactory answer on this question during the hearings, they promised to look into the matter and to provide an explanation at a later date.

Senators expressed their frustration at locating important items in the Main Estimates, such as the funding requested for the Canadian Firearms Program. They are aware that amounts are set aside within the estimates for the Department of Justice. However, it is not possible to distinguish the planned spending on specific programs from that of other activities of departments. Furthermore, confusion arises when one attempts to use the index of the Main Estimates to locate an item because the item may not be listed in the index as it appears within the document. Naturally, this lack of consistency in reporting leads to confusion. The Committee would welcome greater clarity and consistency in the presentation of the Main Estimates to Parliament. Mr. Bickerton acknowledged that the process could be overwhelming at times. He also noted that much of the detail on planned spending is to be found in the Report on Plans and Priorities. Unfortunately, as some Senators noted, the current process requires Parliamentarians to vote on the planned expenditures before they are allowed to examine the details.

This raises a larger issue on which members of the Committee have expressed concern, namely, the information provided to Parliamentarians for the examination of Estimates. As part of its Improved Reporting to Parliament Project, the Treasury Board has invited parliamentarians to comment on the quality and format of the Estimates information that it provides to parliamentarians. In this light the Committee wishes to pursue examination of the following two issues:

• the need for a more clear and evident link between the summary information in Part II of the Estimates and the great quantity of information in Part III to facilitate a more meaningful review of the Estimates; and

• the need to put the great quantity of information contained in Departmental Reports on Plans and Priorities, Departmental Performance Reports and the Strategic Outcomes Data Base in a more succinct and easily accessible format in order to be of greater use to parliamentarians in their review of Estimates.

The federal government's plans to reduce its spending in a number of business lines in the Main Estimates of the Department of Fisheries and Oceans raises concerns with Senators. Specifically, planned spending will decline by $11.3 million on Fleet Management, by $11.2 million on Habitat Management and Environmental Science, and by $8.3 million on Rescue, Safety and Environmental Response. Senators view these as extremely important business lines at a time when the country is experiencing unprecedented challenges in its marine regions: the closure of the cod fishery off Newfoundland and Labrador; the need for more icebreakers in the Arctic to support our sovereignty claims; and the threat of climate change and pollutants on all three coasts. Senators believe that these are major areas where the country should be investing rather large sums of money. With these reductions, we will reduce our capacity to deal with these problems.

Under its Vote 10 — Grants and Contributions, the Department of Agriculture and Agri-Food requests a total of $273.9 million in the fiscal year 2003-2004 as compared to $780.0 million in the previous year. This $506.1 million reduction in grants and contributions represents a 64.9% decline in assistance provided by the Department. Mr. Bickerton explained that the reduction is the result of programs being phased out while new initiatives are not yet in place. The Canadian Farm Income Program, CFIP, and certain other contributions relating to agricultural risk management are being phased out and replaced by new programming under the Agricultural Policy Framework. The reductions are shown in these Main Estimates. According to Mr. Bickerton, this contributes to something in the order of aboutapproximately $400 million of that reduction. Meanwhile, the funding for the new framework, and the other transition measures, will be reflected in the Supplementary Estimates later in the new fiscal year. Since negotiations are still ongoing with the Department and the partners in the program it was not possible to include those monies in the Main Estimates. Mr. Bickerton reminded the Committee that there was an announcement made last year that the Department would provide funding in the order of $5 billion over a number of years. The 2002-2003 Supplementary Estimates (A) included an item of more than $500 million for some transition measures. There was also a further $50 million for Quebec in the 2002-2003 Supplementary Estimates (B) that would bring transition measures to about $600 million for the 2002-2003 fiscal year.

The Main Estimates show a $1.3 billion increase for public debt interest and servicing costs. As the overall public debt is being reduced, Senators wondered what accounted for this expected increase in the public debt costs. Mr. Bickerton responded that there actually were several reasons that explain the anticipated increase in the cost of servicing the debt. According to the information provided to the Treasury Board officials by the Department of Finance, this net increase in the public debt charges is due in part to the implementation of accrual accounting but also to increased costs related to short-term interest rates and interest accrued on retirement and post-employment liabilities. These costs are partially offset by a decline in the federal debt and also by declines related to the interest on public sector pensions.

The Department of Human Resources Development (HRDC) revealed in its Main Estimates that it expects to make four contributions under the Canada Student Financial Assistance Act and the Canada Student Loans Act. The total amount required for 2003-2004 is $194.3 million, or $229.3 million less than the $423.6 million required in the previous fiscal year. In his opening remarks, Mr. Bickerton identified an expected decrease of $274 million related to loans disbursed under the Canada Student Financial Assistance Act. Senators were curious to know what accounted for these expected reductions in student loans at a time when students are crying out for more financial aid. Mr. Bickerton assured the Committee that this does not represent a change in federal policy regarding student financial assistance but rather an improvement in the forecasting methodology of the Department in this area. HRDC, in the past, has based its forecasts on a particular percentage increase in disbursements every year. This generally led to estimates that exceeded the actual amount required by about $200 million a year. Therefore, it devised a new forecasting methodology that hopefully will be more precise in estimating the requirements for student loans. It does not change the amounts available to students. Rather, it is better able to forecast the requirements of this program.

There remain several outstanding matters. The officials offered to provide information at a later date on several topics, including the legal expenses of the National Capital Commission, the programs at the National Judicial Institute, past expenditures under the Canadian Farm Income Program and the Agricultural Income Disaster Assistance Program. As indicated above, the Committee expects, at a later date, to examine in greater detail these and other aspects of the federal government's spending plans.

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