REPORT OF THE COMMITTEE

Thursday, December 2, 1999

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

SECOND REPORT

Your Committee, to which were referred Supplementary Estimates "A", 1999-2000, has, in obedience to the Order of Reference of 17 November 1999, examined the said estimates and herewith presents its report.

Your Committee held a meeting on Tuesday, 23 November 1999 to review these supplementary estimates. At this meeting, officials of the Treasury Board Secretariat appeared as witnesses and provided two explanatory tables, which form part of this report. Together the tables summarize the major changes in the federal government’s financing requirements in fiscal 1999-2000. Supplementary Estimates "A" is the first of a set of supplementary estimates that will be issued in this fiscal year that ends on March 31, 2000.

The Treasury Board provided the Committee with a table entitled Summary of Expenditure Framework and Estimates for 1999-2000. It provides a quick summary of changes proposed by these supplementary estimates. Total planned spending will rise from $151.6 billion to $155.6 billion. The bulk of these expenditures, $105.9 billion or 68.12%, are statutory expenditures that do not require a vote. The $4,028 million change in the total estimates proposed in the supplementary estimates represents a 2.6% increase in the original planned government expenditures for fiscal 1999-2000. However, among voted appropriations the additional requirements of $3.86 billion represent an increase of 8.4% and bring the total to $49.64 billion.

A second table, entitled Supply to Date for 1999-2000 summarizes the appropriations that have been approved to date. Appropriation Act No 1 has approved $13.8 billion to date, while Appropriation Act No 2 approved another $31.95 billion. The current Supplementary Estimates would add a further $3.9 billion, to increase the total appropriations to $49.6 billion.

Mr. Rick Neville and Mr. Andrew Lieff, officials from the Treasury Board of Canada, outlined some of the significant changes in the Estimates and responded to questions from the Members of the Committee. They noted that items included in these Supplementary Estimates serve two purposes. They seek Parliament’s authority to spend money which, while provided for in the fiscal plan set out in the 1999 budget, was not included in the 1999-2000 Main 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.

Mr. Neville listed some expenditure initiatives spread among several departments. Three of the larger amounts included the $544.7 million in additional funding requested to assist departments in dealing with the Y2K conversion problem. Beginning with fiscal 1997-98 through the current supplementary estimates, the total expenditures on Y2K compliance have reached $992.6 million. The final figure is expected to exceed $1 billion. Another $482.5 million in additional funding will be divided among six departments incurring expenditures associated with the Kosovo Conflict. Total estimated expenditures to date for this military action is expected to reach $835 million, of which $525.8 million will be spent in the current fiscal year and $308.5 million in fiscal 2000-01. Finally, $485.7 million is needed to deal with a host of operational requirements in 65 departments and agencies.

In its review of the estimates, the Committee expressed an interested in a number of spending items. For instance, it noted that the Department of Canadian Heritage is seeking an additional $195.4 million. This new request represents a 30% increase in the Department’s original budget. Such an amount is large both in absolute and relative terms. One component of this new request attracted most of the attention: the transfer of $47.3 million, previously allocated under Vote 10, to the Publication Assistance program. Mr. Neville explained that the funds were originally allocated to Canada Post as a means of providing a postal distribution subsidy for Canadian magazine publishers. In June 1997, World Trade Organisation ruled this form of assistance as not allowable because payments were being made between two government agencies. The new program will allow direct assistance to publishers.

In last year’s estimates, the Department of Finance sought authority to issue a demand note for U.S.$ 7.3 million to the European Bank for Reconstruction and Development. At that time Mr. Neville explained that this was part of Canada’s obligation under an earlier agreement by all members to increase the Bank’s paid up capital. Canada’s obligation (approximately U.S.$ 12.0 million) could be either in the form of all cash or a combination of cash and a demand note. By issuing that note Canada had fulfilled its obligations. Now the Committee has learned that the department of Finance incurred another similar expense relating to the Bank in the form of a statutory appropriation of $4.27 million. This involved the issuance of promissory notes as agreed to by Canada in 1996 when the first increase in the capital stock of the Bank were being considered. The current payments will increase Canada’s holding of shares in the capital stock in the Bank.

Another ongoing concern of the Committee is the regular write-off of loans to foreign governments. The Department of Foreign Affairs and International Trade is requesting additional funds under Vote 11a to permit it to forgive $45.0 million in debts owed by 6 African countries. These include: the Republic of Zambia, the Republic of Congo, the United Republic of Tanzania, the Republic of Madagascar, the Republic of Cameroon, and the Republic of Rwanda. The Committee is aware that in previous estimates the Department has sought forgiveness for loans to Latin American countries in relation to environmental initiatives and to China in respect to an old debt.

The officials explained that Canada’s loan portfolio is reviewed regularly and that loans are periodically forgiven as part of a number of agreements among creditor nations to assist the most indebted developing countries. For instance, the criteria for loan forgiveness to a number of Central American countries in Supplementary Estimates "C" 1998-99 was established at the Rio Summit on the Environment. The criteria to determine the current round of debt forgiveness was established by the Paris Club, an informal organisation of creditor governments that meets to reschedule and regularise the sovereign debt of debtor countries. Over the past ten years the Club has developed a debt strategy for the most heavily indebted developing countries.

In order to ensure that this debt forgiveness practice is transparent to Parliament, the Treasury Board had encouraged the practice of reporting the loan forgiveness through supplementary estimates, when traditionally, fewer items are being considered by Parliament. Mr. Neville went on to provided details as to the origin of the debts and the purpose of the loans that were being forgiven. Although the officials provided a clear explanation of the current debt forgiveness exercise, the Committee feels that it would be useful to develop a set of criteria that could guide officials and parliamentarians on the appropriateness of any specific loan forgiveness in the future.

The Committee also noted that the Department of Foreign Affairs and International Trade was requesting additional appropriations of $43.9 million for construction, acquisition of land, buildings and the acquisition of machinery. When combine with previous appropriations in this fiscal year, the total amount requested by the Department rises to $131.6 million. Mr. Neville explained that the bulk of the funding ($70 million) is going towards moving the Canadian embassy from Bonn to Berlin. As the balance ($60 million) involves a number of other projects, he undertook to provide the Committee with a detail answer at a later date.

The Committee noted that additional funds are required by the Canadian Transportation Accident Investigation and Safety Board for its work on the Swissair crash that occurred off the coast of Nova Scotia. The Board is seeking an additional $14.4 million in costs related to the Swissair investigation, and expects the total cost to be slightly greater than $48 million. In answer to Members' questions, officials explained that under the terms of the Chicago Convention of the International Civil Aviation Organisation, each country is responsible for the expenses of conducting the investigation of crashes occurring within its own territory. Furthermore, at this time there is no statutory basis to recoup any part of the expense from either the airline or its insurer. Nonetheless, the Committee was informed that the government is attempting to contact the airline and its insurers on the matter of recovering some portion of the costs associated with the Swissair Disaster. To date the government has not been able to establish a dialogue with the companies involved.

The Committee remains uncomfortable with the current practices regarding the recovery of costs associated with air disasters. It feels that the Chicago Convention places too great a cost burden on Canada, a country that experiences a relatively higher number of international flights through its airspace, flights which neither originate nor end on its territory. While it may not be appropriate to expect other countries to contribute to this expense, the Committee is not satisfied that the airlines and their insurers should be absolved from assuming some portion of the costs involved in the investigation of air disasters. In the short term, the Committee encourages the government to continue to seek some compensation from Swissair and its insurers. In the longer term the Committee would suggest that the government seek to change the relevant sections of the Chicago Convention, such that international carriers assume some liabilities for the investigation and clean-up of air disasters.

The costs surrounding the Firearms Control Program continue to attract the attention of the Committee. At this time the department of Justice is seeking another $35 million. Since inception, the spent and planned expenditures now total $309.7 million. This is well in excess of the original forecasted implementation costs provided at the time that the program was being considered in Parliament. Mr. Neville suggest that the original cost estimates were valid, but that numerous changes in the program as it is being implemented are at the root of the cost increases.

Members noted that there appear to be no items covering the recent pay equity award. Mr. Neville explained that these costs are a statutory expense under Section 30 of the Crown Liabilities Act, and that the government does maintain a special contingency account to which it adds funds on a regular basis in order to provide for future anticipated liabilities. He could not be specific as to the amounts set aside for individual items, such as the pay equity suit, as that might adversely affect the government’s negotiating stance. He did reassure the Committee that adequate provisions were made through earlier budgets to cover the costs arising from the pay equity ruling and that there should be no need to seek additional funding in either the main or supplementary estimates. Mr. Neville believes that the payments should be completed in two instalments during fiscal 2000-2001.

Although the Committee is relieved to know that adequate provisions were made to cover this eventuality, it remains uncomfortable with the notion that expenditures of such magnitude can so easily escape the usual scrutiny of Parliament. The Committee feels that it may wish, at a later date, to examine more thoroughly the process by which the Canadian government deals with potential legal liabilities, and in particular the use it makes of Section 30 of the Crown Liabilities Act to cover such costs.

Members were also concerned about the operations of the Canadian Food Inspection Agency (CFIA) which is seeking an additional $27.1 million under Vote 20a. This amounts to an increase of 12.9% over the original estimate for this fiscal period. The Agency represents a consolidation of all federal food inspection and quarantine services into a single food inspection agency. It began operations in April 1997 and reports to Parliament through the Minister of Agriculture and Agri-Food. The Agency enhances food safety systems by integrating the delivery of inspection and quarantine services previously provided by Agriculture and Agri-Food Canada, Health Canada, Industry Canada and the Department of Fisheries and Oceans Canada. It provides all inspection services related to food safety, economic fraud, trade-related requirements, and animal and plant health programs. Mr. Neville pointed out that the increase in spending sought by the Agency is primarily composed of carry over provisions for operations and capital expenditures. He noted that since its inception the Agency is estimated to have effected about $44 million in cost savings over the previous system.

The Committee observed that the Copyright Board is asking to increase its appropriations by $811,000 or 108.9% over its original budget. This amount is required to fund the increased responsibilities arising out of the 1997 amendments to the Copyright Act. The workload of the Copyright Board depends on the number of tariff proposals filed in applications received, and this level of activity can fluctuate from year to year. The Copyright Board must be able to act expeditiously in scheduling cases for hearings and in issuing its decisions because delays can cause financial hardship for both copyright owners and the user of copyrighted property. These funds will be used to support actual hearings and pre-hearing conferences, any procedural or preliminary motions requiring a decision, and paper-related specialised research.

Finally, the Committee requested further details regarding the "Professional and Special Services" item under the heading "Objects of Expenditures". Members noted that in almost all agencies and departments, this item accounted for the bulk of the expenditures. There was also some concern that too much is being covered under this expenditure heading. Mr. Neville reviewed the content of the 12 categories employed to report expenditures in these estimates. He briefly explained the types of spending that each category is intended to cover.

He then went on to provide a more detailed explanation of the expenses contained in the category of "Professional and Special Services". These include: amounts for all professional services performed by individuals or organisations such as accountants, lawyer, architects, engineers, scientific analysts, reporters and translators, corps of commissionaires, hospital treatment care of veterans and welfare services. It also covers rentals of all kinds, for example, rentals of properties required for special purpose, accommodations for government offices, hiring charter vessels, aircraft and motor vehicles. It also includes the costs of hiring temporary help services such as contractual employees.

The Members of the Committee feel that the "Professional and Special Services category of expenditures is much too broad to be useful to parliamentarians in the review of government spending plans. The Committee suggests that the government consider creating new categories or sub-categories for the special services grouping, which would allow these expense items to be more transparent during Parliamentary scrutiny of the Estimates.

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See Appendix «A» for the «SUMMARY OF EXPENDITURE FRAMEWORK AND ESTIMATES FOR 1999-2000».

See Appendix «B» for the «SUPPLY TO DATE FOR 1999-2000».

 

Respectfully submitted,

 

Lowell Murray
Chairman

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APPENDIX "A"

SUMMARY OF EXPENDITURE FRAMEWORK AND ESTIMATES FOR 1999-2000

Expenditure Framework: