Budget 2006
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Archived - Chapter 3 - Building a Better Canada:
Accountability

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Highlights

A core priority of the Government is to improve the accountability and transparency of government operations to Canadians. The Federal Accountability Action Plan, released on April 11, introduced a wide-ranging set of reforms, including establishing the position of a Parliamentary Budget Officer and a commitment to provide quarterly updates of the fiscal outlook for the current fiscal year.

Budget 2006 announces a more transparent framework for budget planning, consisting of the following elements:


Introduction

Accountability is the foundation of good government. A strong accountability regime assures Parliament and Canadians that the Government of Canada is using public resources efficiently and effectively. A central element of accountability is transparency. Full and clear information on programs and operations allows citizens and Parliament to hold the Government accountable for its actions and results.

Transparency is also vital for the effective participation of citizens and organizations in developing public policy, which helps to ensure better decisions and better policies and programs for Canadians.

Improving public accountability and transparency is the first core priority of the Government. The proposed Federal Accountability Act was the first piece of legislation brought forward to Parliament by the Government. The Federal Accountability Action Plan represents a comprehensive blueprint for a more accountable, open and ethical government.

Building on these initiatives, Budget 2006 proposes an approach to fiscal planning and managing taxpayer dollars that will improve transparency and strengthen accountability.

Core Priority: Federal Accountability Action Plan

Through the Federal Accountability Action Plan released on April 11, 2006, the Government proposed a broad-ranging set of reforms to strengthen accountability, transparency and oversight in government operations. The proposed Action Plan would:

These measures will cost $164 million over the next two years.

Going forward, the Government will streamline its management policies and consult with stakeholders on reducing barriers that inhibit access to government. It will:

Table 3.1
Accountability


2006–07 2007–08 Total

  (millions of dollars)
Federal Accountability Action Plan 57 60 117
Internal audit1 16 31 47

Total 73 91 164

1 Funding included in the initiatives announced before the Update and confirmed by the Government (Table 4.2). The net new cost of accountability measures is $57 million in 2006–07 and $60 million in 2007–08.

Improving Fiscal Transparency and Financial Management

Budget 2006 proposes a more transparent budget framework, which will include:

A New Approach to Budget Planning and Fiscal Forecasting

Since the federal deficit was eliminated in 1997–98, budget surpluses have frequently been higher than projected. This has eroded the credibility of the budget process and limited the scope for parliamentarians and Canadians to debate alternative uses of surplus funds. A new approach is required. The Government will plan on achieving an annual debt reduction of $3 billion. The former practice of adjusting the budget projections for economic prudence is discontinued. In order to incorporate objective assumptions, the budget projections will continue to be based on the average forecast of private sector economists.

While in some key areas it is appropriate to signal the Government’s medium- to longer-term fiscal intentions (e.g. defence and infrastructure), in general it is important that the focus of the planning period be on the near term, where uncertainties are fewer and the Government can reasonably be held to account for its fiscal plan. For this reason, the economic and fiscal projections of the budget are presented over a two-year time horizon.

Limiting Spending Growth Through Improved Expenditure Management

Over the past five years, total program spending has grown by an average of 8.2 per cent annually. In 2004–05 growth in spending reached 14.4 per cent. This growth is neither sustainable nor desirable. The Government is committed to restraining the rate of growth of spending to a more sustainable level. This will require a focused approach to implementing the Government’s priorities.

Reflecting the Government’s focus on its priorities for this budget, it will not proceed with about $7 billion in spending proposals over five years announced in the November 2005 Economic and Fiscal Update.

More broadly, the Government needs a new ongoing approach to managing overall spending to ensure that all government programs are effective and efficient, are focused on results, provide value for taxpayers’ money and are aligned with the Government’s priorities and responsibilities.

To that end, the Government is launching a review of its expenditure management system. Led by the President of the Treasury Board, this review will report on a new approach by the fall.

The new expenditure management system will respect the following principles:

By applying these principles, the Government will ensure that growth in program spending is sustainable and that the federation works better for all Canadians.

To begin to put spending on a more sustainable track, the President of the Treasury Board will identify savings of $1 billion for 2006–07 and 2007–08 and provide a progress report by the fall.

Chart 3.1 - Federal Debt-to-GDP Projections (Accumulated Deficit)

A Commitment to Reduce Canada’s Debt Burden

The Government is committed to keep the federal debt-to-GDP ratio on a downward track.

While Canada’s federal debt burden has been reduced significantly over the last decade, it is still too high. As a percentage of GDP, federal debt stood at 38.3 per cent in 2004–05, well above the ratio of the mid-1970s, when large deficits began to emerge. It is also about double the combined debt burden of provincial and territorial governments.

Lowering the debt burden reduces Canada’s exposure to fluctuations in global interest rates and reduces the share of each revenue dollar that goes to service the debt. It also helps Canada prepare for the fiscal challenges of population aging. Population aging will slow government revenue growth and put pressure on government expenditure programs such as health care and pension benefits. These fiscal pressures provide a strong rationale for additional debt reduction over the next decade.

In the 2004 budget, the previous government set the objective of reducing the debt-to-GDP ratio to 25 per cent by 2014–15. Having taken stock of the current financial situation, and in keeping with Canada’s new government’s commitment to fiscal discipline, Budget 2006 advances this commitment by one year with a new objective of reducing the debt-to-GDP ratio to 25 per cent by 2013–14.

The Government will achieve this commitment by planning on annual debt reduction of $3 billion. Reducing the federal debt-to-GDP ratio to 25 per cent will mean that approximately 12 cents of every revenue dollar would go to servicing the debt in 2013–14, compared to more than 16 cents in 2004–05.

Allocating Unplanned Surpluses

Recognizing that surpluses in excess of $3 billion may arise, the Government is open to considering options to allocating unplanned surpluses. In particular, the Government is proposing to discuss with provinces and territories the possibility of introducing legislation authorizing the allocation of a portion of unanticipated surpluses at fiscal year-end to the Canada Pension Plan (CPP) and Quebec Pension Plan (QPP). This would allow the unplanned surpluses to be used for the future benefit of Canadians.

Sharing unanticipated surpluses with the CPP/QPP would have three main benefits.

Reforms to Government Financial Reporting

Informed public discussion of fiscal issues requires up-to-date knowledge of Canada’s fiscal position. In the Federal Accountability Action Plan, the Government committed to update government fiscal forecasts for the current fiscal year on a quarterly basis. This responds to parliamentarians’ desire for more frequent access to up-to-date fiscal forecasts.

Quarterly updates of the fiscal outlook for the current fiscal year will now be provided as follows:

Table 3.2
Schedule of Updates of the Fiscal Outlook for the Current Fiscal Year


Update document

Covering results up to the end of Months covered in quarter Release date for update document

June Fiscal Monitor Quarter 1 April to June August
Fall Economic and 
  Fiscal Update
Quarter 2 July to September October/November
Budget Quarter 3 October to December February/March
March Fiscal Monitor Quarter 4 January to March May

Consistent with recommendations made by the Auditor General, the Government is taking action in Budget 2006 to improve the transparency of its financial information.

First, the revenues and expenses of a number of organizations will now be included in the Government’s financial statements. These include:

These foundations will continue to operate as they have since their creation. The Government will retain the use of foundations as an important policy tool on the same governance principles. The independence, financial stability and focused expertise of foundations allow them to address specific challenges in a highly effective manner. Foundations have become important vehicles for implementing policy, particularly in areas such as research and development, where expert knowledge, third-party partnerships and peer review are especially important. With this change in accounting policy, the Government’s financial statements of prior periods will be restated, resulting in an estimated cumulative $5.5-billion decrease in the size of the federal debt as at March 31, 2005.

Second, budgeted revenues and expenses will now be presented on a gross basis. Previous budgets were presented on a net basis, whereby certain disbursements were netted against budgetary revenues and certain revenues were netted against expenses. On a gross basis, all disbursements are included in program expenses and all revenues are included as part of budgetary revenues. The move to a gross basis brings the presentation of the budget forecast in line with the presentation of annual audited results reported in the Public Accounts of Canada.

Presenting forecast results on a gross basis increases the level of estimated spending and revenues by $13.8 billion each in 2005–06, or about 1 percentage point of GDP. Notably, the Canada Child Tax Benefit, an income-tested benefit that was previously netted against personal income tax revenues, will now be presented as an expenditure. As these changes affect both budgetary revenues and program expenses by the same amount, they have no impact on the budgetary balance.

These changes will be reflected in the monthly Fiscal Monitor starting in 2006–07. Annex 2 contains a more detailed discussion of these changes.

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