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Section I: Overview

Minister's Message

The Department of Finance  Canada plays a leadership role in helping the government create a strong and sustainable economic environment, resulting in increasing standards of living and improved quality of life for Canadians. Sound fiscal management and a sustainable and productive economy are keys to Canada  being able to draw maximum benefit from opportunities to enhance the health and social well-being of all Canadians.

Canadians have every reason to be proud of our country's economic performance. We are experiencing the second-longest period of economic expansion in our history. Core inflation is within our target range of 1 to 3 per cent. Our unemployment rate is at its lowest level in 30 years, with more Canadians working than ever before. We are on the best fiscal footing of any country in the G7.

Our fundamentals are solid, but we cannot afford to be complacent. We need to become more innovative and competitive than ever before. We need to create a climate for even greater growth and prosperity in the years to come.

Canada's New Government is doing just that, and many of its key initiatives to address the priorities of Canadians are being spearheaded by the Department of Finance Canada. Budget 2006 delivered on many of the key priorities and commitments outlined in the Speech from the Throne, including reducing the goods and services tax and lowering personal income taxes for all taxpayers.

In November 2006, we introduced Advantage Canada, our long-term economic plan that will strengthen Canada's future and improve the quality of life for all Canadians.

Building on this plan, Budget 2007 marked a significant step forward. It strengthens the federation by restoring much-needed fiscal balance. It means tax relief for families and businesses, and predictable, long-term funding for post-secondary education, social assistance, and social services. Budget 2007 also includes leadership measures for reducing our federal debt and delivering support for clean air and climate change projects.

Strengthened by the achievements highlighted in this annual performance report, the Department of Finance  Canada will continue to focus on key economic and social policies that will further improve the standard of living and quality of life enjoyed by Canadians, their families, and their communities in the years to come.

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Management Representation Statement

I submit for tabling in Parliament the 2006-07 Departmental Performance Report for the Department of Finance Canada.

This document has been prepared based on the reporting principles contained in the Guide to the Preparation of Part III of the 2006-2007 Estimates: Reports on Plans and Priorities and Departmental Performance Reports.

• It adheres to the specific reporting requirements outlined in the Treasury Board of Canada Secretariat guidance.
• It is based on the Department's Strategic Outcome and Program Activity Architecture structure that were approved by the Treasury Board.
• It presents consistent, comprehensive, balanced, and reliable information.
• It provides a basis of accountability for the results achieved with the resources and authorities entrusted to it.
• It reports finances based on approved numbers from the Estimates and the Public Accounts of Canada.

The paper version was signed by 

Rob Wright
Deputy Minister

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List of Abbreviations

The following abbreviations are used in this report:

AML	Anti-money laundering
APEC	Asia-Pacific Economic Council
APG	Asia-Pacific Group on Money Laundering
ASU	Aircraft Sector Understanding
ATF	Anti-terrorist financing
ATSC	Air Travellers' Security Charge
CCA	Capital cost allowance
CDIC	Canada Deposit Insurance Corporation
CHT	Canada Health Transfer
CHST	Canada Health and Social Transfer
CITT	Canadian International Trade Tribunal
CLC	Canada Lands Company
CPB	Canada Premium Bond
CPI	Consumer Price Index
CPP	Canada Pension Plan
CPPIB	Canada Pension Plan Investment Board
CRF	Consolidated Revenue Fund
CSB	Canada Savings Bonds
CST	Canada Social Transfer
DTC	Disability tax credit
EBRD	European Bank for Reconstruction and Development
EDC	Export Development Canada
EITI	Extractive Industries Transparency Initiative
EU	European Union
FATF	Financial Action Task Force on Money Laundering
FIPA	Foreign Investment Protection and Promotion Agreements
FNGST	First Nations GST Agreements
FPR	Foreign property rule
FSAP	Financial Sector Assessment Program
FTA	Free Trade Agreement
G7	Group of seven leading industrialized countries
G8	G7 nations plus Russia
G10	G7 nations plus Belgium, the Netherlands, Sweden, and Switzerland
G20	The members of the G20 are the finance ministers and central bank governors of 19 countries, plus the European Union
GDP	Gross Domestic Product
GEF	Global Environment Facility
GST/HST	Goods and Services Tax / Harmonized Sales Tax
IAE	International Assistance Envelope
IDA	International Development Association
IFI	International Financial Institution
IMET	Integrated Market Enforcement Team
IMF	International Monetary Fund
M&P	Manufacturing and processing sector
METC	Medical expense tax credit
MDRI	Multilateral Debt Relief Initiative
MOU	Memorandum of understanding
NAFTA	North American Free Trade Agreement
NASTC	North American Steel Trade Committee
NICML	National Initiative to Combat Money Laundering
NRTEE	National Round Table on the Environment and the Economy
OECD	Organisation for Economic Co-operation and Development
OSFI	Office of the Superintendent of Financial Institutions
PAA	Program Activity Architecture
PRGF	Poverty Reduction and Growth Facility
R&D	Research and Development
RCM	Royal Canadian Mint
RDP	Retail Debt Program
RTA	Reciprocal taxation agreement
S&T	Science and technology
SDR	Special Drawing Right
SDS	Sustainable Development Strategy
SEA	Strategic environmental assessment
SFT	Speech from the Throne
SPP	Security and Prosperity Partnership
SR&ED	Scientific Research and Experimental Development
TCA	Tax Collection Agreement
TFF	Territorial Formula Financing
WITB	Working Income Tax Benefit
WTO	World Trade Organization

Summary Information

Department's reason for existence

The goal of the Department of Finance Canada is to foster a strong economy, resulting in higher standards of living and an improved quality of life for all Canadians.

Financial Resources ($ thousands)

Planned Spending	Total Authorities	Actual Spending
$73,952,320	$74,101,307	$73,875,346

Human Resources (Full-time Equivalents-FTEs)

Planned	Actual	Difference
901	790	111

Summary of Performance in Relation to the Departmental Strategic Outcome, Program Activities, Results, and Priorities

The following table provides an overview of the Department's strategic outcome, a listing of its ongoing priorities, and the associated financial resources for the 2006-07 fiscal year.

Strategic Outcome A strong and sustainable economy, resulting in increasing standards of living and improved quality of life for Canadians.
Departmental Priorities	Planned Spending	Actual Spending
	Financial resources ($ thousands)
Priority 1: Sound Fiscal Management	34,503,746	34,350,873
Priority 2: Sustainable Economic Growth	38,500	37,261
Priority 3: Sound Social Policy Framework	38,660,839	38,467,069
Priority 4: Effective International Presence	749,235	1,020,143
Total Department of Finance Canada	73,952,320	73,875,346

The following table provides a list of the program activities of the Department, with their expected results and performance status. Performance status was measured using the following four categories: Exceeded expectations; Successfully met expectations; On track to meet expectations; and Not yet met expectations. Additionally, the table demonstrates the relation of each program activity and its expected results to the various departmental priorities. Finally, we have linked the expected results of each program activity to financial resources.

Program Activity / Expected Results	Performance Status	Priority Supported	Planned Spending	Actual Spending
			Financial resources ($ thousands)
Tax Policy
Competitive, efficient, and fair personal, corporate, sales, and excise tax systems	Successfully met expectations	1, 2, 3	25,899	25,405
Improved coordination of the federal tax system with those of provinces, Aboriginal governments, and other countries	Successfully met expectations	1, 2, 3	3,915	3,618
High-quality research and evaluation	Successfully met expectations	1, 2, 3	1,928	1,782
Total			31,742	30,805
Economic and Fiscal Policy
Transparent fiscal planning and sustainable fiscal policy	On track to meet expectations	1	5,980	5,790
Effective monitoring and forecasting of economic performance	Successfully met expectations	2	5,477	6,084
Effective briefing and advice on a wide range of economic questions	Successfully met expectations	2	1,758	1,313
Understanding of and contribution to international economic policies and reforms	Successfully met expectations	4	1,758	1,313
Total			14,973	14,500
Financial Sector Policy
Stable low-cost financing for the Government of Canada	Successfully met expectations	1	1,006	78,566
A well-functioning market in Government of Canada securities	Successfully met expectations	1	1,005	756
Effective management of Canada's official international reserves	Successfully met expectations	1	2,009	1,513
A sound borrowing framework for Crown entities	Successfully met expectations	1	2,344	2,230
A supply of coinage at a reasonable cost	Successfully met expectations	1	320	304
A regulatory framework that promotes the soundness, efficiency, and competitiveness of Canada's financial sector and serves the needs of individuals, business, and the economy	Successfully met expectations	2	8,415	8,255
A sound legislative and regulatory framework for federally regulated defined benefit pension plans	Successfully met expectations	3	1,201	1,082
Effective framework for investment of CPP funds * Expenditures are recovered from Human Resources and Social Development Canada	Successfully met expectations	3	0	0
A world-class anti-money laundering (AML) and anti-terrorist financing (ATF) framework	Successfully met expectations / On track to meet expectations	4	2,403	2,531
Effective support for Canada's presidency of the Financial Action Task Force	Successfully met expectations	4	2,402	1,206
Other: Advances pursuant to subsection 13(1) of the Financial Consumer of Canada Agency Act—A world-class AML and ATF framework	Not applicable	1		5,000
Total			21,105	101,443
Economic Development and Corporate Finance
A thorough assessment of operating and capital funding related to economic development and policy proposals	Successfully met expectations	1	2,402	2,340
Sound advice to the Minister on economic proposals	Successfully met expectations	2	2,402	2,340
Enhanced productivity and economic growth through other governmental initiatives	Successfully met expectations	2	2,882	2,807
Improved awareness of the requirements and departmental process for conducting strategic environmental assessments	Successfully met expectations	2	320	312
Total			8,006	7,799
Federal-Provincial Relations and Social Policy
Implementation of new formula for Equalization and Territorial Financing Formula	Successfully met expectations	3	9,388	5,932
Determination of the most appropriate arrangements for post-secondary education and training	Successfully met expectations	3	3,251	3,518
Effective implementation of government social policy priorities	Successfully met expectations	3	4,590	5,047
Total			17,229	14,497
International Trade and Finance
Stronger international trading system and more open markets	Successfully met expectations	2	6,665	5,882
Policy positions and proposals that improve prospects for global economic and financial stability and better financial governance	Successfully met expectations	4	4,095	3,712
Effective international initiatives to strengthen developing economies	Successfully met expectations	4	5,237	5,309
Total			15,997	14,903
Public Debt
Stable low-cost financing for the Government of Canada	Successfully met expectations	1	34,289,955	34,020,772
A well-functioning market in Government of Canada securities* * Expenditures are reported under the Financial Sector Policy program activity	Successfully met expectations	1	0	0
A cost-effective retail debt program	On track to meet expectations	1	105,045	87,732
Total			34,395,000	34,108,504
Domestic Coinage
A supply of coinage at a reasonable cost	Successfully met expectations	1	83,100	135,602
Total			83,100	135,602
Transfer Payments
Financial support for Canadian provinces and territories to assist them in providing public services, universally accessible health care services, post-secondary education, and social assistance	Successfully met expectations	3	38,631,828	38,441,221
Total			38,631,828	38,441,221
International Financial Organizations
Payments to international organizations and Canadian creditors consistent with the government's commitments	Successfully met expectations	4	733,340	1,006,072
Total			733,340	1,006,072
Total Department of Finance Canada			73,952,320	73,875,346

Overall Departmental Performance-Departmental Priorities

Introduction

At the heart of its role in developing sound economic and fiscal policy for the government, the Department's plan of action for 2006-07 was guided by four key priorities: ensuring sound fiscal management; fostering sustainable economic growth; strengthening a sound social policy framework; and maintaining an effective international presence.

Sound Fiscal Management

A strong economy requires sensible, strong financial management and leadership. Canada's solid macroeconomic framework, which includes transparent fiscal management, underpins healthy economic growth and helps ensure the sustainability of our social safety net. A sound fiscal structure also includes a competitive, efficient, and fair tax system to promote economic growth, create jobs, and increase living standards in a fiscally sustainable manner.

These strengths have placed Canadians in a good position to capitalize on both domestic and global economic opportunities. This has allowed the government to reduce the public debt burden and, in turn, invest in important economic and social priorities, while also delivering significant tax relief to all Canadians.

The 2006 Speech from the Throne outlined plans to help working Canadians and their families by reducing the tax burden on all Canadians. More specifically, the Speech called for a reduction in the goods and services tax (GST) by one per cent and a lowering of taxes for the benefit of Canadians and the Canadian economy. In 2006-07, the Department of Finance Canada acted on these commitments by lowering the GST by one per cent and by announcing a number of tax reductions in Budget 2006 and in Budget 2007.

One of the Department's most significant achievements during 2006-07 was the development of Advantage Canada, a long-term, national economic plan. Designed to make Canada a true world economic leader, Advantage Canada is based on several core principles:

• focussing government on what it does best;
• creating new opportunities and choices for people to excel;
• investing for sustainable growth; and
• freeing businesses to grow and succeed.

Advantage Canada is focussed on creating five Canadian advantages that will help us improve our quality of life and succeed on the world stage.

Tax Advantage

• Canada's Tax Advantage will reduce taxes for all Canadians and establish the lowest tax rate on new business investment in the G7.

Fiscal Advantage

• Canada's Fiscal Advantage will eliminate Canada's total government net debt in less than a generation, creating a strong foundation on which to build sustainable prosperity.

Entrepreneurial Advantage

• Canada's Entrepreneurial Advantage will reduce unnecessary regulation and red tape and lower taxes to unlock business investment. By building a more competitive business environment, consumers will get goods at lower prices and Canadian businesses will be better equipped for global success.

Knowledge Advantage

• Canada's Knowledge Advantage will create the best-educated, most-skilled and most flexible workforce in the world.

Infrastructure Advantage

• Canada's Infrastructure Advantage will create modern, world-class infrastructure to ensure the seamless flow of people, goods and services across our roads and bridges, through our ports and gateways, and via our public transit.

As debt servicing is currently the largest spending program of the federal government, the prudent and effective management of the government's debt continues to be an important element of the Department's strategy for sound fiscal management.

The focus for 2006-07 was on reviewing and evaluating the effectiveness of debt management and treasury management frameworks and programs.

Sustainable Economic Growth

Ensuring the competitiveness, efficiency, safety, and soundness of Canada's financial sector and ensuring that domestic financial markets function well are necessary conditions for achieving sustainable growth in the Canadian economy. During 2006-07, the Department focussed on completing the review of the financial institutions statutes, implementing regulations associated with the new corporate governance legislation for financial institutions, preparing for a planned Financial Sector Assessment Program update by the International Monetary Fund (IMF), and contributing to an enhanced system of securities regulations in Canada.

The Department also plays a key role in the North American Security and Prosperity Partnership initiative in terms of overall budgetary considerations, as well as from a policy perspective. The Department implemented more liberal rules of origin covering more than U.S.$35 billion in total trilateral trade, which will improve the competitiveness of Canadian industries by reducing transaction costs and facilitating cross-border movement.

In November 2006, the government and the Bank of Canada announced the renewal of Canada's inflation control target. Under the renewed agreement, the inflation target will continue to be the 2 per cent mid-point of the 1 to 3 per cent inflation control range, defined in terms of the 12-month rate of change in the total Consumer Price Index. The agreement will run for a five-year period, ending December 31, 2011. Canada's policy of low and stable inflation has contributed to the country's macroeconomic advantage by maintaining interest rates at historically low levels.

Over the course of 2006-07, the Department worked with Industry Canada and other departments to implement the commitments made in Advantage Canada to create the Knowledge Advantage and the Entrepreneurial Advantage. The Department made important contributions to the development of a new comprehensive science and technology strategy, Mobilizing Science and Technology to Canada's Advantage, released in the spring of 2007. The strategy is a forward-looking framework that aims to generate science and technology leadership for Canada, based on strong public- and private-sector commitments to research excellence.

The Department also worked to advance a number of initiatives aimed at improving the business environment and stimulating private-sector investment and innovation. In particular, the Department worked with other departments and agencies to implement the commitments set out in Advantage Canada to advance regulatory reform by making government regulations more efficient, timely, and cost-effective, while continuing to protect the health and safety of Canadians.

The Department's work also led to the inclusion in Budget 2007 of funding to support streamlining the review of large natural resources projects. In addition, the Department collaborated with other federal departments and provincial ministries of Finance to help strengthen the economic union, with a focus on harmonizing tax and securities regulations, and enhancing internal trade and labour mobility across Canada.

The Department also contributed to the implementation of commitments to create a cleaner, healthier environment through policy and economic analysis in support of the government's ecoAction plan and the development of the Regulatory Framework for Air Emissions. It also assisted with the development of environmental initiatives for consideration in the context of Budget 2007.

The Department continues to explore ways to promote economic growth and productivity, including through additional investments in modern and efficient infrastructure. Reflecting consultations with provinces, territories, and other stakeholders, Budget 2007 introduced a new set of infrastructure programs for large-scale projects such as public transit and segments of the national highway system. In addition, funds have been provided to support new investments in gateways and border crossings.

Sound Social Policy Framework

The Department contributes, through its analysis and advice, to the government's efforts to meet its objectives regarding the quality of Canada's communities, health care, education, and social safety net, as well as efforts to enhance the equality of opportunity for all citizens.

The Department administers transfer programs to provinces and territories in support of this priority. In 2006-07, the government committed to renew and strengthen fiscal arrangements, including those that support the Sound Social Policy Framework. This includes the government's commitment in the 2006 budget to restore fiscal balance. It committed to consulting with provinces and territories, as well as central agencies, government departments, and external stakeholders to ensure timely decisions with respect to, and implementation of, renewed and strengthened transfers to provinces and territories.

As a result, Budget 2007 strengthened the Canada Social Transfer (CST) and the support provided for a range of social programs. The CST is to be extended to 2013-14 and will provide the provinces and territories with increased, stable, and predictable support. Increased funding includes new investments of $687 million to support the move to equal per capita cash, increased funding of $250 million annually for child care, and an additional $800 million per year for post-secondary education. The CST will be set to grow at 3 per cent annually, effective in 2009–10. Moving both the Canada Health Transfer (CHT) and the CST to equal per capita cash support will ensure comparable treatment for all Canadians under these important transfers. In addition, funding is being provided to ensure that no province or territory experiences a decline in CHT/CST cash relative to what the jurisdiction would have received in 2007-08 prior to these changes. The budget also proposes to provide additional funding of $500 million annually for labour market training, beginning in 2008-09.

Budget 2007 also renewed and strengthened the Equalization and Territorial Formula Financing (TFF) programs, based on consultations with provinces and territories, the public, academics, and other stakeholders, as well as the advice received from the Expert Panel on Equalization and Territorial Formula Financing (the O'Brien report). The main elements of the renewed Equalization program include a higher Equalization standard, a new approach to the treatment of natural resources, a fiscal capacity cap, a simplified measurement of fiscal capacity, stable and predictable payments, and fulfillment of the commitments to exclude non-renewable resource revenues and respect the offshore accords. The main elements of the proposed TFF program include a separate gap-filling formula for each territory, a simplified measurement of territorial revenues, improved incentives for territories to develop their economies and increase their own-source revenues, and a simplified estimate and payment system to increase predictability.

The Department was also instrumental in a review of legislation for financial institutions, developing policies and agreements related to the New Deal for Cities and Communities, and working with central agencies and key line departments in support of regulatory reform initiatives that promote productivity and economic growth.

Effective International Presence

In representing Canada in a wide range of international economic organizations, the Department contributes to policies and measures to increase global economic growth, promote global financial stability, encourage policies to reduce poverty in developing countries, and advance international standards to prevent abuses of the international financial system, including terrorist financing.

The Department played a key role in promoting a strong multilateral system of global economic and financial governance over the past year-most importantly supporting the Minister's participation in the G7, G8, and G20 processes. The Department also played a lead role in managing the country's activities related to international and financial organizations, such as the IMF, the World Bank, the European Bank for Reconstruction and Development, the Financial Stability Forum, and the Financial Action Task Force on Money Laundering, of which Canada served as president during the past year.

In 2006-07, the Department:

• provided leadership on the IMF's reform agenda, including the IMF quota reform, which will help ensure that the IMF remains a relevant, effective, and representative institution;
• organized and hosted an important G20 seminar to develop key policy options on issues such as the impact of high resource prices on the macroeconomic outlook, the importance of well-functioning energy and resource markets, and the need for effective management of resource endowments;
• promoted an initiative to achieve mutual recognition of securities market regulatory frameworks throughout the G7 to provide greater choice to investors and allow stock exchanges to broaden their customer base; and
• provided support to the Extractive Industries Transparency Initiative, making oil, gas, and mining activities more transparent by publicizing payments and revenues.

Department of Finance Canada officials worked with other government departments to develop a new approach to international trade policy to enhance Canadian business participation in global market opportunities. Budget 2007 announced the Global Commerce Strategy to support an expansion of our bilateral trade network, strengthening our competitive position in the U.S. market and extending Canada's reach to new markets.

Conclusion

The strategic outcome for the Department of Finance Canada is the creation of a fiscal, economic, social, and global advantage for Canada by providing appropriate policies and sound advice with respect to economic, social, and financial conditions and the government's overall agenda. The Department continues to work to maintain a balanced approach that will ensure a sustainable fiscal structure and encourage a more productive, competitive, and dynamic Canada while, at the same time, supporting and sustaining Canadian society.

In spite of many challenges during the 2006-07 fiscal year, the Department continued to make significant progress on its ongoing commitment to foster a strong economy and generate a higher standard of living and an improved quality of life for all Canadians.

This approach has produced real benefits for Canadians. We have a strong, vibrant, and growing economy that is a leader among major industrialized nations. It has allowed the government to make real progress in creating an environment that builds productivity growth through corporate tax cuts, investments in infrastructure, skills training, and one of the most generous tax regimes in the world in support of research and development. These initiatives will help Canada successfully compete in the increasingly competitive global marketplace.

Operating Environment and Context

Mandate

The Department is committed to making a difference for Canadians by helping the Government of Canada develop and implement strong and sustainable economic, fiscal, social, security, and financial-sector policies and programs.

The Department serves as the government's primary source of analysis and advice on the economic, fiscal, and tax implications of key government priorities. Its responsibilities include preparing the federal budget, developing tax and tariff policy and legislation, managing federal borrowing on financial markets, administering major transfers of federal funds to the provinces and territories, developing regulatory policy for the country's financial sector, and representing Canada within international financial institutions.

Mission

The Department's mission is to support the Minister of Finance by providing the best possible analysis and policy advice on economic, fiscal, social, and financial issues; implementing government decisions in a timely and efficient manner; and communicating government decisions in the clearest way possible, within and outside government. Its mission is also to act as an effective conduit for the views of participants in the economy from all parts of Canada and to maintain high-quality support systems and development programs to carry out the Department's functions.

Key Partners and Clients

An important component of the work conducted by the Department involves consultation and collaboration with partners in both the public and private sectors. Its primary partners and clients include the following:

The government, Cabinet, and the Treasury Board

The Department provides analysis, advice, and recommendations regarding economic, social, federal-provincial, and other financial affairs and tax matters. It also provides instructions for drafting legislation in many of these areas.

Parliament and parliamentary committees

The Department acts as the primary sponsor of bills on taxation, federal-provincial/territorial transfers, and financial matters and manages them through the parliamentary process. It also supports the Minister of Finance in the fulfilment of his or her parliamentary responsibilities.

The public and Canadian interest groups

The Department supports an expanded program of public information and consultation. This includes responding to requests for information and providing opportunities for Canadians to participate in consultations on key economic, social, fiscal, and tax issues.

Departments, agencies, and Crown corporations

The Department plays an active role in encouraging coordination and harmony among all federal initiatives that affect the economy, the financial sector, and financial markets.

Provincial and territorial governments

The Department develops and administers transfer payments in support of a range of provincial and territorial programs and tax collection agreements for most provinces and territories. The Department works with provinces and territories on fiscal, taxation, financial-sector, and other issues of concern to all governments. It also works with these other jurisdictions as joint stewards of the Canada Pension Plan (CPP) to ensure that the CPP remains financially secure and stable.

Financial market participants

The Department deals with issues affecting federal financial institutions. It develops the rules and regulations that govern these institutions so they remain safe and financially sound and are responsive to consumers' needs. The Department also deals on an ongoing basis with a range of market participants, including banks, securities dealers, and investors, in fulfilling its responsibility for managing the public debt and international reserves.

International economic and finance community

The Department plays a key role in promoting a strong multilateral system of global economic and financial governance. The most important role in this regard is supporting the minister's participation in the G7, G8, and G20 processes. The Department also has a lead role in managing the country's activities related to international and financial organizations, such as the IMF, the World Bank, the European Bank for Reconstruction and Development, the Financial Stability Forum, and the Financial Action Task Force on Money Laundering, of which Canada served as president during the past year. The Department also plays an important role in other organizations, such as the Organisation for Economic Co-operation and Development, and the World Trade Organization.

International trade community

The Department plays an important role in negotiating Canada's trade arrangements with other nations and monitoring how those arrangements serve Canada's interests.

Partnerships, consultation, and collaboration

An important component of the work conducted by the Department involves consultation and collaboration with partners in both the public and private sectors. The operating environment of the Department is characterized by the following:

• a strong commitment to consultation, coordination, and collaboration with a wide range of partners and client groups;
• a dynamic engagement with a rapidly changing global economy; and
• a strong commitment to accountability and risk management in its day-to-day business.

Accountability and risk management

The Department accomplished a great deal in an environment that presents unique risks and challenges. The implementation of reactive policy initiatives is often in response to priorities generated outside of the Department. An additional source of risk lies in the fact that many parts of the Department rely on a relatively small number of analysts. Given the wide range of policy areas covered, this affects the ability to deliver on plans. However, with effective recruitment and succession planning (including at the executive level), the provision of an attractive work environment, the recruitment of new employees and their training, as well as the ongoing identification of suitable candidates for potential vacancies, these risks were mitigated in 2006-07.

Changes in government priorities over the period represent another variable beyond the control of the Department, as well as delays and particular challenges faced by other departments. To address this, work was done with other central agencies and affected departments to devise strategies to minimize these delays and their potentially negative impacts. The Department maintained constant contact with other central agencies and departments and monitored progress in each priority area. When required, recommendations were made to other departments and central agencies, as well as other stakeholders, on corrective actions that could be taken to ensure successful outcomes on priority areas. In this way, fiscal impediments were minimized.

The Department must manage the financial risks associated with the government's financial assets and liabilities. It must be ready to respond to economic and financial developments by taking prompt and decisive action to mitigate, where appropriate, their effects on the Canadian economy and fiscal framework.

The Department is also committed to ensuring that all of its employees and activities, at the personal, professional, and organizational levels, meet the highest standards of ethical conduct and accountability.

The Internal Audit and Evaluation Division (IAED) is responsible for developing risk-based audit and evaluation plans, as well as for conducting internal audit and evaluation engagements that meet professional standards. Internal audits and evaluations are selected based on potential risks and exposures and are identified annually in the respective risk-based audit and evaluation plans, which are approved by the Audit and Evaluation Committee chaired by the deputy minister. The Committee also reviews and approves audit and evaluation reports and their corresponding management action plans.

The Treasury Board Policy on Internal Audit, which came into effect on April 1, 2006, significantly increases the requirements of deputy heads, audit committees, and internal audit functions in the federal government. In response to the Policy and additional requirements embedded in the Federal Accountability Act, the Department is making significant efforts to strengthen internal audit capacity and delivery processes.

Specifically, IAED has developed a comprehensive three-year plan to implement the structure and activities required to adhere to the Policy. In 2006-07, significant progress was made to develop the internal audit capacity within the Division. IAED will continue to build this capacity to ensure that the Department has a sufficient, competent, and professional internal audit function in place. Regarding program evaluation, a needs assessment review is being undertaken to identify and assess program evaluation requirements for the Department.

The government also regularly assesses its treasury management frameworks and programs. External evaluations are carried out as part of the Department's Treasury Evaluations Program (TEP), which started in the early 1990s. The objectives of the TEP are to assess past policy and operational decisions, relative to their objectives and the evolving standards and practices of other comparable entities, and to support good governance by providing decision-making information for management, as well as public transparency and accountability on outcomes.

In the context of the TEP, an evaluation of the treasuryrisk management framework at the Department of Finance Canada is currently underway. The evaluation will assess the effectiveness of the current framework in controlling identified risks and its comprehensiveness and completeness in identifying, measuring, controlling, and reporting on the full range of pertinent risks. The treasury risk management evaluation is expected to be completed as early as early as the fall of 2007.

International engagement

The Department plays an active and leading role in representing Canada internationally. The Department supports the Minister of Finance's involvement in the G7 process, as well as his involvement in other key ministerial forums, including the G8 and G20 finance ministers' processes, and IMF and World Bank meetings. These and similar processes are important forums for exchanging views and forging consensus on measures to strengthen global economic growth, promote financial stability, and reduce global poverty.

The Department's activities are undertaken in the context of a rapidly integrating, technology-driven, global economy. Events that take place far from Canada can have a powerful impact, both adverse and beneficial, on Canada's economy. To support its work on international economic issues, the Department holds extensive consultations not only within the federal government but also with provincial governments, the private sector, civil society, and the Canadian public.

Link to the Government of Canada Outcomes

The following table links the Department's Strategic Outcome, Priorities, and Program Activities in a way that illustrates how the Department's efforts more broadly support the Government of Canada Outcome Areas.

Strategic Outcome	To create a strong and sustainable economic environment, resulting in increasing standards of living and improved quality of life for Canadians.
Program Activity	Ongoing Priorities				Government of Canada Outcome Area Supported
	Sound Fiscal Management	Sustainable Economic Growth	Sound Social Policy Framework	Effective International Presence
1.  Tax Policy	√	√	√		Strong economic growth
2.  Economic and Fiscal Policy	√	√		√	Strong economic growth
3.  Financial Sector Policy	√	√	√	√	A fair and secure market place
4.  Economic Development and Corporate Finance	√	√			Strong economic growth
5.  Federal-Provincial Relations and Social Policy			√		Strong economic growth
6.  International Trade and Finance		√		√	A prosperous Canada through global commerce
7.  Public Debt	√				All outcomes
8.  Domestic Coinage	√				Government affairs
9.  Transfer Payments to Provinces and Territories			√		Strong economic growth Healthy Canadians
10.  International Financial Organizations		√		√	Global poverty reduction through sustainable development

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