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Section II: Analysis of Program Activities by Strategic Outcome

Strategic outcome

In support of its mission, the Department has one strategic outcome:

A strong and sustainable economy, resulting in increasing standards of living and improved quality of life for Canadians.

During fiscal year 2006-07, the Department revised its strategic outcome to better reflect the clear focus of departmental efforts aimed at improving the well-being of all Canadians. Clarifying the focus will enable the Department to develop more appropriate performance measurement indicators for the strategic outcome. An enhanced performance measurement framework, including indicators for the strategic outcome, is expected to be completed during the 2007–08 fiscal year. In addition, the Department has recently revised its Program Activity Architecture, which will be reflected in its next report on plans and priorities and the corresponding departmental performance report.

Program Activity 1: Tax Policy

The Tax Policy program activity develops and evaluates federal taxation policies and legislation and provides advice and recommendations for changes aimed at improving the tax systems while raising the required amount of revenue to finance government priorities. This program activity focusses on the following areas: personal income tax, business income tax, and sales and excise tax. The program activity is also involved with negotiating tax treaties, tax policy research and evaluation, as well as federal-provincial/territorial and federal-Aboriginal tax coordination.

Financial Resources: ($ thousands)


Planned Spending

Authorities

Actual Spending

31,742 33,317 30,805

Human resources (FTEs)


Planned

Actual

Difference

268 234 34

 


Tax Policy
Expected Results

Priorities Supported

Competitive, efficient, and fair personal, corporate,
sales, and excise tax systems

Sound Fiscal Management
Sustainable Economic Growth
Sound Social Policy Framework

Improved coordination of the federal tax system with those of provinces, Aboriginal governments, and other countries

High-quality research and evaluation


The Tax Policy program activity supports and contributes to the Department's strategic outcome and priorities by raising sufficient revenues to pay for public services, including social programs (e.g. universal health care and public safety and security) and strategic investments in areas that promote a more competitive and productive Canadian economy (e.g. education and training, basic scientific research, and infrastructure). At the same time, however, revenues must be raised in a manner that keeps tax burdens and marginal tax rates low to provide incentives to work, save, and invest and to allow Canadian businesses to successfully compete for investment in an increasingly integrated global capital market. Tax revenues must also be raised in a fair manner so that taxpayers in similar circumstances face similar tax treatment, ensuring that the tax burden is shared in accordance with the taxpayers' ability to pay. Where appropriate, the tax system may also be used to pursue specific economic and social objectives, such as saving for post-secondary education, promoting charitable giving, encouraging research and development, and helping protect the environment. Regardless of their objective, proposed policies are reviewed for gender and environmental impacts.

In order to ensure that the tax system functions efficiently, the Tax Policy program activity works with provinces, territories, Aboriginal governments, and other countries to improve tax policy coordination. It also undertakes ongoing analysis of the impact of both new and existing tax policy initiatives.

1. Competitive, efficient, and fair personal, corporate, sales, and excise tax systems

The Tax Policy program carried out a number of tax initiatives during 2006-07 aimed at improving the competitiveness, efficiency, and fairness of the personal, corporate, sales, and excise tax systems. In particular, Tax Policy program staff provided sound and timely advice and recommendations to the Minister of Finance and senior officials in preparation for the 2006 and 2007 budgets on ways to make the tax system more attractive for Canadians to work, save, and invest; to improve the competitiveness, efficiency, and fairness of the tax system; and to support other government priorities.

During 2006-07, the Tax Policy program activity helped implement individual and business tax relief that will benefit all Canadians and enhance the efficiency and competitiveness of the tax system. Key broad-based measures included reducing the GST by one percentage point; raising the amount of the basic personal exemption; reducing the general corporate income tax rate; eliminating the corporate surtax for all corporations; and accelerating the elimination of the federal capital tax. The Tax Policy program also developed proposals to align capital cost allowance rates with the useful life of manufacturing buildings, computers, and other assets, as well as a proposal to put in place a temporary incentive for investment in manufacturing and processing (M&P) machinery and equipment, which will assist the M&P sector in restructuring to meet the challenges it is currently facing.

The Tax Policy program activity also supported the introduction of the Working Income Tax Benefit (WITB), fulfilling the government's commitment, announced in Advantage Canada and noted in the 2006-07 Report on Plans and Priorities (RPP), to help people over the "welfare wall" and make work pay for low- and modest-income Canadians. The WITB will help make work more rewarding and attractive for an estimated 1.2 million Canadians already in the workforce, thereby strengthening their incentive to stay employed. It is also estimated that the WITB will encourage close to 60,000 people to enter the workforce. Single parents and couples will be eligible to receive up to $1,000 under the WITB. The chart below provides an example of the benefits will be made available in 2007 to single parents and couples with family earnings of $3,000 or more and net income of less than $21,167.

Working Income Tax Benefit Entitlement, 2007
Single Parents and Couples

Working Income Tax Benefit Entitlement, 2007- Single Parents and Couples

1 Phase-out based on net family income.
Source
: Department of Finance Canada, The Budget Plan 2007, March 19, 2007

As indicated in Budget 2007, in recognition that provinces and territories play a key role in providing basic income support to low-income Canadians, the government indicated that it was prepared to consider province- or territory-specific changes to the design of the WITB to better harmonize it with existing programs, conditional on four broad principles stated in Budget 2007. The Department of Finance Canada has been engaged in discussions with provinces and territories that have expressed interest in this option, with the objective of having administrative agreements finalized as early as the fall of 2007.

As part of its role in maintaining an efficient tax structure, in 2006-07 the Tax Policy program activity announced goods and services tax / harmonized sales tax (GST/HST) measures for financial institutions. Draft legislation was released in 2007 to address advantages that currently exist in favour of imported financial services over comparable domestic services.

In addition, as a result of the GST rate reduction, certain technical adjustments were made to the Air Travellers' Security Charge rates after July 1, 2006. These were required in order to ensure that consumers receive the full benefit of the GST rate reduction.

During 2006-07, the Tax Policy program conducted analysis and provided advice to Canada's New Government on ways to enhance the fairness of the federal tax system by making it more neutral across business structures and sectors. In the fall of 2006, the Tax Policy program identified potential initiatives for the government to address the accelerating trend of corporate conversions to the income trust structure that, if left unchecked, would have resulted in significant federal revenue loss. On October 31, 2006, the government announced a distribution tax on publicly traded income trusts and limited partnerships as part of its Tax Fairness Plan, restoring balance and fairness to the tax system by levelling the playing field between income trusts and corporations. In addition, as part of the Tax Fairness Plan, the government reduced the general corporate income tax rate by one half percentage point as of January 1, 2011, to 18.5 per cent; increased the Age Credit Amount by $1,000, benefiting low- and middle-income seniors; and permitted income splitting for pensioners beginning in 2007.

To reflect the new economic and environmental challenges that face us today, Budget 2007 rebalanced the tax system to encourage investment by the oil sands and other sectors in clean energy, while phasing out the accelerated capital cost allowance (CCA) for general investment in the oil sands. This will improve fairness and neutrality among the oil sands and other sectors, particularly the oil and gas and renewable energy sectors. As part of this rebalancing, Budget 2007 announced that the existing accelerated CCA provided under Class 43.2 for energy generation equipment that uses renewable energy sources, waste fuels, or fossil fuels efficiently will be extended to 2020 and expanded to include wave and tidal energy and additional solar energy and waste-to-energy technologies. These measures will help ensure that the tax system contributes to sustainable economic growth.

2. Improved coordination of the federal tax system with those of provinces, Aboriginal governments, and other countries

The Tax Policy program also contributed to the expected result of improving coordination of the federal tax system with those of the provinces, territories, Aboriginal governments, and other countries during 2006-07. For example, the Tax Policy program regularly works with Aboriginal groups and governments to manage the First Nations sales tax, the First Nations goods and services tax (FNGST), and the First Nations personal income tax (FNPIT) administration agreements. In 2006-07, the Tax Policy program concluded an FNGST administration agreement with the Tsawout First Nation in British Columbia. The FNGST provides First Nations with an additional revenue source for expenditures, supports self-government, and enhances accountability in First Nations communities. The federal government also benefits through these agreements by way of a more uniform sales tax system and better compliance. A tax administration agreement in respect of personal income tax was also concluded in 2006-07 with the Kwanlin Dun First Nation.

During 2006-07, the Tax Policy program activity also concluded a memorandum of understanding with the Government of Ontario that will lead to the implementation of the Corporate Income Tax Collection Agreement that will take effect with the 2009 tax year. The Agreement will reduce compliance costs for businesses and generate overall reductions in administrative costs.

The Tax Policy program also works with governments of other countries to review, improve, and expand Canada's network of international tax treaties and seeks to obtain tax information exchange agreements with non-tax treaty jurisdictions. In 2006-07, new tax treaties entered into force with the Republic of Korea (December 18, 2006) and Finland (January 17, 2007). A major new protocol to the Canada–U.S. Tax Treaty was signed by Minister Flaherty and the U.S. Treasury Secretary, Henry Paulson, on September 21, 2007. Negotiations were also held with Mexico, Greece, Malaysia, and Spain during the course of the fiscal year.

3. High-quality research and evaluation

The Tax Policy program activity also conducts high-quality research and evaluation of various personal, corporate, sales, and excise tax measures.

In 2006-07, the Tax Policy program met a key commitment announced in the 2006-07 RPP to publish two reports on the impact of the tax system on aspects of the Canadian economy. One of the reports compared marginal effective tax rates (METRs) across countries in the manufacturing sector and their effect on business investment. The other report examined the impact of the income tax system on the decision of young Canadians to undertake post-secondary education. The research on METRs was particularly important because it informed the government's commitment, announced in Advantage Canada, to establish the lowest tax rate on new business investment in the G7. It also met another commitment noted in the 2006-07 RPP to undertake research to support future tax policy initiatives, including the expanded use of the METR methodology.

The reports are available in the 2006 Tax Expenditures and Evaluations publication available at http://www.fin.gc.ca/toce/2006/taxexp_e.html.

Performance measurement


Expected Results / Performance Measurement

1. Competitive, efficient, and fair personal, corporate, sales, and excise tax systems

2. Improved coordination of the federal tax system with those of provinces, Aboriginal governments, and other countries

3. High-quality research and evaluation

Performance Indicators

Proposals to improve the competitiveness, efficiency, and fairness of the personal, corporate, sales, and excise tax systems

The amount of tax revenue raised

Active negotiation of additional tax administration agreements with provincial and Aboriginal governments

Effective network of tax treaties with other countries

Effective meetings of the Federal-Provincial Tax Committee

Number and effect of research studies and evaluation reports

Data Sources

Federal budgets, legislation, regulations, press releases, tax treaties, the Department's Marginal Effective Tax Rate models, Public Accounts, tax evaluation, and tax expenditure reports

Federal-provincial agreements, federal-provincial meetings, federal-Aboriginal agreements, and federal-Aboriginal negotiations

Working papers and models developed, research papers written

Frequency

Annual

Annual

Annual

Target

Proposals in the budget and throughout the year, as required, to implement the government's tax policy agenda and maintain a competitive, effective, and fair tax system

Increased number of tax agreements signed

Two published reports per year

Target Date

As required

Ongoing

Ongoing

Actual

2006 and 2007 budgets, Advantage Canada, Canada Gazette, 2006 Tax Expenditures and Evaluations

Memorandum of Agreement (MOA) toward a single corporate income tax administration with Ontario

FNGST administration agreement (Tsawout First Nation); FNPIT administration agreement (Kwanlin Dun First Nation); Canada Gazette

2006 Tax Expenditures and Evaluations

Date of Actual

May 2, 2006 (Budget 2006), November 2006 (Advantage Canada), December 18, 2006 (tax treaty with the Republic of Korea), January 17, 2007 (tax treaty with Finland), March 2007 (2006 Tax Expenditures and Evaluations), March 19, 2007 (Budget 2007)

October 2006, MOA signed with Ontario

October 2006 (Tsawout First Nation FNGST agreement), December 2006 (Kwanlin Dun First Nation FNPIT agreement), December 18, 2006 (tax treaty with the Republic of Korea), January 17, 2007 (tax treaty with Finland)

March 2007

Performance Status

Successfully met expectations

Successfully met expectations

Successfully met expectations


Program Activity 2: Economic and Fiscal Policy

This program activity analyzes Canada's economic and fiscal situation, as well as the economic and fiscal positions of other levels of government and in other countries. It advises on the government's economic policy framework, its budget planning framework, and its spending priorities. This program is also responsible for monitoring and preparing forecasts of Canada's economic and fiscal position and plays a lead role in the management of the government's fiscal framework. In addition, the program provides analytical support on a wide range of economic and financial issues related to the government's macroeconomic policies. This program is necessary to help ensure that fiscal planning in the Government of Canada is transparent and supports long-term fiscal sustainability.

Financial Resources ($ thousands)


Planned Spending

Authorities

Actual Spending

14,973 15,715 14,500

Human resources (FTEs)


Planned

Actual

Difference

122 113 9

 


Economic and Fiscal Policy
Expected Results

Priority Supported

Transparent fiscal planning and sustainable fiscal policy

Sound Fiscal Management

Effective monitoring and forecasting of economic performance

Sustainable Economic Growth

Effective briefing and advice on a wide selection of economic questions

Understanding of and contribution to international economic policies and reforms

Effective International Presence

The work under this program activity contributes to the Department's priority of sound fiscal management. Sound fiscal management includes transparent budget planning, controlling expenditures, reducing federal debt, and directing higher-than-expected surpluses to the priorities of Canadians. Sound fiscal management also involves an effective monitoring and forecasting of economic performance. Maintaining sound fiscal management allows the government to reduce the amount of money that it must spend to pay interest on its debt, which in turn frees resources that can be used to reduce personal income taxes.

This program also supports the Department's priority of sustainable economic growth by providing analysis and advice on policy options that promote long-term growth. Sound economic policies enable the Canadian economy to perform well despite various economic shocks. Moreover, the Department consults with officials from the OECD and the IMF to share views on economic developments in Canada and the world, as part of a broad, ongoing effort to promote increased global growth and, given the openness of the Canadian economy, improve the growth potential of Canada.

Results

1. Transparent fiscal planning and sustainable fiscal policy

The government has taken significant steps to ensure that fiscal planning is transparent and enhances accountability and that fiscal policy remains sustainable.

In 2006-07, the Department continued to monitor, assess, and report on the government's fiscal position through the Economic and Fiscal Update, the Budget Plan and the monthly Fiscal Monitor. Fiscal year 2006-07 marked the first year the Department provided quarterly updates of the fiscal outlook for the year in progress, as committed to in the Federal Accountability Action Plan.

In the fall, the government set out a plan for achieving a fiscal advantage in Advantage Canada—the government's long-term economic agenda released alongside the 2006 Economic and Fiscal Update. As part of this fiscal advantage, the government proposed an objective for the country as a whole of eliminating Canada's total government net debt in less than a generation. For its part, the government advanced its commitment to reduce the federal debt-to-GDP ratio to 25 per cent by one year, to 2012–13.

To complement the goal of eliminating the country's net debt, the government announced in Budget 2007 that it would publish a comprehensive fiscal sustainability and intergenerational report with the 2007 Economic and Fiscal Update. The report will provide a broad analysis of current and future demographic changes and the implication of these changes for Canada's long-term economic and fiscal outlook

To ensure that Canadians benefit directly from reduction in the federal debt, the government committed in Budget 2007 to setting out a tax back guarantee in legislation. Under the tax back guarantee, the effective interest savings from debt reduction each year will be dedicated to personal income tax reductions. The tax back guarantee provides a new approach to handling unanticipated surpluses by ensuring Canadians benefit directly from unplanned surpluses through accelerated debt and personal income tax reductions.

The government's commitment to reduce Canada's debt burden also reflects an ongoingcommitment to spending control. In 2006-07, the Department contributed to the exercise led by the Treasury Boardof Canada Secretariat, which delivered over $1 billion of ongoing savings for 2006-07 and 2007–08. In Advantage Canada, the government committed to outlining the new Expenditure Management System focussed on good management and value-for-money. Advantage Canada also established a commitment to keep the rate of growth of program spending, on average, below the rate of growth of the economy.

These actions contributed to a strong fiscal performance in 2006-07. The Government of Canada recorded a budgetary surplus in 2006-07. According to OECD estimates, Canada is currently the only G7 country in a surplus budget position, and it is expected to remain so in 2007 and 2008.

The federal debt has declined steadily since 1996–97 and, combined with Canada's strong economic growth, has resulted in a significant decline in the federal debt-to-GDP ratio. The government is on track to meet the medium-term objective of reducing the ratio to 25 per cent by 2012–13. The chart below shows the historical path and 2007 budget projections of the federal debt-to-GDP ratio. Further information on the government's fiscal performance can be found in the Annual Financial Report of the Government of Canada at http://www.fin.gc.ca/purl/afr-e.html.

Federal Debt-to-GDP Projections (Accumulated Deficit)

2. Effective monitoring and forecasting of economic performance

The Department continued to provide analysis and forecasting of economic activity in Canada and abroad. This information includes, among other things, chapters on economic developments and outlook in the Economic and Fiscal Update and the Budget Plan.

As noted in Budget 2007, Canada's employment performance is the best it has been in 30 years. Canadian employment grew by almost 350,000 in 2006. In addition, close to 200,000 jobs have been created in the first half of 2007. Since the beginning of 2006, about three quarters of the employment gains have been in full-time positions. As a result, the unemployment rate in June 2007 was 6.1 per cent, matching a 32-year low. Moreover, the share of the Canadian population with a job was at a record high.

Canadian economic growth slowed during 2006. Much of the slower growth reflects a decline in manufacturing activity, which was due to slower U.S. demand and the effect of the appreciation of the Canadian dollar, as well as structural adjustments in the automobile and textile sectors. In Budget 2007, the Department presented an analysis of trends and developments in the manufacturing sector.

Budget 2007 also presented an analysis of the risks to the economic and fiscal projections over the budget-planning horizon. The principal risk to the Canadian economy is that recent weakness in economic growth reflects lower underlying productivity performance, which could have negative implications for Canada's future growth potential. In terms of external risks, there is the possibility that higher oil prices could continue to push up the Canadian dollar, making Canadian exports less competitive. There remains a risk that the weak U.S. housing market could negatively impact U.S. consumer demand, which would also hurt Canadian exports.

In preparing the Economic and Fiscal Update and the Budget Plan, the Department conducted a survey of private-sector forecasters and met with the chief economists of the major chartered banks and major private-sector economic forecasting firms to agree on a set of economic assumptions that were used to develop fiscal projections.

3. Effective briefing and advice on a wide selection of economic questions

The Department continued to conduct long-term analysis and research on complex economic questions and to provide policy advice on economic issues. This information includes among other things briefing notes to the Minister and various publications, such as working papers.

In November 2006, the Department released a long-term economic plan, Advantage Canada, that is focussed on promoting five Canadian advantages that will help Canadians improve their quality of life and succeed on the world stage. It will create jobs, help entrepreneurs start businesses, and provide the wealth Canada needs to invest in health and other priorities. The plan is designed to serve as a framework for government decision making for years to come.

In November 2006, the government and the Bank of Canada also 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 (CPI). The agreement will run for a five-year period, ending December 31, 2011. Canada's policy of low and stable inflation has contributed to Canada's macroeconomic advantage by maintaining interest rates at historically low levels. Low interest rates provide strong support to interest-sensitive sectors such as housing, consumer spending, and business investment. The following chart shows how inflation and interest rates have remained at low levels in recent years.

Inflation and interest rates

The Department continued to participate in semi-annual Federal-Provincial Continuing Committee of Officials meetings to discuss and analyze regional economic developments and trends with provincial authorities.

Overall, the Department's activity contributes to Canada's strong economic performance. The Canadian economy continued to grow at a relatively robust pace of 2.8 per cent in 2006, second only to the U.S. among G7 countries, and 0.3 per cent higher than the G6 average (that is, the G7 excluding Canada). In its spring 2007 World Economic Outlook, the IMF projected Canada's real GDP growth to slow to 2.4 per cent in 2007, second to the United Kingdom, and 2.9 per cent in 2008, first among G7 countries.

4. Understanding of and contribution to international economic policies and reforms

Based on their consultations with the Department and other government agencies, the OECD andthe IMF prepared detailed reports, the Economic Survey and the Staff Report, respectively, oneconomic and policy issues in Canada. In 2006-07, both reports on Canada were largely positive and supportive, as they have been for several years.

These consultations are part of the Department's ongoing effort to monitor and promote increased global growth and, given the openness of the Canadian economy, improve the growth potential of Canada. However, given the international dimension of this outcome, the Department can have only a limited impact on the expected result.

Performance measurement


Expected
Results /
Performance Measurement

1. Transparent fiscal planning and sustainable fiscal policy

2. Effective monitoring and forecasting of economic performance

3. Effective briefing and advice on a wide selection of economic questions

4. Understanding of and contribution to international and economic policies and reforms

Performance Indicators

Federal debt as a share of nominal GDP

Canada's real GDP growth relative to the G6 average (G7 excluding Canada)

Data Sources

Annual Financial Report

IMF World Economic Outlook and OECD Economic Outlook

Frequency

Annually

Semi-annually

Target

Reduce the federal debt-to-GDP ratio to 25% by 2012–13

Annual growth rate above the
G6 average

Target Date

Ongoing

Ongoing

Actual

Estimated federal debt-to-GDP ratio of 32.8% for 2006-07

G6 average GDP growth was 2.5% in 2006, while Canada's rate was 2.8%

Performance Status

1. On track to meet expectations

2. Successfully met expectations

3. Successfully met expectations

4. Successfully met expectations


Program Activity 3: Financial Sector Policy

The aim of this program activity is to ensure the competitiveness, efficiency, safety, and soundness of Canada's financial sector and to ensure that domestic financial markets function well in order to achieve sustainable growth in the Canadian economy. This program provides analysis of Canada's financial services sector and financial markets, as well as developing the legislative and regulatory framework governing federally chartered financial institutions (banks, trust companies, insurance companies, and cooperative credit associations) and federally regulated private pension plans. This program is also responsible for issues related to AML and ATF and the federal government's relations and commitments with foreign governments in the area of trade in financial services.

Financial resources ($ thousands)[1]


Planned Spending Authorities Actual Spending
21,105 173,561 101,443

Human resources (FTEs)


Planned Actual Difference
146 129 17

 


Financial Sector Policy
Expected Results

Priority Supported

Stable, low-cost financing for the Government of Canada

Sound Fiscal
Management

A well-functioning market in Government of Canada securities

Effective management of Canada's official international reserves

A sound borrowing framework for Crown entities

A supply of coinage at a reasonable cost

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

Sustainable
Economic Growth

A sound legislative and regulatory framework for federally regulated defined benefit pension plans

Sound Social
Policy Framework

Effective framework for investment of CPP funds

A world-class AML and ATF framework

Effective International
Presence

Effective support for Canada's presidency of the Financial Action Task Force


Debt service is the largest spending program of the federal government. The prudent and effective management of the government's debt is an important element of the Department's strategy for sound fiscal management. For more information on debt management, see http://www.fin.gc.ca/toce/2005/dmr05_e.html. The focus of this activity for 2006-07 has been on continuing to review and evaluate the effectiveness of debt management and treasury management frameworks and programs, while pursuing improvements to the borrowing framework for major government-backed entities.

Ensuring the competitiveness, efficiency, safety, and soundness of Canada's financial sector and ensuring that domestic financial markets function well are conditions necessary to achieving sustainable growth in the Canadian economy. For 2006-07, the focus has been on completing the 2006 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 (FSAP) update by the IMF as a follow-up to the assessment conducted in 1999, and contributing to an enhanced system of securities regulations in Canada.

A properly designed private pension system can contribute to the security of Canadian workers and retirees and support increases in living standards. The focus in 2006-07 has been on strengthening the framework for defined benefit pension plans and providing advice related to the Canada Pension Plan Investment Board (CPPIB).

The Department is responsible for issues related to AML and ATF. The Department's leading role in the global fight against money laundering and terrorist financing contributes to public safety in Canada and worldwide. In 2006-07, the focus has been on enhancing Canada's AML and ATF regime, undergoing a mutual evaluation, and presiding over the FATF.

Expected results

1. Stable, low-cost financing for the Government of Canada

See Program Activity 7, Public Debt.

2. A well-functioning market in Government of Canada securities

See Program Activity 7, Public Debt.

3. Management of Canada's official international reserves

In conjunction with the Bank of Canada, the Department manages Canada's official international reserves. This is a portfolio of diversified foreign currency assets that is maintained to provide general foreign currency liquidity and to promote orderly conditions in the foreign exchange market for the Canadian dollar, if required.

In 2006-07, the reserves portfolio strategic objectives were achieved and the portfolio was increased by some $5 billion over the year. Detailed information on the composition of the portfolio and performance is contained in the annual report on the management of Canada's official international reserves, which will be tabled in Parliament and posted on the Department's website shortly after the publication of the Public Accounts in the fall. See http://www.fin.gc.ca/purl/efa-e.html.

An external evaluation of the Exchange Fund Account completed in 2006 concluded that the government's policies and practices are sound and in keeping with those of other comparable countries. The evaluation report is available on the Department's website at http://www.fin.gc.ca/efa/EFA2006_e.html.

4. A sound borrowing framework for Crown entities

Under the Financial Administration Act, the Minister of Finance is responsible for approving the borrowing done by government entities and ensuring prudent treasury management policies.

A 2005 study of the current borrowing framework for major Crown borrowers by an outside consulting firm identified improvements to the existing framework and advised on the potential benefits and costs of a consolidated borrowing framework. The study is available at http://www.fin.gc.ca/toce/2005/MFGBE-e.html.

In response to the study, in Budget 2007, the government announced the decision to consolidate the borrowings of agent Crown corporations (Business Development Bank of Canada, Canada Mortgage and Housing Corporation, and Farm Credit Corporation) to reduce debt costs and enhance the liquidity of the Government of Canada securities market. The initiative, to be implemented in 2008, is expected to save up to $90 million over five years and to add up to $10 billion per annum to the Government of Canada borrowing program. For further details, see the Debt Strategy Report, published as Annex 3 of Budget 2007 and available at http://www.budget.gc.ca/2007/bp/bpa3e.html#debt.

5. A supply of coinage at a reasonable cost

See Program Activity 8, Domestic Coinage.

6. A regulatory framework that promotes the soundness, efficiency, and competitiveness of Canada's financial sector and serves the needs of individuals, businesses, and the economy

The Department advises on and develops policy, legislation, and regulations to support a leading-edge financial services sector and domestic capital market to achieve a more productive, competitive, and dynamic economy.

The four principal acts that govern financial-sector regulation (the Bank Act, the Insurance Companies Act, the Trust and Loan Companies Act, and the Cooperative Credit Associations Act) are subject to a five-year review cycle. The regular review of these statutes is a practice that sets Canada apart from virtually every other country in the world and gives Canadian financial institutions an important advantage relative to their foreign competitors. It provides the Government of Canada with a tool to ensure that the regulatory framework allows financial-sector participants to operate as efficiently and effectively as possible, while maintaining the safety and financial soundness of the sector, thereby serving and protecting the interests of consumers and businesses.

In Budget 2006, the government extended the legislated sunset date for the financial institutions statutes by six months, from October 24, 2006, to April 24, 2007, to provide Parliament with sufficient time to consider the legislation that would be tabled later in 2006.

Legislation was tabled on November 27, 2006. On March 30, 2007, An Act to amend the law governing financial institutions and to provide for related and consequential matters (Bill C-37) received Royal Assent. The legislation aims to:

(i)  enhance the interests of consumers;
(ii)  increase legislative and regulatory efficiency; and
(iii)  adapt the financial institution statutes.

On April 20, 2007, most of the provisions of Bill C-37 came into force. To be fully implemented, the legislation will require regulations. The Department has started working on the development of those regulations.

During 2006-07, the Department of Finance Canada has also worked on the development of regulations associated with Bill C-57, An Act to Amend Certain Acts in Relation to Financial Institutions. On November 25, 2005, Bill C-57 received Royal Assent. The legislation modernized the governance framework for federal financial institutions and updated certain governance standards that are unique to financial institutions. A part of the legislation (and associated regulations) was brought into force on November 28, 2006, and dealt with provisions relating to civil remedies, distributing financial institutions, going-private transactions, insider reports, meetings and proposals, and prospectuses. Bringing into force the final part of the legislation will require regulations that will deal with provisions relating to electronic documents, exemption from public notices and other documents, annual statements, proxy and proxy solicitation, and participating policyholders. These regulations will be brought forward in 2007–08.

In addition, in 2006-07, the Department of Finance Canada worked jointly with Industry Canada on reviewing proposals from financial-sector stakeholders to modernize bankruptcy and insolvency rules with respect to eligible financial contracts and their supporting collateral. Following this review, the two departments introduced legislative amendments to the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Winding-up and Restructuring Act, the Payment Clearing and Settlement Act, and the Canada Deposit Insurance Corporation Act in the Budget Implementation Act, 2007, which received Royal Assent on June 22, 2007. Further, the two departments have been working on a revised definition of "eligible financial contract" which will be introduced in regulations in 2007–08.

In 2006-07, the Department of Finance Canada also coordinated preparatory work for Canada's Financial Sector Assessment Program (FSAP) Update by the IMF, which includes inputs from the Bank of Canada, the Office of the Superintendent of Financial Institutions, securities regulators, financial institutions, and other market participants. The FSAP Update has several components, including an analysis of the strengths and weaknesses of Canada's financial system; a discussion of policy issues relevant to financial stability; a stress-testing exercise that assesses the financial resilience of the largest banks to macroeconomic shocks; and an assessment of Canada's observation of certain internationally recognized regulatory standards and codes.

In the course of 2006-07, the government pursued discussions with provinces and territories, with a view to establishing a common securities regulator in Canada. Of particular note, a ministerial meeting was held at the end of June 2006 in Niagara-on-the-Lake with provincial and territorial finance ministers and ministers responsible for securities regulation.

The government remains committed to making tangible progress toward a common securities regulator for Canada. Budget 2007 included a companion document titled Creating a Canadian Advantage in Global Capital Markets (the Capital Markets Plan). In it, the government committed to working with provinces, territories, and other partners to create a Canadian advantage in global capital markets, including a new approach to securities regulation with proportionate, more principles-based regulation administered by a common securities regulator. In addition, the Plan includes measures to enhance market integrity through better resources to tackle cases of capital markets fraud and stronger collaboration with provincial authorities.

7. A sound legislative and regulatory framework for federally regulated defined benefit pensions

Following up on the public consultation process that commenced in 2005 and commitments in the 2006 budget, the Department has moved forward proposals to strengthen the legislative and regulatory framework for federally registered defined benefit pension plans in order to improve the security of pension benefits and ensure the viability of defined benefit pension plans.

In May 2005, the Department released a consultation paper, Strengthening the Legislative and Regulatory Framework for Defined Benefit Pension Plans Registered under the Pension Benefits Standards Act, 1985, to consult on means to enhance benefit security and the viability of defined benefit pension plans. The Department received a broad range of views from stakeholders, including plan sponsors, labour representatives, retirees, actuaries, and individual Canadians, with most submissions stressing that the funding status of private defined benefit pension plans was a key immediate issue affecting many workers, retirees, and pension plan sponsors. With the Office of the Superintendent of Financial Institutions, the Department analyzed the submissions and developed policy proposals for government consideration.

In Budget 2006, the Minister of Finance announced proposed funding relief for federally regulated defined benefit pension plans. The draft regulations setting out the detailed proposals were pre-published on June 2, 2006, for a 30-day public consultation period. In November 2006, the Solvency Funding Relief Regulations were adopted by the government with a view to helping re-establish the full funding of defined benefit pension plans in an orderly manner, while also protecting pension benefits.

8. Effective framework for investment of CPP funds

The CPPIB invests CPP funds on behalf of more than 16 million contributors and beneficiaries. The success of the CPPIB in achieving its investment objectives derives primarily from the soundness of its governance and the quality of its Board. The Minister of Finance is responsible for the CPPIB legislative framework and for coordinating, on behalf of federal and provincial governments, the appointment of individuals to the Board.

The CPP triennial review was completed in June 2006. Federal and provincial ministers of Finance reviewed the CPPIB's accountability and governance framework in the context of the government's proposals for the Federal Accountability Act. Ministers reviewed in particular the areas of codes of conduct, and conflict of interest and disclosure policies and practices, and concluded that they meet or exceed practices of public- and private-sector pension funds. Ministers also endorsed the CPPIB's fiduciary investment mandate and its Policy on Responsible Investing adopted in October 2005.

On an ongoing basis, the CPPIB is achieving strong results and improving the sustainability of the CPP. In its 2006-07 annual report, the CPPIB reported a gain of $13.1 billion, equivalent to a rate of return of 12.9 per cent, outperforming its benchmark portfolio by 245 basis points. Over the past five years, the CPP has earned an average annualized rate of return of 10.4 per cent, well above the 6.8 per cent required to ensure that the CPP is actuarially sound. For further details, see the CPPIB Annual Report: 2006 at http://www.cppib.ca/info/annual/ar_2006/index.htm.

9. A world-class anti-money laundering (AML) and anti-terrorist financing (ATF) framework

The goal of Canada's AML and ATF regime is to combat money laundering and terrorist financing by conforming to international standards and providing appropriate tools to law enforcement while respecting the privacy of Canadians.

Canada is in the process of implementing the revised AML and ATF standards of the Financial Action Task Force on Money Laundering (FATF) and is undergoing a comprehensive, mutual evaluation of Canada's regime by the FATF in 2007. The evaluation of Canada's regime started with the submission of its evaluation questionnaire to the FATF in January 2007, followed by an on-site visit by a team of international financial, law enforcement, and legal assessors in March. The final report will be discussed at the FATF plenary meeting in February 2008.

In October 2006, the Senate Standing Committee on Banking, Trade and Commerce produced a report, Stemming the Flow of Illicit Money: A Priority for Canada, as part of its review of the administration and operation of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. This review is mandated by the Act to occur every five years.

Bill C-25, an Act to Amend the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and the Income Tax Act and to make a consequential amendment to another Act, responded to the parliamentary review and received Royal Assent on December 14, 2006. The amendments to the Act make Canada's AML and ATF regime consistent with international standards. The amendments also implement recommendations made in the Auditor General of Canada's 2004 report and in a 2004 Treasury Board-mandated evaluation of the regime.

The amendments include the following:

  • enhancing information sharing between the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), law enforcement, and other domestic and international agencies;
  • creating a registration regime for money service businesses;
  • passing enabling legislation for enhanced client identification measures; and
  • creating an administrative and monetary penalties regime to better enforce compliance with the Act and its regulations.

On March 10, 2007, the first phase of regulations implementing the amendments to the Act was pre-published in the Canada Gazette for comment. This set of regulations consisted of the Proceeds of Crime (Money Laundering) and Terrorist Financing Registration Regulations and the Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Further phases of regulations will be introduced throughout 2007 and 2008 to fully implement the amendments to the Act.

10. Effective support for Canada's presidency of the Financial Action Task Force (FATF)

During 2006-07, Canada presided over the FATF. The Canadian president was successful at addressing issues identified in the work program, including welcoming China as a member, and India and South Korea as observers; strengthening the ongoing relationship with the private sector; advancing the analysis of terrorism and money laundering threats; and initiating a strategic review of the organization.

During the year, the Canadian president chaired three FATF plenary meetings, including one hosted by Canada in Vancouver. Approximately 400 delegates attended from FATF-member and observer countries.

Presiding over the FATF has demonstrated internationally Canada's commitment to remain at the forefront of the global fight against terrorist financing and money laundering.

Performance measurement


Expected
Results /
Performance Measurement

1. Stable, low-cost financing for the Government of Canada

2. A well-
functioning market in Government of Canada securities

3. Management of Canada's official international reserves

4. A sound borrowing framework for Crown entities

5. A supply of coinage at a reasonable cost

Performance Indicators

Measures of operational performance (e.g. interest costs, fixed-floating shares of debt, average term to maturity)

Measures of market performance (e.g. turnover, trading spreads)

Measures of operational performance (e.g. investment returns, risk exposures)

Cost-effective borrowing activities and sound investment practices

Regular audit of payments to the Mint for domestic coinage supply and distribution

Data Sources

Fiscal Monitor; Debt Management Report

Debt Management Report

Annual Report on the Management of Canada's Official International Reserves

Annual reports, corporate plans, quarterly reporting

Public Accounts

Frequency

Monthly and Annual

Annual

Annual

Quarterly and annual

As required

Target

Stable, low-cost financing

Liquid markets for Government of Canada securities

Portfolio objectives attained

Minimize risk-adjusted borrowing costs and ensure prudent and effective treasury management

Efficient coinage system

Target Date

Ongoing

Ongoing

Ongoing

Ongoing

Annual

Actual

Stable, low-cost financing

Liquid markets for Government of Canada securities

Portfolio objectives attained

Risk-adjusted borrowing costs are low

Efficient coinage system

Performance Status

Successfully met expectations

Successfully met expectations

Successfully met expectations

Successfully met expectations

Successfully met expectations


 


Expected
Results /
Performance Measurement

6. A regulatory framework that promotes the soundness, efficiency, and competitiveness of Canada's financial sector

7. A sound legislative and regulatory framework for federally regulated defined benefit pension plans

8. Effective framework for investment of CPP funds

9. A world-class AML and ATF framework

10. Effective support for Canada's presidency of the FATF

Performance Indicators

Policy, legislative, or regulatory initiatives

Policy, legislative, or regulatory initiatives

CPPIB investment performance

Policy, legislative, or regulatory initiatives

Support for Canada's FATF presidency

Data Sources

Legislation, regulations, and publications

Legislation or regulations

CPPIB reports

Legislation, regulations, FATF mutual evaluation report

Press releases or other communications for the year of Canada's presidency

Frequency

Legislative and regulatory amendments, as needed

Legislative and regulatory amendments, as needed

Quarterly

Amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and regulations, as needed

Mutual evaluation roughly every five years

As required

Target

Tabling of the 2006 financial institutions legislation

Completion of Bill C-57 regulations

Preparations for IMF FSAP update completed

Progress toward a common securities regulator for Canada

Improved security of pension benefits and viability of defined benefit pension plans

Well-governed CPPIB, investment returns at or above long-term target required to achieve sustainability

A world-class AML/ATF framework

An effective presidency

Target Date

To be completed by April 24, 2007: financial-sector legislative review

2006: most of Bill C-57 regulations

2007: IMF FSAP review

Ongoing: progress toward a common securities regulator for Canada

2006: release of proposed amendments to the Pension Benefits Standards Act or regulations

Ongoing

Ongoing: issuing of amendments to PCMLTFA and regulations

July 1, 2006, to June 30, 2007

Actual

Bill C-37 received Royal Assent on March 30, 2007, and most of the provisions came into force on April 20, 2007.

Most of Bill C-57 regulations completed

The Department coordinated preparatory work for Canada's Financial Sector Assessment Program Update by the IMF.

The Department pursued discussions with provinces and territories on the establishment of a common securities regulator.

Solvency Funding Relief Regulations implemented in November 2006

Sustainability of the CPP achieved

The parliamentary review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act concluded with a report in October 2006;
Bill C-25 received Royal Assent on December 14, 2006; the Proceeds of Crime (Money Laundering) and Terrorist Financing Registration Regulations and Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act

were pre-published in the Canada Gazette, Part I, for a 30-day comment period on March 10, 2007. The mutual evaluation process is expected to be completed by February 2008.

The period of Canadian presidency, which will end in June 2007, has proven to be very effective

Performance Status

Successfully met expectations

Successfully met expectations

Successfully met expectations

Parliamentary review: successfully met expectations

Legislative amendments: successfully met expectations

Regulatory amendments: on track to meet expectations

FATF mutual evaluation: on track to meet expectations

Successfully met expectations


Program Activity 4: Economic Development and Corporate Finance

This program activity is responsible for providing policy analysis and advice to the Minister of Finance regarding the financial implications of the government's microeconomic policies and programs and proposals for funding of programs. The program focusses on monitoring world-class research and development; on developing regional and sectoral policy analysis in the areas of the knowledge-based economy, defence, transportation, public infrastructure, environment, energy and resources, agriculture, fisheries, and privatization; and on advising on corporate restructuring regarding Crown corporations and other corporate holdings.

Financial resources ($ thousands)


Planned Spending Authorities Actual Spending
8,006 8,402 7,799

Human resources (FTEs)


Planned Actual Difference
70 61 9

 


Economic Development and Corporate
Finance Expected Results
Priority Supported

A thorough assessment of operating and capital funding related to economic development and policy proposals

Sound Fiscal Management

Sound advice to the Minister on economic proposals

Sustainable Economic Growth

Enhanced productivity and economic growth through other governmental initiatives

Sustainable Economic Growth

Improved awareness of the requirements and departmental process for conducting strategic environmental assessments

Sustainable Economic Growth

The program activity supports the Department's strategic outcome by pursuing policies to encourage greater productivity and to create a more competitive and dynamic Canada.

Expected results

1. A thorough assessment of operating and capital funding related to economic development and policy proposals

Operating and capital budgets of economic development proposals were successfully assessed in the context of economic and financial advice, and policy analysis was provided to the Minister on proposals prepared for Cabinet consideration, on Budget 2006, on the fall 2006 Economic and Fiscal Update. The Department was also involved in the development of the government's economic priorities as set out in Advantage Canada: Building a Strong Economy for Canadians. The Department fulfilled a necessary "challenge" function in helping manage the funding demands of other government departments and agencies, contributing to sound decisions that reflected public policy and a responsible use of taxpayers' money.

The program activity contributed to the Department's central agency role through its work with other departments and agencies. For example, the Department worked with the Canadian Coast Guard in the development of Phase II of its fleet renewal strategy, which led to the provision of $324 million to the Canadian Coast Guard to purchase six large vessels to avoid further deterioration of these assets. Funding for the Small Craft Harbours Program was also stabilized through the December 2006 renewal funding of $20 million annually, allowing Fisheries and Oceans Canada to maintain its core fishing harbours in good working condition.

2. Sound advice to the Minister on economic proposals

The program activity fulfils the challenge function of the Department by assessing and providing sound policy advice to the Minister of Finance on the financial implications of the government's microeconomic policies and programs and proposals for program funding.

The Department worked with other departments to implement the commitments made in Advantage Canada to advance 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, that aims to generate science and technology leadership for Canada, based on strong public- and private-sector commitments to research excellence. The Department's work led to the inclusion in Budget 2007 of significant new resources for science and technology, for example:

  • new funding for research at universities, colleges, and research hospitals;
  • new investments in leading-edge research infrastructure through the Canada Foundation for Innovation and CANARIE (Canada's advanced networking organization); and
  • training of highly qualified personnel through new scholarships and internships.

The Department also worked to advance a number of initiatives set out in Advantage Canada that are aimed at improving the business environment and stimulating private-sector investment and innovation. The Department worked with other departments and agencies to advance regulatory reform by making government regulations more efficient, timely, and cost-effective, while continuing to protect the health and safety of Canadians. This included contributing to the introduction of a performance-based regulatory system through the Cabinet Directive on Streamlining Regulation, and the government's initiative to reduce the paper burden by 20 per cent, both of which were highlighted in Budget 2007.

The Department also contributed to the implementation of the government's ecoAction plan, providing policy and economic analysis in support of the Regulatory Framework for Air Emissions, as well as Budget 2007 initiatives, such as:

  • a provincial trust to support measures to reduce air pollution and mitigate climate change;
  • a production incentive for renewable fuels and support for the development of next-generation technology; and
  • the National Water Strategy.

In Advantage Canada, the Department identified the important role of trade corridors and transportation gateways in facilitating efficient trade and outlined planned efforts to develop a comprehensive infrastructure plan that includes funds for national highways, gateways, and the construction of a new border crossing at Windsor–Detroit.

The Department also worked with other departments and agencies to implement a number of key measures introduced in Budget 2007 as part of a new $33 billon long-term infrastructure plan. This new plan includes the enriched Asia–Pacific and Corridor Initiative, a dedicated fund for gateways and border crossings, and the new Building Canada Fund to support investments in the core national highway system and other projects.

3. Enhanced productivity and economic growth through other governmental initiatives

In line with other 2006-07 RPP commitments, the Department has contributed to the development of the government's new Regulatory Framework for Air Emissions, a made-in-Canada plan that includes mandatory industrial greenhouse gas reduction targets and that will help create a cleaner, healthier environment.

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 centred on a $33 billon long-term infrastructure plan. This plan includes funds for large-scale projects such as public transit and segments of the national highway system. Additionally, funds have been provided to support new investments in gateways and border crossings, including at Windsor–Detroit and the Asia–Pacific Gateway and Corridor Initiative, to help reduce travel costs and promote efficient commerce. The plan also provides additional support for large cities and smaller municipalities through extended gas tax funding.

With regards to sectoral policies, the Department of Finance Canada worked in collaboration with Agriculture and Agri-Food Canada in the development of the next generation of agricultural policy that is simpler, more predictable, and more responsive to farmers' needs (Growing Forward). Additional funding of $4.5 billion was provided through Budget 2006 and Budget 2007 to help reform agricultural programs and introduce new ones, such as the disaster assistance framework (Agri-Recovery) and a new farm savings account (Agri-Invest) to be cost-shared with provinces and territories.

The Department of Finance Canada also worked closely with Fisheries and Oceans Canada toward improving the sustainability of Canada's fisheries and oceans. To that end, Budget 2007 re-invested over two years the following sums: $39 million to support fisheries science research; $19 million to contribute to keeping Canada's coastal waters clean as part of the National Water Strategy; and $20 million to ensure that First Nations in the Maritimes and in the Gasp region of Quebec have the capability to more efficiently manage their access to the commercial fishery.

4. Improved awareness of the requirements and departmental process for conducting strategic environmental assessments

The Department's 2006-07 RPP committed it to developing a new departmental sustainable development strategy (SDS) for 2007–09. The Department of Finance Canada 2007–10 SDS was tabled in Parliament in December 2006 and is the third update of the original SDS tabled in December 1997. It builds upon the foundation of previous strategies, including key achievements in debt reduction, evaluation of environmental tax proposals, strategic environmental assessment, and green stewardship. The SDS was shaped by government-wide guidance on federal sustainable development goals and greening government operations, and benefitted from consultations undertaken by the Department to get a better understanding of how the Department's actions and proposals are seen by stakeholders and those involved in sustainable development.

The program activity continued to promote awareness throughout the Department of the need to undertake strategic environmental assessments in accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals. Specifically, in the fall of 2006, the Department hosted a representative from the Canadian Environmental Assessment Agency to provide a briefing to all interested departmental staff on strategic environmental assessment (SEA). A representative subsequently made a presentation to officials on the SEA process tailored to the specific role and activities of the Department.

Performance measurement


Expected Results / Performance Measurement

1. Thorough assessment of operating and capital funding related to economic development and policy proposals

2. Sound advice to the Minister on economic proposals

3. Enhanced productivity and economic growth through other governmental initiatives

4. Improved awareness of the requirements and departmental process for conducting strategic environmental assessments

Performance Indicators

Measures of sector-specific cost-effectiveness

Implementation of micro-
economic policy directions in the government's economic agenda

Fiscally responsible plans to implement the initiatives listed above

The number of strategic environmental assessments conducted by the Department will be tracked and monitored

Data Sources

Statistics Canada
OECD

Budget and economic update

Budget and economic update

Departmental inventory

Frequency

Annual

Annual

Annual

Annual

Target

Related to each sector

Announcement of measures that advance productivity and economic growth

Announcement of measures that advance productivity and economic growth

Maintain awareness of the departmental strategic environmental assessment process

Target Date

Budgets and economic updates in
2006-07

Budgets and economic updates in 2006-07

Ongoing, annual activities

Ongoing, annual activities

Actual

R&D expenditures in targeted sectors, e.g. R&D expenditures for health sector in universities increased by 10% in 2006 over the previous year

Private-sector funding of university research (not available by sector) increased by 10% in 2006 over the previous year

Development of long-term economic plan, Advantage Canada

Budget 2007 included new resources for science and technology, training and education, and commitments to reduce the regulatory burden on businesses

Development of long-term economic plan, Advantage Canada

Budget 2007 included new resources for science and technology, training and education, and commitments to reduce the regulatory burden on businesses

The Department has developed an SEA registry to track and monitor SEAs

Since 2003–04, the Department has completed 258 SEAs, including 93 in
2006-07

Performance Status

Successfully met expectations

Successfully met expectations

Successfully met expectations

Successfully met expectations


Program Activity 5: Federal-Provincial Relations and Social Policy

This program aims to create and maintain a system of federal-provincial-territorial fiscal arrangements that will facilitate the funding of national priorities and the provision of reasonably comparable public services at reasonably comparable levels of taxation throughout Canada. The program focus is on the fiscal and economic implications of federal-provincial-territorial fiscal arrangements as well as the provision of advice on social policies and programs, including health care, employment insurance, post-secondary education, immigration, housing, Aboriginal and cultural programs and benefits, justice, and programs for seniors, persons with disabilities, and children. Program activity includes ongoing communication and consultations within the Department, with central agencies and other federal government departments, as well as with provincial and territorial governments, stakeholders, academics, experts, and individual Canadians. It also includes the provision of analysis and advice to the Minister of Finance and senior government officials to assist in the preparation for meetings of Cabinet and its committees, as well as federal-provincial-territorial meetings, and in preparation of policies and proposals for the annual budget and fiscal updates. The program is also responsible for preparing legislation and regulatory changes related to the federal-provincial-territorial fiscal arrangements, as required.

Financial resources ($ thousands)


Planned Spending

Authorities

Actual Spending

17,229 18,083 14,497

Human resources (FTEs)


Planned

Actual

Difference

115 102 13

 


Federal-Provincial Relations and Social Policy
Expected Results

Priority Supported

Implementation of a new formula for Equalization and TFF

Sound Social
Policy Framework

Determine the most appropriate arrangements for post-secondary education and training

Effective implementation of government social policy priorities


The work under this program activity supports the Department's commitment to creating a sound social policy framework by contributing to the government's efforts to meet its objectives regarding the quality of Canada's communities, health care, education, and social safety net programs and the commitment to equality of opportunity for all citizens. The program activity also ensures that federal-provincial-territorial fiscal arrangements are consistent with these priorities and allow for the redistribution of wealth across regions of the country through the provision of transfer payments consistent with the government's commitments. This helps ensure that provincial and territorial governments are able to provide services to their residents.

Whenever possible, the program activity consulted stakeholders (including other government departments) in the early stages of the policy development process, as was the case, for example, in the process that led to the changes to the CPP announced by federal, provincial, and territorial ministers of Finance in June 2006 and legislated as part of Bill C-36, which received Royal Assent on May 3, 2007.

1. Implementation of a new formula for Equalization and Territorial Formula Financing (TFF)

Since 1957–58, Equalization has been Canada's most important program for reducing fiscal disparities among provincial governments. Equalization payments enable eligible provincial governments to provide their residents with public services that are reasonably comparable to those in other provinces at reasonably comparable levels of taxation.

TFF is the main transfer program from the Government of Canada to the three territorial governments. Although territorial governments have the authority to raise revenues by taxation, rentals, and the sale of goods and services, a significant portion of their financial resources comes from the federal government through TFF.

The 2006-07 RPP set out a number of ongoing activities and key commitments for the Department to meet in 2006-07. The ongoing activities were to continue to update Equalization and TFF information and determine payment levels based on legislation. The key commitments for the 2006-07 year were to review the recommendations of the Expert Panel on Equalization and TFF; develop advice on a renewed, principles-based Equalization and TFF program; undertake consultations with provinces and territories; and prepare legislation and regulatory changes and coordinate them with provinces and territories.

In 2006-07, $11.5 billion was provided to recipient provinces through the Equalization program (as planned) and $2.1 billion was provided to territories through TFF (as planned). In 2007–08, more than $12.9 billion is to be provided to provinces through Equalization and $2.2 billion is to be provided through TFF.

TFF Transfers, 1994-95 to 2007-08 ($ billion)

Source: Department of Finance Canada

Equalization Transfers, 1994-95 to 2007-08 ($ billion)

Source: Department of Finance Canada

With respect to ongoing activities, in 2006-07, interim payments under the Equalization and TFF programs were made based on legislation. "Open years" continued to be adjusted by incorporating more up-to-date data as they became available.

The key commitments have, in large part, been achieved, with the introduction in Budget 2007 (tabled in Parliament on March 19, 2007) of new, principles-based transfer programs. Budget 2007 proposals reflect the recommendations of the Expert Panel on Equalization and TFF (the O'Brien report, released in June 2006 and available athttp://www.eqtff-pfft.ca/english/epreports.asp) and the advice received through consultations with provinces and territories, academics, stakeholders, and Canadians. Budget 2007 also builds on the important principles established in Budget 2006 (tabled May 2, 2006), namely accountability through clarity of roles and responsibilities, fiscal responsibility and budget transparency, predictable long-term fiscal arrangements, a competitive and efficient economic union, and effective collaborative management of the federation.

Budget 2007, based on these consultations, along with the O'Brien report and Budget 2006, provides for a strengthened and renewed Equalization program. The main elements of the renewed Equalization program include a higher Equalization standard, a new approach to the treatment of natural resource revenues, 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.

Budget 2007 will also put in place a long-term legislated TFF arrangement that follows the recommendations in the O'Brien report and that was supported by all three territories. 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 final steps in the changes to these programs will be completed in 2007–08. As at March 31, 2007, Budget 2007 had been tabled in Parliament but had yet to receive Royal Assent. Both the Equalization program and TFF have payment amounts set in legislation for 2007–08 and will use the new formulas for payment allocation starting in 2008–09.

Extensive consultations and independent advice from an expert panel proved invaluable to fostering a more informed national debate and ensuring the government received comprehensive and independent advice regarding important transfer programs. Given the competing pressures and different priorities faced by provinces and territories, it was apparent that the goal was not complete consensus on new fiscal arrangements, but rather full and transparent exchanges of information and advice leading to balanced final proposals.

2. Determine the most appropriate arrangements for post-secondary education and training

The government made a commitment in the 2006 budget to determine the most appropriate arrangements for its long-term funding commitments for post-secondary education and training. More specifically, it committed to working with provincial and territorial governments, central agencies, other government departments, and external stakeholders to ensure both timely decisions with respect to, and implementation of, the commitment to determine funding in the areas of post-secondary education and training.

As a result of the activity, which included consultations with provincial and territorial governments, stakeholders, academics, and Canadians, Budget 2007 proposes to strengthen transfers to provinces and territories by:

  • providing new investments of $800 million per year for post-secondary education through the Canada Social Transfer (CST) and $500 million per year directly to provinces and territories for labour market training (starting in 2008–09);
  • including an automatic 3 per cent escalator, effective in 2009–10, to guarantee that the CST will grow in line with inflation and population;
  • extending the funding framework for the CST legislation to 2013–14 to provide the provinces and territories with stable and predictable support;
  • publicly earmarking federal support for post-secondary education and social programs (based on provincial and territorial spending patterns, approximately 25 per cent of the CST has been identified as federal support for post-secondary education, while the remaining 75 per cent will be distributed among other social programs, including support for children);
  • moving to equal per capita cash transfers in order to provide comparable treatment for all Canadians and eliminate what the O'Brien report referred to as "back door" Equalization; and
  • finally, ensuring that no province or territory experiences a decline in Canada Health Transfer (CHT) or CST cash relative to what that jurisdiction would have received in 2007–08, before the implementation of the proposed changes.

Budget 2007 Investments in the CST ($ billion)

Source: Department of Finance Canada

3. Effective implementation of government social policy priorities

This program activity fulfills the challenge function of the Department by assessing and providing sound policy analysis and advice to the Minister of Finance on social policy issues, including advice on early learning and childcare, post-secondary education, immigration, income security, justice and security, health, culture, and Aboriginal people in Canada.

The Department worked extensively with other departments to implement the commitments made in Advantage Canada to create a Knowledge Advantage. The Department made important contributions to the development of measures to strengthen the quality and competitiveness of Canada's post-secondary education system, help Canadians get the skills they need and employers want, and ensure that Canada attracts and retains the best and brightest immigrants with the skills and knowledge in demand in the labour market. The work of the Department led to the inclusion in Budget 2007 of a series of significant new initiatives. Below is a list of examples of such initiatives:

  • an annual investment of $500 million, starting in 2008–09, to provinces and territories to provide labour market training to help people not eligible for training under employment insurance get the skills they need;
  • an expansion of the Aboriginal Skills and Employment Partnership Program to help Aboriginal people in Canada receive the skills and employment training that will increase their participation in economic development projects across Canada; and
  • helping Canadian-educated foreign students and skilled foreign workers stay in Canada as permanent residents, under certain conditions.

The Department also worked with other government departments to deliver on measures aimed at helping people with disabilities, Aboriginal people in Canada, and seniors as well as modernizing Canada's health care system. This work resulted in measures announced in Budget 2007, such as the following:

  • the creation of an Enabling Accessibility Fund to help persons with disabilities participate fully in their communities;
  • an expansion of the Aboriginal Justice Strategy and increased funding for housing in First Nations communities;
  • an additional investment of $10 million per year in the New Horizons for Seniors program; and
  • significant funding to support patient wait times guarantees and to protect women from HPV/cancer of the cervix.

The Department contributed to the development of several measures aimed at enhancing the security of Canadians, such as increased funding to enhance the effectiveness of the operations of the Canadian Security Intelligence Service, additional funding to update the infrastructure of Correctional Service Canada, and the implementation of a new National Anti-Drug Strategy.

Performance measurement


Expected Results /
Performance Measurement

1. Implementation of a new formula for Equalization and TFF

2. Determination of the most appropriate arrangements for post-secondary education and training

3. Effective implementation of government social policy priorities

Performance Indicators

Research, analysis, and advice with respect to Equalization and TFF

Bring forward proposals on renewed programs

Bring forward proposals on renewed arrangements

Timely implementation of programs related to the government's social policy priorities

Data Sources

Various (budgets, Economic and Fiscal Updates, consultation reports, etc.)

Various (budgets, Economic and Fiscal Updates, bilateral and multilateral agreements, consultation reports, etc.)

Main and Supplementary Estimates for other departments

Frequency

Ongoing

Ongoing

Annual/ongoing

Target

Timely and accurate research, analysis, and advice

Timely and accurate research, analysis, and advice to determine appropriate funding in the areas of post-secondary education and training

Policy development and timely rollout of initiatives and related funding of government social and economic policy priorities

Target Date

Ongoing

Proposals for renewal intended to be brought forward for inclusion in Budget 2007

Proposals for renewal intended to be brought forward for inclusion in Budget 2007

Ongoing

Actual

Developed and analyzed policy for Budget 2006 and provided policy advice based on analysis of the Expert Panel's report; proposals tabled as part of Budget 2007

Increased and earmarked funding for post-secondary education announced in Budget 2007; New Labour Market Architecture, including transfer of Employment Insurance Part II programming and new labour market program, announced in the 2007 budget

Measures were announced in the 2007 budget to support progress on Advantage Canada

Departments are at various stages of implementation

Date of Actual

Budget 2006
(May 2, 2006)

Budget 2007
(March 19, 2007)

Funding under the proposed renewed programs would start in 2007–08

The 2007 budget proposed new post-secondary education funding and funding for the proposed new labour market program to start in 2008–09. Discussions with the remaining five provinces and territories are underway to complete transfer of EI Part II programming

2007 budget for most measures (such as the new avenue to immigration to Canada, temporary foreign workers program, labour market and training, post-secondary education, Aboriginal programs, National Anti-drug Strategy)

Performance Status

Successfully met expectations

Successfully met expectations

Successfully met expectations


Program Activity 6: International Trade and Finance

Canada's economic performance and future prosperity depend on trade and investment flows supported by high-standard multilateral, regional, and bilateral trade and investment rules and agreements. The aim of this program activity is to secure access to key markets for Canadian exporters and investors, and to reduce tariffs where possible in order to enhance the competitiveness of domestic industries and expand commercial opportunities for them. The program manages the Department's participation in international economic, trade, and financial institutions, including the Organisation for Economic Co-operation and Development, the World Trade Organization (WTO), the IMF, the World Bank Group, and the European Bank for Reconstruction and Development, as well as international groups such as the G7, G20, and the Asia–Pacific Economic Cooperation forum (APEC).

Financial resources ($ thousands)


Planned Spending

Authorities

Actual Spending

15,997 16,790 14,903

Human resources (FTEs)


Planned

Actual

Difference

123 109 14

 


International Trade and
Finance Expected Results

Priority Supported

Stronger international trading system and more open markets

Sustainable Economic Growth

Policy positions and proposals that improve prospects for global economic and financial stability and better financial governance

Effective International Presence

Effective international initiatives to strengthen developing economies

Effective International Presence

The work under this program activity contributes to the departmental priorities of sustainable economic growth and effective international presence by working to improve Canada's overall economic performance through a stronger international trade and investment system that opens markets, enhances competitiveness of domestic industries, and expands access for Canadian exports to and investment in major foreign markets. The program activity also enhances Canada's international presence by advancing Canadian leadership in international forums such as the G7 and G20, and by providing policy direction to international financial institutions such as the IMF and World Bank. In addition, the Department contributes to international initiatives to improve outcomes in the developing economies through effective use of international assistance, debt relief, and other means and the provision of payments consistent with the Department's commitments.

Expected results

1.  Stronger international trading system and more open markets

The Minister received advice on proposals to enhance Canadian competitiveness through a range of trade policy instruments and budgetary efforts. In particular, departmental 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, strengthen our competitive position in the U.S. market, and extend Canada's reach to new markets.

The Department also plays a key role in the SPP initiative in terms of policy perspectives and overall budgetary considerations. The Department leads or co-leads Canadian delegations in SPP working groups such as the North American Steel Trade Committee and the working group on the North American Free Trade Agreement NAFTA) rules of origin. Based on the output of the rules of origin working group, the Department has 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. (See http://www.international.gc.ca/nafta-alena/amendment-401-06-en.asp.) Officials of the three NAFTA partners are currently finalizing plans to further liberalize NAFTA rules of origin.

The Department remained actively engaged in the WTO negotiations and dispute resolution during 2006-07, particularly in areas of Department of Finance Canada responsibility (trade remedies and non-agricultural market access negotiations). The Department leads on behalf of Canada in the WTO Negotiating Group on Rules (trade remedy issues) and has focussed its work on strengthening international subsidy disciplines. Information on Canada's role in the WTO negotiations can be found at http://www.international.gc.ca/tna-nac/current-en.asp#neg. Departmental officials also participated in ongoing trade negotiations with the Republic of Korea, Singapore, and four Central American countries (El Salvador, Guatemala, Honduras, and Nicaragua).

Given the Department's responsibility for the Customs Tariff and other import legislation, officials continued to play a key role in bilateral and regional free trade agreements. In particular, officials participated in the free trade agreement negotiations with European Free Trade Association countries (Norway,  Iceland, Switzerland, and   Liechtenstein), which led to the announcement of an agreement in June 2007. (See http://www.international.gc.ca/tna-nac/efta-en.asp.)

The Department also works to enhance the competitiveness of Canadian industry through tariff relief measures and the assessment of the impact of trade remedy measures on the Canadian economy. In 2006-07, the Department approved 15 requests for tariff elimination on specific products and completed its work to eliminate duties on a very large number of textile products, which resulted in a total amount of ongoing duty relief of about $18 million, in addition to the $39 million of duty relief provided in 2005–06. Three remission orders were also approved, providing duty relief on a temporary basis of approximately $53 million.

Officials also participated in the negotiation of foreign investment protection and promotion agreements (FIPAs) with India, Peru, China, and six newly acceded European Union member states. The FIPAs with  India and Peru were subsequently successfully concluded in June 2007. (See http://w01.international.gc.ca/MinPub/Publication.aspx?isRedirect=True&Language=E&publication_id=385226&docnumber=82.) FIPAs encourage investment by providing a legal framework for investment that ensures market access in some sectors and provides access to international dispute settlement procedures when needed.

In 2006-07, the Department negotiated the revised Aircraft Sector Understanding of the Arrangement on Officially Supported Export Credits (ASU). The main parties to this agreement are the U.S., European Community, Canada,  Brazil, and Japan . The Agreement levels the playing field in aircraft sales financing support and will facilitate access to predictable and competitive sales financing terms for Canadian manufacturers. As part of this process, the Department worked closely with Foreign Affairs and International Trade Canada, Export Development Canada, the Government of Quebec, and industry representatives.

2.  Policy positions and proposals that improve prospects for global economic and financial stability and better financial governance

Support was provided for the Minister's participation in and contribution to international initiatives aimed at improving global economic and financial stability, and better financial governance.

International organizations in which the Minister and the Department participate include the G7, G10, and G20 finance ministers' forums, the IMF, the World Bank, the EBRD, the OECD, APEC, the Western Hemisphere Finance Ministers' meetings, the Commonwealth finance ministers' meetings, and numerous bilateral partnerships with other countries and regional groups.

In addition, through its ongoing activities, the Department participates in discussions at the executive boards of the IMF and the World Bank on country issues, thematic issues, and the global economic outlook.

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 (see the Department's report on IMF operations at http://www.fin.gc.ca/toce/2007/bretwd06_e.html);
  • 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;
  • provided support to the Extractive Industries Transparency Initiative that, by making oil, gas, and mining activities more transparent by publicizing payments and revenues, will encourage improved government accountability and long-term economic sustainability (see http://www.fin.gc.ca/news07/07-012e.html); and
  • maintained the network of finance counsellor positions abroad and expanded it with a new finance counsellor position in Beijing.

The Department provided policy advice on the operations and policies of other government departments with a primarily international mandate, including the announcement in Budget 2007 of funding for Foreign Affairs and International Trade Canada to enhance the critical infrastructure of foreign missions and help ensure the safety and security of Canada's diplomats. The Department also provided analysis and advice on the allocation of new international aid money provided in Budget 2006 and Budget 2007. The additional funding will be used to support a new global health initiative called the Advance Market Commitment, as well as the Global Fund to Fight AIDS, Tuberculosis and Malaria, and the Global Polio Eradication Initiative; to finance crises through the Exogenous Shocks Facility; and to provide development assistance in Afghanistan.

The Department also laid out a strong agenda in Budget 2007 to make existing aid resources go further by enhancing their focus, improving their efficiency, and increasing accountability. The Department continues to work interdepartmentally to develop a comprehensive aid reform strategy, benchmarked against other G7 countries, as well as to allocate new aid money within the International Assistance Envelope for 2007–08.

3.  Effective international initiatives to strengthen developing economies

The Department participated in all Paris Club meetings with a view to implementing debt relief initiatives consistent with Canadian international policies and supporting debtor countries' active debt management activities.

In the 2006-07 fiscal year, the government agreed to provide debt relief to Haiti after it made progress toward political and macroeconomic stability. In addition, the government cancelled all debt owed to Canada by Cameroon after it graduated from the Heavily Indebted Poor Countries Initiative.

The government also agreed to a proposal from Russia to prepay its Paris Club–rescheduled debt. Given Canada's strong active support for the rebuilding of Afghanistan, the Department participated at the debt relief negotiation between the country and its Paris Club creditors.

The Department plays a leading role in Canada's delivery of debt relief and began coordinating with other international creditors in 2005 to cancel a significant amount of debt owed by the world's poorest and most heavily indebted countries. In fiscal year 2006-07, Canada and the rest of the G8 endorsed and implemented a multilateral debt relief agreement, known as the Multilateral Debt Relief Initiative (MDRI), that will cancel U.S.$60 billion in debts owed by poor countries. The government committed C$51.2 million annually to the Department of Finance Canada's share of MDRI-related costs.

Through the development and implementation of this initiative, Canada , together with the international community, will continue to significantly reduce the debt burdens of poor countries to sustainable levels. Freed-up resources from debt relief can then be used to finance the countries' social-sector spending and poverty reduction priorities to help them reach their long-term development goals.

In Budget 2006, the government allocated new funding to the Exogenous Shocks Facility to support low-income countries facing balance of payments crises due, for example, to a natural disaster or sharp commodity price rises.

In the 2006-07 fiscal year, the Department played a key role in the development of a whole-of-government response to the crises in Lebanon and Sudan , for which Crisis Pool funding was provided. Although the Crisis Pool has allowed Canada to quickly respond to major unforeseen crises, while insulating the fiscal framework from unpredictable demands, there are still areas where improvements can be made. These are often a result of the complex nature of Canadian involvement in emergency situations, such as in Sudan. The Department will seek ways to further improve its flexibility.

Performance measurement


Expected Results /
Performance Measurement

1. Stronger international trading system and more open markets

2. Policy positions and proposals that improve prospects for global economic and financial stability and better financial governance

3. Effective international initiatives to strengthen developing economies

Performance Indicators

Progress will be measured through the results of various regional, multilateral, and bilateral trade and investment negotiations and initiatives

Policies adopted at international financial institutions (IFIs) and promoted by the finance ministers' forums

Progress will be measured through the results of various bilateral and multilateral negotiations and initiatives

Data Sources

Policies and communiqus in international initiatives and negotiations

Communiqus and reports of finance ministers' forums and IFI's

Policies and communiqus in international initiatives and negotiations (see http://www.fin.gc.ca and http://www.clubdeparis.org)

Frequency

Ongoing

Periodic

Ongoing

Target

International meetings and negotiations

Multiple, depending on forum and issue

International meetings and negotiations

Target Date

Ongoing

Ongoing

Ongoing

Actual

Canada was actively engaged in FIPA negotiations with several countries and continued to make progress in these negotiations. FIPAs with India and Peru were subsequently successfully completed

Budget 2007 announced Canada's Global Commerce Strategy to expand our bilateral trade network, develop a more comprehensive trade and investment relationship with the U.S., and expand opportunities in fast-emerging markets

Participated in all ongoing multilateral, regional, and bilateral trade and investment negotiations

Actively involved in a number of initiatives under the SPP, including liberalization of NAFTA rules of origin

Participated in and, when necessary, influenced outcomes of all OECD meetings and negotiations

Provided leadership on the reform agenda of the IMF; hosted an important G20 seminar

Promoted an initiative to achieve mutual recognition of securities among G7 countries

Provided support to the EITI; and maintained the network of finance counsellor positions abroad and expanded it with a new position in Beijing

Effectively implemented changes to the International Assistance Envelope

Other policy positions promoted and approved in 2006-07 include:

stronger IFI coordination to foster application of existing international standards and best practices in the fiscal area and further measures to strengthen good governance in public finance

Ongoing commitment to fighting money laundering, terrorist financing, and other illicit financing

Advance Market Commitment Pilot

Governance and Anti-Corruption Strategy of the World Bank

Ongoing work to improve the debt sustainability framework of the World Bank and the IMF

Participated in and, when necessary, influenced outcomes of in all international meetings and negotiations (e.g. Paris Club, and executive boards of the IMF and World Bank)

Date of Actual

Agreement with India concluded in June 2007
Budget in March 2007

Ongoing

Ongoing

Performance Status

Successfully met expectations

Successfully met expectations

Successfully met expectations


Program Activity 7: Public Debt

The Department is responsible for the management of the government's debt program, including the design and implementation of the debt strategy and the payment of interest costs on existing debt instruments and the servicing costs for new borrowings. The Financial Administration Act, Part IV, provides authority to the Minister of Finance to borrow in financial markets. The actively managed market debt instruments of the government include bonds, Treasury bills, Canada Savings Bonds, and foreign currency liabilities. (Public debt costs also include the government's pension plan liabilities, which are not actively managed.)

The Department also assists the Minister in governing the borrowing activities for the major government entities that are backed by the full faith and credit of the government, such as agent Crown corporations and similar entities. Ministerial approval of borrowing plans, as required under the Financial Administration Act, ensures their borrowing is cost-effective and in keeping with the principles of prudent risk management. This program activity enables the government as a whole to limit the overall cost of interest on government debt.

Financial resources ($ thousands)


Planned Spending Authorities Actual Spending
34,395,000 34,108,504 34,108,504

Human resources (FTEs)


Planned Actual Difference
57 43 14

 


Public Debt Expected Results Priority Supported

Stable low-cost financing for the Government of Canada

Sound
Fiscal
Management

A well-functioning market in Government of Canada securities*
* Costs are reported under the Financial Sector Policy program activity

A cost-effective retail debt program


This program activity supports the sound fiscal management priority of the Department by ensuring that debt costs are kept low and stable over time. Debt service is 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 has been on reviewing and evaluating the effectiveness of debt management and Treasury management frameworks and programs. The Department also has worked to implement changes to the retail debt program to enhance cost-effectiveness.

Changes to the government's fiscal needs pose strategic and operational challenges for debt and cash management, which are carried out through the maintenance of diversified, flexible borrowing programs. Operational risks are addressed through business continuity planning. Failure to maintain a well-functioning market can affect both the government and market participants. Risks are managed through the maintenance of strict auction participation rules, flexibility to adjust issuance, and active market surveillance

Expected results

1. Stable, low-cost Government of Canada borrowing

The government's operational needs are met through borrowing from capital markets. The government's debt structure (the mix of fixed- and floating-rate debt) is managed to ensure that debt costs are kept low and stable over time.

In 2006-07, debt strategy operations and initiatives continued to focus on adjusting the structure of the debt and on maintaining a well-functioning market for Government of Canada securities in an environment of declining borrowing needs. Notable results include the following:

  • the continuation of the orderly adjustment of the fixed-rate share of the debt stock from 66 per cent fixed to the 2007–08 target of 60 per cent an adjustment that is expected to be completed in 2007–08 and thereafter to provide estimated debt-cost savings of $500 million per year, on average;
  • the decision, announced in Budget 2007, to consolidate the borrowings of agent Crown corporations (Business Development Bank of Canada, Canada Mortgage and Housing Corporation, and Farm Credit Corporation) to reduce costs and enhance the liquidity of the Government of Canada securities market; and
  • the completion of an external review of Receiver General cash management, which was generally favourable with respect to the government's current polices and practices in this area. The evaluation report is posted on the Department of Finance Canada's website (see http://www.fin.gc.ca/efa/Report2006_e.html).

Performance information is also available in the results of auctions (posted on the Bank of Canada's website) and the level of liquidity and trading in the secondary market. The Debt Management Report (see http://www.fin.gc.ca/purl/dmr-e.html) includes a section dedicated to debt, cash, and reserves management measures.

2. A well-functioning market in Government of Canada securities

A well-functioning wholesale market in Government of Canada securities benefits the government and a wide range of market participants. For the government as a debt issuer, a well-functioning market attracts investors and ensures that funding costs are kept low. For market participants, a liquid and active secondary market in government debt provides risk-free assets for investment portfolios, a pricing benchmark for other instruments, and a primary tool for hedging risk.

Results achieved in this area include the following:

  • the decision to consolidate Crown corporation borrowing (see 1 above), which supports a well-functioning market in an environment of declining borrowing needs;
  • continued reduction of operational turnaround times, which lowers risk for auction participants; and
  • continued transparency and public engagement on debt program issues through market consultations and presentations, departmental publications on debt management (see http://www.fin.gc.ca/access/fininste.html#Markets), and notices on the Bank of Canada's website (http://www.bank-banque-canada.ca/en/notices_fmd/index.html), all of which promote informed decisions by investors and greater participation in the Government of Canada securities market.

3. A cost-effective retail debt program

In October 2006, the government celebrated the 60th anniversary of Canada Savings Bonds (CSBs), and the CSB advertising campaign continues to be one of the most recognized Government of Canada programs. As in prior years, the government sold CSBs and Canada Premium Bonds over a six-month period from October 2006 to April 2007. Sales were made through two channels: payroll and cash through financial institutions and directly from the government.

Retail debt sales for 2006-07 were $1.9 billion. Payroll sales increased slightly from the prior year, while cash sales remained low in the face of a highly competitive marketplace. Taking into account redemptions of $4.0 billion, the overall retail debt portfolio fell from some $17.3 billion to about $15.1 billion. The decline was directionally in keeping with the overall decline in federal government indebtedness and an environment of lower interest rates and increased competition from private-sector retail instruments. Detailed information on program outcomes will be available in the 2006-07 debt management report (see http://www.fin.gc.ca/purl/dmr-e.html) that will be tabled in Parliament and posted on the website of the Department shortly after the publication of the Public Accounts in the fall.

In the context of focussing on the priorities of Canadians by streamlining programs, the government decided to rationalize the administration of the retail debt program by winding up its special operating agency, Canada Investment and Savings, and transferring its functions back to the Bank of Canada and the Department. On March 31, 2007, the rationalization was undertaken to reduce program costs and is expected to produce future administrative cost savings of some $5 million per year.

Total expenditures for the retail debt program were $87.8 million, $3.2 million below the detailed expenditure plan of $91.0 million and well under the budgetary cap of $105.0 million for 2006-07. This represents the seventh consecutive year of expenditure reduction.

Performance measurement


Expected Results /
Performance Measurement

1. Stable low-cost financing for the Government of Canada

2. A well-functioning market in Government of Canada securities

3. A cost-effective retail debt program (RDP)

Performance Indicators

Measures of operational performance (e.g. interest costs, fixed-floating shares of debt, average term to maturity)

Measures of market performance (e.g. turnover, trading spreads)

RDP budget of $105,045,000

Data Sources

Fiscal Monitor, Debt Management Report

Debt Management Report

RDP expenditures

Frequency

Monthly and annual

Annual

Annual

Target

Stable low-cost financing

Liquid markets for Government of Canada securities

Manage the RDP within the budget of $105,045,000

Target Date

Ongoing

Ongoing

March 31, 2007

Actual

Stable low-cost financing

Liquid markets for Government of Canada securities

Total expenditure was $87.8 million with further savings to be obtained in future

Performance Status

Successfully met expectations

Successfully met expectations

On track to meet expectations


Program Activity 8: Domestic Coinage

The Department provides advice to the Minister on the currency system, which involves the production of bank notes by the Bank of Canada and circulating coinage by the Royal Canadian Mint. This entails the negotiation and oversight of the payment of production and distribution costs in the domain of domestic circulating coinage.

Financial resources ($ thousands)[2]


Planned Spending

Authorities

Actual Spending

83,100 135,602 135,602

 


Domestic Coinage
Expected Result

Priority Supported

A supply of coinage at a reasonable cost

Sound Fiscal Management

This program activity supports the sound fiscal management priority of the Department by ensuring that domestic circulating coinage continues to be supplied to the economy at a reasonable cost.

Priority 1: Sound fiscal management

Expected results

1. A supply of coinage at a reasonable cost

The Department of Finance Canada buys domestic circulating coinage from the Royal Canadian Mint and resells it to financial institutions. In 2006-07, owing to increased demand for coins in the economy, the volume and overall cost of coin production was significantly higher than in previous years. Details on the volume of coin production in 2006 can be found in the Mint's annual report (http://www.mint.ca/royalcanadianmintpublic/index.aspx?RequestedPath=/en-CA/Home/default.htm).

The Department and the Mint work together to ensure that the supply of coinage meets the needs of the economy. In 2006-07, the Department and the Mint operated under a new memorandum of understanding (MOU) that provided the Mint with incentives to enhance productivity and efficiency with respect to the production and distribution of circulation coins. Under the new arrangement, the Mint was able to significantly reduce unit production costs.

During the year, the Mint also produced four commemorative coins that were well received by Canadians. The demand for these coins from collectors increased the amount of seigniorage earned by the Government of Canada. Seigniorage is the net revenue derived from the issuance of currency. It is the difference between the face value of coins produced and the cost of producing and distributing them. Seigniorage on all circulating coinage is estimated to be $67 million in 2006-07.

Performance measurement


Expected Results /
Performance Measurement

1. A supply of coinage at a reasonable cost to meet the needs of the economy

Performance Indicators

Regular audit of payments to the Mint for domestic coinage supply and distribution

Data Sources

Public Accounts

Frequency

As required

Target

Efficient coinage system

Target Date

Ongoing

Actual

Needs of economy met at lowest cost

Performance Status

Successfully met expectations


Program Activity 9: Transfer Payments to Provinces and Territories

This program activity administers transfer and taxation payments to provinces and territories in accordance with legislation and negotiated agreements to provide for fiscal equalization and support for health and social programs and other shared priorities. The transfer and taxation payments include several elements:

  • Equalization and TFF are unconditional transfer payments made to provincial and territorial governments in accordance with the constitutional commitment to enable provinces to provide reasonably comparable levels of public services at reasonably comparable levels of taxation and the commitment to territorial governments to support the provision of services in the North, taking into account the higher costs.
  • The Canada Health Transfer provides support for health care to provincial and territorial governments in support of the government's commitment to maintain the national criteria and conditions of the Canada Health Act (comprehensiveness, universality, portability, accessibility, and public administration) and the prohibitions against user fees and extra-billing.
  • The Canada Social Transfer (CST) provides support to provincial and territorial governments to assist them in financing post-secondary education, social assistance and social services, and support for children. The CST also supports the government's commitment to prohibit minimum residency requirements for social assistance.
  • In addition, this program activity administers a number of smaller government commitments to provide additional support to provinces and territories, including the Wait Times Reduction Transfer, Alternative Payments for Standing Programs, the Youth Allowances Recovery program, statutory subsidies, the 2005 Arrangement between the Government of Canada and the Government of Newfoundland and Labrador on Offshore Revenues, the 2005 Arrangement between the Government of Canada and the Government of Nova Scotia on Offshore Revenues, and a number of third-party trust funds that provide targeted support for health, post-secondary education, and other priorities. (Natural Resources Canada administers offset payments to Newfoundland and Labrador under the Canada–Newfoundland Atlantic Accord Implementation.)

Financial resources ($ thousands)


Planned Spending

Authorities

Actual Spending

38,631,828 38,441,221 38,441,221

 


Transfer Payments
Expected Results

Priority Supported

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

Sound Social Policy Framework

These transfers to provinces and territories contribute to the strategic outcome and priorities of the Department by supporting the broad Sound Social Policy Framework, asdescribed in the report on plans and priorities. These transfers provide significant support to provinces and territories, assisting them in providing important programs and services for Canadians, including health care, education, social programs, and infrastructure. Further, the government-wide priority to restore the fiscal balance is addressed through the enhancement to the transfer programs proposed in Budget 2007.

1. 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

The Department successfully undertook all the ongoing activities described in the 2006-07 RPP. The objective for 2006-07 was to ensure that the various acts and regulations governing the programs were followed. The Department successfully met this objective.

The Federal-Provincial Fiscal Arrangements Act and related regulations establish Equalization and TFF payment amounts for 2006-07 and require that the Department issue two re-estimations of CHT and CST payments each year of all "open years," incorporating more up-to-date data as available. In addition, the legislation specifies that payments to provinces and territories for major transfers be made monthly. Over the course of 2006-07, CHT and CST estimates of payments were calculated and released on a semi-annual basis, in the spring and fall. Updated information was provided to provinces and territories, as well as to Parliament, the media, and the public. Payments were also made on a bimonthly basis to provinces and territories, as outlined in the legislation and regulations.

Payments made under the various transfer programs are an important source of revenue for provincial and territorial governments. In 2006-07, major transfers totalled about $62.5 billion, including Equalization payments to eight provinces, totalling $11.5 billion, and TFF payments to the three territories, totalling $2.07 billion.

The CHT and CST provided additional support of nearly $49.2 billion and included both a tax and cash component. Total entitlements to provinces and territories are provided on a per capita basis directly to provincial or territorial finance departments and treasuries, reflecting the cash levels and tax transfer calculations set out in legislation. The value of the tax transfers provided to provinces and territories in lieu of cash payments in the 1960s and 1970s continues to be measured annually as part of the overall support for health and social programs. In 2006-07, the CHT provided $20.1 billion in cash support and $12.7 billion through tax transfers, totalling nearly $32.9 billion. The CST provided $8.5 billion in cash and $7.8 billion in tax transfers, totalling $16.3 billion. The Wait Times Reduction Transfer provided additional, targeted support of $1.2 billion. (Note that Equalization associated with the tax transfers under the CHT/CST is included in both the CHT/CST and Equalization. The total transfer figure, $62.5 billion, has been reduced by $1.3 billion to avoid double counting.)

Federal Transfers, 1994-95 to 2007-08 ($ billion)

 Source: Department of Finance Canada

As part of this regular payments process, the Department also administers various trust funds, including trusts established as part of Budget 2006, and will be responsible for the proposed Clean Air and Climate Change Trust, the Patient Wait Times Guarantee Trust, the Transition Trust, and the HPV Immunization Trust proposed in Budget 2007. It also administers several important loans and deferral arrangements currently in place, including the Equalization Repayable Floor loan, deferral of the effects of Census 2001 and Census 2002 taxation data (Equalization and CHST), and deferral of the impact of new residential net capital stock data (Equalization) on Quebec.

With respect to the key commitment to implement new formulas for Equalization and TFF, upon Royal Assent, the formulas introduced in Budget 2007 will be used for 2008–09 payments. Regulations for 2008–09 and future years will need to be developed.

To further ensure the integrity of transfer payments, the Office of the Auditor General of Canada audits all transfers to provinces and territories on an annual basis.

Performance measurement


Expected Results / Performance Measurement

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

Performance Indicators

Timely and accurate administration of transfer payments

Data Sources

Public Accounts of Canada

Frequency

Annual

Target

Payments must be made according to levels and formulas set out in legislation

Target Date

Bimonthly payments, as well as semi-annual estimates and annual reviews

Actual

Provided accurate and timely payments to provinces and territories pursuant to legislation

Performance Status

Successfully met expectations


Program Activity 10: International Financial Organizations

This program activity is responsible for administering Canada's international financial commitments aimed at improving outcomes in the developing economies. The program activity also administers transfer payments, in cooperation with Export Development Canada and the Canadian Wheat Board, to provide debt relief to developing countries as agreed to at the Paris Club. In addition, the program activity administers the issuance and encashment of demand notes and capital subscriptions for Canada's commitments with international financial institutions, such as the International Development Association, the IMF, and the EBRD to provide international assistance to developing countries.

Financial resources ($ thousands)


Planned Spending

Authorities

Actual Spending

733,340 1,150,112 1,006,072

 


International Financial Organizations
Expected Result

Priority Supported

Payments to international organizations and Canadian creditors consistent with the government's commitments

Effective
International
Presence

This program activity supports the Department's priority of an effective international presence by contributing to international initiatives to improve outcomes in developing economies. In this respect, Canada is committed to finding coordinated and sustainable solutions to the payment difficulties experienced by debtor nations. Canada is also strongly committed to reducing the debt burdens of the most heavily indebted poor countries to sustainable levels. Canada's participation in both bilateral and multilateral debt relief initiatives has helped recipient countries redirect freed-up resources to poverty reduction initiatives to improve the lives of their citizens and reach their long-term development goals. Additionally, international financial institutions are important partners for advancing Canada's own foreign and development policy interests and promoting Canadian core values of freedom, democracy, and the rule of law. Participation in these important global organizations has several benefits. It extends Canada's reach and influence throughout the world by providing Canada with a strong voice as a member and leading donor in these institutions.

Expected result

1. Payments to international organizations and Canadian creditors consistent with the government's commitments

The Department provides timely payments, as required, to a wide range of international financial organizations and Canadian creditors, consistent with the Department's commitments, which play an important role in mobilizing resources for poverty reduction in low-income and least-developed countries.

During 2006-07, Canada played a major role in the establishment of the Multilateral Debt Relief Initiative (MDRI) that cancels all debts owed by eligible countries to the IMF, the African Development Fund, and the International Development Association of the World Bank. The MDRI will cancel approximately U.S.$60 billion in debts owed by the world's poorest countries and will free up resources to be used to reduce poverty. Canada has committed to paying its share of MDRI-related costs, which amount to $2.5 billion over the 50-year lifespan of the Initiative. These costs are funded within the International Assistance Envelope. The Department has submitted its Instrument of Commitment and payment schedule to the three international organizations delivering MDRI debt relief.

In 2006-07, Canada provided the scheduled debt relief agreed to at the Paris Club and under the Canadian Debt Initiative to Cameroon , Poland , and the Democratic Republic of the Congo. Canada also accepted a prepayment proposal made by Russia on its Paris Club-rescheduled debt owed to it.

As part of the 2005–06 fiscal year's risk-based audit plan, the Department of Finance Canada's Audit and Evaluation Committee authorized a review of administrative controls over international obligations and subscription payments under this program activity. The review was undertaken during fiscal year 2006-07, and the report is scheduled to be tabled with the Committee for approval in the 2007–08 fiscal year.

Performance measurement


Expected Results/Performance Measurement

Payments to international organizations and Canadian creditors consistent with the government's commitments

Performance Indicators

Timely payments

Data Sources

Department's financial reporting system

Frequency

Periodic payments

Target

Payments made according to a predetermined schedule or within 30 days of the invoice being received

MDRI payments made to appropriate organizations according to the respective instruments of commitment

Target Date

Ongoing

Actual

Canada provided scheduled debt relief to a number of countries and worked with other debtor nations to allow for a prepayment of debt owed to Canada

Payments covering Canada's share of MDRI-related costs were made to the IMF, International Development Association, and African Development Fund

Date of Actual

Ongoing

Performance Status

Successfully met expectations