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Implementing Change

Through a complex, coordinated process of change, the federal government has sustained its ability to deliver services. These changes have affected aggregate expenditures on federal government programs. They have profoundly affected the Public Service of Canada. They have transformed individual programs and services.

The Fiscal Story

Then

In 1993-94, the public believed that the nation's finances were out of control. The economy was still in the grips of the recession; low confidence levels among business leaders and workers were stifling consumer spending and investment and, thus, employment growth.

The international community was showing increasing discomfort with the country's indebtedness: the federal government was still adding almost $40 billion annually to the debt, which had grown in the previous decade to 71 per cent of GDP ($508 billion).

In 1993-94, Canada's deficit and level of indebtedness were the second highest among the seven largest industrial countries (the G-7), measured in relation to the size of their respective economies. This was reflected in the sagging value of the Canadian dollar on international currency markets and the unprecedented high levels of real interest rates.

Unfortunately, efforts to contain expenditures were not sustained and were often unfocused. They were marked by hesitancy to articulate priorities and to translate those priorities into real action. Continued fiscal drift was the result.

In spite of the rhetoric of restraint, the federal government's claims on the nation's output remained close to post-war peak levels. The hard choices were deferred.

Now

As Table I shows, while Canadians must still be vigilant about the relative level of indebtedness of their governments, the overall deficit position of the federal and provincial governments has dramatically changed.

Table 1, International Comparison iof Budget Deficits

This government took an approach that differed radically from the one used in the early 1990s. It recognized that the disjunction between rhetoric and reality had to cease. Many years of drift had taken their toll. Regaining the confidence of Canadians and of financial markets in government plans and projections was a primary goal.

The government started by revamping the Expenditure Management System. The new system eliminates central policy reserves, funds new initiatives by reallocating existing resources, provides a stable fiscal environment for longer-term departmental strategic planning, introduces business planning to help the Treasury Board develop an overview of strategic planning across government, and emphasizes the need to review programs continually and to deliver those services using available resources.

The government set out the broad outline of its expenditure strategy in the 1994 Budget and the 1994-95 Main Estimates documents. It established firm and binding fiscal targets for the next two years. It also kicked off the Program Review process, which compelled all ministers and senior officials to subject all the programs and activities they delivered to tough scrutiny.

 Program Review continues as an integral part of the government's annual planning cycle.

Program Review was no across-the-board, arbitrary cut. It was carefully structured around six key tests:

  • Is the program still in the public interest?
  • Is its delivery a legitimate and necessary role for government?
  • Is the current federal role appropriate or should the program be realigned with the provinces?
  • Should it be delivered in partnership with the private or voluntary sector?
  • How can it be redesigned for efficiency?
  • Is it affordable, given fiscal constraints?

Through this process, the federal government determined which activities it could continue to deliver or support within a much reduced budget. It also identified the activities it had to cease providing, scale back, devolve, or deliver or finance differently. Table II shows federal expenditures by major program area, and their percentage of total program expenditures, demonstrating the changing priorities of government resulting from Program Review.

Table 2, Change in the Composition of Direct Program Expenditures

 As a result of the actions announcedin the 1994, 1995and 1996 Budgets, program spending will have declined for six consecutiveyears by 1998-99.

As a result of the actions announced in the 1994, 1995 and 1996 Budgets, program spending will have declined for six consecutive years by 1998-99. Direct program spending (federal program expenditures less major transfers to individuals and other levels of government) will be down to $47.4 billion, a reduction of $8.1 billion from its 1993-94 level of $55.5 billion. When transfers to provinces and other expenditures are included, total federal program expenditures will have declined over the same period from 15.8 per cent of GDP to 11.9 per cent, the lowest level in 50 years. Table III gives the details of federal government expenditures.

Table III
Program Spending by Major Component


 

1993-94
   Actual

1997-98 Forecast

1998-99 Forecast


 

$ Millions

Direct Program Spending

   Defence

11,545 

9,916

9,377

   Payments to Crown Corporations

5,292

3,971

3,706

   Other Program Spending

38,693

36,341

34,305


Total Direct Program Spending

55,530

50,228

47,388


Major Transfers to Persons

   Elderly Benefits

19,903

22,308

22,940

   Employment Insurance Benefits

17,626

13,460

14,060

Major Transfers to Other Levels of Government

   Canada Health and Social Transfer1

16,846

12,500

11,807

   Equalization

9,045

8,292

8,436

   Alternative Payments for Standing Progam2

 

(2,131)

(2,235)

Other

1,063

1,142

1,104


Total Major Transfer Programs

64,483

55,571

56,112


Total Program Spending

120,013

105,799

103,500


Public Debt Charges

37,982

46,000

46,500


Total Budgetary Spending

157,996

151,799

150,000


1.  The Canada Health and Social Transfer (CHST) was introduced in 1996-97 to replace the Canada Assistance Plan (CAP) and the Established Programs Financing (EPF). The Transfer is composed of two parts, cash expenditures reflected in this table and tax entitlements outlined in the 1997 Budget. The total value of CAP and EPF for 1993-94 was $29.0 billion and the CHST for 1998-99 is forecast at $25.1 billion.

2.  In lieu of direct cash payments for standing programs delivered by the Province of Quebec, the Federal Government reduces personal income tax rates for the Province, and the Province may increase its rate by an equivalent amount. The equivalent value of the tax point reduction is recovered from the Federal Cash Transfers to the Province

The Federal Public Service

These achievements in meeting the government's fiscal objectives result from a fundamental rethinking of priorities, programs, structures and relationships through Program Review. The success of this exercise is due in large part to the skill, dedication and contribution of Public Service employees. Few of these employees have been unaffected by the changes resulting from Program Review, which range from major organizational restructuring and downsizing to technological innovation and alternative methods of delivering services.

The success of Program Review is largely due to the skill, dedication and contribution of Public Service employees

The government realized when it embarked on this exercise that many employees would be affected. Like other large private- and public-sector employers, the government introduced measures to help these employees. The Early Departure Incentive (EDI) and Early Retirement Incentive (ERI) programs have helped affected employees leave the Public Service. Both programs are intended for individuals whose positions are declared surplus. Under EDI, eligible employees in certain departments receive cash payments based on salary and years of service. Under ERI, the normal early retirement financial penalties for qualified individuals are waived. By 1998-99, annual reductions in the government wage bill will match the total cost of these incentive programs, and these savings will continue indefinitely. The government has used these and other measures to manage its workforce responsibly. It has also transferred some Public Service functions to other employers. As a result, it has minimized the impact of Program Review decisions on affected employees.

The population of the Public Service has declined from 225,619 at the start of April 1995 to approximately 195,000 at the end of December 1996. The government is achieving its expenditure goals. Departmental managers are implementing their Program Review plans and are continuing to manage departure programs carefully.

Transformation in Government Programs

As noted earlier, Program Review was based on six tests rigorously applied to every federal government activity and service. This review led to far-reaching changes in every corner of government activity. These changes will affect the structure of the Canadian economy and society, positioning them for the challenges of global competition, rapid social transformation, technological growth and economic development in the next century. A few of the specific changes introduced by Program Review are described below.

  • The federal government is moving away from owning, operating and subsidizing large parts of Canada's transportation system to focus on making policies and regulations to ensure the efficiency, safety and security of the system. For example, after applying Program Review tests to determine whether the public still needed certain services and whether the government should provide them, the government decided to privatize CN, transfer airports to local operating authorities, commercialize the St. Lawrence Seaway and transfer air navigation services to a new non-profit company. It is cooperating with private industry on many of these initiatives.
  • The government is reducing subsidies to business significantly, and will provide loans and repayable contributions instead.
  • Indian and Northern Affairs Canada is transferring its First Nations responsibilities in Manitoba to the First Nations themselves.

Delivering high-quality federal government services essential to Canadian society remains a bedrock of government policy and the raison-d'tre of the government's program spending plans. The focus on change, efficiency and re-engineering should not obscure the fact that the government remains dedicated to service excellence.

Innovations in reporting government performance provide solid evidence of this dedication. These innovations include the new performance reports tabled in Parliament as part of the Improved Reporting to Parliament Project, which is discussed in more detail later in this document. The following examples are only a tiny sample of the continuing achievements of federal programs.

Delivering high-quality federal government services essential to Canadian society remains a bedrock of government policy.
  • Agriculture and Agri-Food Canada: researchers are developing new varieties of beans that mature earlier and are appropriate to the Canadian climate, as well as winter-hardy varieties of kiwi fruit; advances in packaging and processing technology are opening the Japanese retail pork trade to Canadian producers; the department's food inspection compliance rates, already high, have been rising; early controls on the movement of beef cattle protected Canada's export markets from international concern over bovine spongiform encephalitis ("mad cow disease").
  • Environment Canada: the Ice Services Program has introduced new technology and new procedures, including the use of Radarsat as the primary ice surveillance platform, that will permit it to maintain service levels and achieve major cost savings; effective national and international cooperation is markedly decreasing the production of ozone-depleting substances; peregrine falcon populations are now self-sustaining in southern Canada; the quality of weather forecasting has improved dramatically, so that three-day forecasts are now as reliable as 36-hour ones were 15 years ago.
  • Parks Canada: Parks Canada is establishing new national parks, bringing Canada closer to the goal of completing the national park system; a new report on the environmental situation in the Bow Valley of Banff National Park is leading to a new balance of activities in the Park; Parks Canada is sharing its expertise in managing parks and historic sites with foreign governments.
  • Veterans Affairs Canada: by September 1997, the department will halve turnaround times for processing first applications for disability pensions.
  • Revenue Canada: the "single business number" gives companies a single account with the department, simplifying reporting considerably; in 1995, the new system for filing income tax returns electronically allowed the department to process 4.5 million personal income tax returns, out of a total of 21 million, within 10 days of receipt.
  • Treasury Board of Canada, Secretariat: the Secretariat has eliminated half of all paper-burden irritants that businesses reported encountering when they dealt with major federal departments.
  • Atlantic Canada Opportunities Agency: improvements in managing federal-provincial agreements have resulted in administrative savings of between 35 and 50 per cent.
  • Royal Canadian Mounted Police: substantial reductions in administrative costs have freed up funds to increase policing – for example, one RCMP district in New Brunswick has been able to put seven additional police officers on the streets at no additional cost to the taxpayer.
  • Indian and Northern Affairs Canada: financial audits of First Nations expenditures have improved significantly; the department received 66 per cent of all audits within 120 days of fiscal year end in 1995-96, compared to 23 per cent in 1991-92; of these audits, 83 per cent were unqualified in 1995-96, compared to 57 per cent in 1984-85; the post-secondary education budget has more than tripled since 1985-86, enabling a very substantial increase in First Nations students, to more than 26,000 in 1995-96.