Empowering parliamentarians through better information

The Main Estimates and Supplementary Estimates

No spending can occur without the approval of Parliament. Spending authorities voted by Parliament through a supply bill expire at the end of each fiscal year ^{See Footnote 2}. New spending proposals for Parliament are bundled together and presented for approval several times each year, first as the Main Estimates and then as Supplementary Estimates.

The Main Estimates set out the expenditure plans of government organizations for the year as approved by Treasury Board.  The House of Commons Standing Orders require that the Main Estimates are tabled on or before March 1. In practice, the Main Estimates are generally tabled in the second or third week of February, reflecting decisions of Treasury Board up to the end of January. These estimates include the annual appropriations required for departments and agencies to exercise their plans. (Statutory spending is also included for information only as the required authority has already been approved by Parliament through separate enabling legislation.)

Following the Main Estimates, the Government may table Supplementary Estimates, which outline spending requirements that were not sufficiently developed in time for inclusion in the Main Estimates. Since 2007, it has been the practice of the Government to table three Supplementary Estimates; however, the Government may introduce as many, or as few Supplementary Estimates in a year as it deems necessary.

There are currently three parts to the Main Estimates. Part I, the Government Expenditure Plan, provides a summary of departmental spending and year-over-year changes. Part II, the departmental Main Estimates, describes the resources required by individual departments, agencies, and Crown corporations for the upcoming fiscal year. Part III comprises the departmental Reports on Plans and Priorities (RPPs) and Departmental Performance Reports (DPRs). The RPPs provide a greater level of detail on the plans for each organization’s main priorities and programs. It is important to note that the RPPs are based on the Main Estimates and do not reflect Supplementary Estimates. The DPRs, tabled in the fall after the tabling of the Public Accounts, provide a detailed account of the resources used throughout the previous fiscal year.

The Main and Supplementary Estimates are intended to provide context and information necessary to support their accompanying supply bills, which are known as appropriation acts.

Interim supply and full supply for the Main Estimates

Given that spending authorities expire at the end of each fiscal year, the Government requires an advance on the funds outlined in the Main Estimates in order to have sufficient funding to begin the next fiscal year. This advance of funds is known as “interim supply” and represents roughly one quarter of the funding requested in the Main Estimates. Interim supply becomes the first appropriation act of the upcoming fiscal year and is approved no later than March 26. In June, a second appropriation act, known as “full supply” is passed in accordance with the Main Estimates of that year. Together, these two appropriation acts represent the total funding requested in the Main Estimates. Subsequent Supplementary Estimates generate additional appropriation acts. The proposed schedules to the supply bills are included for information purposes in the Main and Supplementary Estimates so that parliamentarians can draw a direct link between the Estimates documents they study and the ensuing appropriation act on which they vote.

Parliamentary procedure

The process by which Parliament considers the Estimates and associated supply bills commences shortly after the Speech from the Throne. The House routinely adopts a motion by the President of the Treasury Board that causes an order for the business of supply to be placed on the Order Paper for the remainder of the session. This establishes a continuing order of the day for the consideration of supply, enabling the Government to call supply on any sitting day, within the framework laid out in Standing Orders.

Standing Orders of the House of Commons prescribe set periods for the business of supply, including the stipulation that the Main Estimates must be tabled on or before March 1. In any calendar year, 22 days, designated as “allotted days,” are divided among three supply periods for consideration of the business of supply. For each fiscal year, the three supply periods end June 23, December 10 and March 26.

Parliamentary control through votes

Parliament controls the supply of appropriations given to government organizations through the use of specific departmental votes. The vote wording as approved in an appropriation act provides the legal authority and governing conditions under which expenditures may be made.

The departmental votes presented in the Estimates are structured to give parliamentary control over the nature of expenditure (i.e., operating expenditures, capital expenditure, and grants and contributions). Departmental managers have the latitude to direct funds to different purposes or programs within the confines of a specific vote (e.g. within the capital vote). However, transfers between departmental votes (e.g. from operating to capital) require the approval of Parliament through an appropriation act.

Part III of the Estimates also provides material on the purpose of departmental spending, grouped by strategic outcome. However, this material is provided for information only rather than for parliamentary control of spending by purpose. An exception to the model of structuring votes by nature of expenditure is being piloted by Transport Canada. This pilot project has replaced a single grants and contributions vote with an experimental vote structure aligned to the purpose of expenditure, with one vote for each of the following program areas: Gateways and Corridors, Transportation Infrastructure, and Other Grants and Contributions. Under this pilot, the transfer of grants and contributions funds between these three programmatic purposes requires Parliament’s approval.

The role of Cabinet

Once the initial assessment of the funding requirements is complete, the Executive’s Budget deliberations will generally follow a two-track process of policy approval and funding approval. Policy approval is obtained through Memoranda to Cabinet, whereby the responsible ministers outline the policy considerations of their proposals to the appropriate cabinet committee. This policy approval process can be concurrent with the Budget consultation process, or sequential, following the articulation of a government priority through the Budget speech.

On a separate track from the policy approval process, funding approval is led by the Department of Finance, in coordination with the Privy Council Office and with input from departments and the Treasury Board Secretariat, as appropriate. Budget proposals are recommended for inclusion and considered by the Minister of Finance and the Prime Minister, and funds are set aside in the Government’s fiscal framework. Once these decisions have been made, the Budget is finalized and tabled in Parliament. There is no fixed schedule or date for the tabling of the Budget.

The role of Treasury Board

Following the Budget tabling, government organizations are often required to seek Treasury Board approval before implementing new policies or initiatives, and including the items in Estimates. Examples of other authorities that are under Treasury Board’s purview include terms and conditions of contribution programs, and project and contract authorities to deliver departmental programs and services.

The role of Parliament

Once organizations obtain necessary policy and funding approvals through the Budget process and Treasury Board, they must seek authority from Parliament for the supply of funding, either through a supply bill (which becomes an appropriation act upon royal assent), as supported by the Estimates process, or through separate enabling legislation. In this final step, the authorities sought in a supply bill are scrutinized by parliamentary committee with appropriations allotted by a departmental vote structure. This last step is explained in more detail in the following section titled the Estimates and the Business of Supply.

Figure 2: Process from policy and funding decision to appropriation – Text version

The process starts with an assessment by portfolio ministers and their departments of existing programs and funding pressures.

The next step is consideration by Cabinet, followed by consideration in a Budget decision.

Treasury Board approval of related authorities is required before implementing new policies or initiatives.

Parliament then approves the supply of funding either through an appropriation act or separate legislation. Committees of the House of Commons (Government Operations and Estimates, and Public Accounts) and the Senate (National Finance) scrutinize the authorities sought through an appropriation act. Officers of Parliament, like the Auditor General and the Parliamentary Budget Officer, support parliamentary scrutiny of government spending.

This entire process, from policy approval by Cabinet through to consideration by Parliament is summarized in Figure 2. Every effort is made to bring forward items for parliamentary approval in a timely manner. However, in practice, it can sometimes take over a year for a Budget item to move from the initial policy and funding approval process, to the Budget, to Treasury Board, and then to Parliament for the supply of appropriations.

Aligning policy and Treasury Board funding decisions before the Budget

Current funding decisions are sequenced such that Cabinet and Treasury Board decisions often take place many months after new initiatives are announced in a Budget. The Government can greatly improve alignment between the Budget and Main Estimates by adjusting its internal processes so that funding, policy and program expenditure approvals required by Cabinet and Treasury Board are taken in advance of the Budget, or closely afterward. This more integrated approach, shown in Figure 3, is used in Australia and other jurisdictions, and greatly reduces the timeline for implementing Budget priorities.

Figure 3: Comparison of Australian and Canadian approaches – Text version

The Australian decision making process takes 10 months. Policy design, expenditure design and approval of new programs take place in the 8 months preceding the Budget announcement. Funds are available to departments within 1 to 3 months afterwards.

The Canadian decision making process takes 18 months or more. Policy design and approval of new programs take place in the 8 months preceding the Budget announcement. Expenditure design and approval of new programs take place over 1 to 9 months after the Budget announcement. It can require 3 or more additional months before funds are available to departments, sometimes coinciding or even following the next Budget announcement.

Recent success demonstrates that such an internal alignment is possible for the Government of Canada. A significant number of measures from the Government’s Budget in late March 2016 were included in the 2016-17 Supplementary Estimates (A) tabled in Parliament in early May 2016. Expanding this integrated approach will require significant changes to the Government’s Budget making process. Consequently, the procedural and cultural shift to this model would be expected to take place over several years.

Tabling of Estimates

Within the current construct, a Main Estimates tabled by March 1 cannot reflect the Budget for the same year. Parliament is presented with the Main Estimates in February, with detailed expenditure requirements reflecting Treasury Board decisions as of January. However, in many cases, these requirements will be superseded by new Budget commitments in a matter of weeks. The earliest possible opportunity for organizations to request parliamentary authority for the new Budget items will be in the Supplementary Estimates tabled in May, as illustrated in Figure 4.

Figure 4: Current timing for the Budget and Estimates – Text version

Typical events in the current process, from funding announcements to parliamentary authority for new funding:

• November: Announcement of initiatives in an Economic and Fiscal Update
• Early February to March 1st: Tabling of Main Estimates and introduction of the interim supply bill for the Main Estimates
• February to late March: Announcement of initiatives in a Budget
• March to early April: Tabling Reports on Plans and Priorities
• Late April to mid May: Tabling Supplementary Estimates (A)
• Early June: Introduction of the full supply bill for Main Estimates and the supply bill for Supplementary Estimates (A)

This timing impedes the ability of Parliament to scrutinize the Government’s spending plans in a coherent manner. Instead, Budget items are presented across subsequent Estimates. It can also materially delay the implementation of government programs. These delays can, in turn, undermine the original costing estimates as well as the achievement of expected results. Recent examples are illustrated in Figure 5.

A Possible Solution

Tabling an Interim Estimates in February

One of the most critical financial controls in our current system is that departments cannot spend funds without the approval of Parliament. This control must remain in place. Therefore, even with parliamentary agreement to a later tabling of the Main Estimates, the Government would still require interim supply to support departmental operations and program delivery when the fiscal year begins on April 1. This supply bill would still have to be introduced in March to support a request for an interim appropriation, which would be preceded by a supporting information document, i.e. Interim Estimates. This approach is used in other jurisdictions. The proposed sequencing of documents is shown in Figure 6 and a prototype of an Interim Estimates is presented in Annex B.

Figure 6: Tabling Main Estimates after the Budget – Text version

Key events in the proposed process, from funding announcements to parliamentary authority for new funding:

• November: Announcement of initiatives in an Economic and Fiscal Update
• Early February to March 1st: Tabling of an Interim Estimates and introduction of the related interim supply bill
• February to late March: Announcement of initiatives in a Budget
• Late April to May 1st: Tabling of the Main Estimates and Departmental Plans
• Early June: Introduction of the full supply bill for Main Estimates

An Interim Estimates tabled in February would be based on a fraction of the current year’s estimates rather than a fraction of the upcoming Main Estimates. The supply bill for the Interim Estimates would be introduced in March and propose appropriations of roughly the same magnitude as interim supply under the current process.

The Interim Estimates would be similar in form and content to the current Part I of the Main Estimates, including an organization-level summary of the authorities sought in interim supply. Similar to the current process, they would provide brief explanations of any unusually large requests for interim supply, such as funds required to support large grants and contribution programs in the early part of the fiscal year. This document could also provide a high-level update to the forecast for major transfer payments, based on the last Update of Economic and Fiscal Projections by the Department of Finance.

At the same time, the Interim Estimates would, by necessity, exclude the forecast of total Estimates for the upcoming fiscal year; that government-wide forecast would now be included in the new Main Estimates, to be tabled after the Budget.

For parliamentary committees, the proposed approach trades off the longer period of time now available to study an incomplete Main Estimates that is out of step with the Budget, for a shorter time to study a complete Main Estimates that is fully reconciled with the Budget. If the latter option is selected, the most effective mitigation for the effects of this shortened period would be for committees to continue the practice of inviting ministers and departmental officials throughout the fiscal year to present, explain and defend their Main Estimates and Supplementary Estimates.

Scope

The Budget forecast covers the complete scope of the Government’s fiscal framework, including revenues, program and tax expenditures, statutory expenditures such as Employment Insurance benefits, and provisions for future obligations such as public service pensions. The scope of the Estimates is narrower than the Budget forecast, as presented above in Figure 7. The main purpose of the Estimates is to support the appropriation acts, which are the legal instruments for authorizing certain payments. The Estimates are therefore focused on the government’s cash needs which require parliamentary appropriations.

In order to provide parliamentarians with a broader understanding of the government’s spending plans, the Treasury Board Secretariat has incrementally expanded the amount of information included in the Estimates on items which are not authorized through appropriations acts. Examples include information on public debt charges and major transfer payments, which are authorized through separate legislation. This additional information is meant to improve transparency and help parliamentary committees in their study of the Estimates by situating the voted funds in a larger fiscal context.

Accounting basis

Since 2003, the Government has prepared the Budget (and the financial statements in Volume I of the Public Accounts) on an accrual basis. The accrual basis of accounting recognizes income when it is earned and expenses when they are incurred, whereas cash accounting recognizes them when the cash or its equivalent has been paid.

As the Budget forecast includes the entire spectrum of anticipated expenses of the Government, accrual-based budgeting allows the Government to forecast the impact of planned or likely events and reflect this in the Budget deficit or surplus. Examples of such events include the discovery of contaminated sites, the resolution of lawsuits against the Crown, and the depreciation of capital assets. This more comprehensive forecast supports better analysis around Budget choices.

In contrast, the Estimates are designed primarily to support Parliament’s consideration of supply bills and control of the government’s short-term cash requirements. The Estimates (and the corresponding reports on actual expenditures in Volume II of the Public Accounts) are prepared on a cash basis.

Parliament’s control of the cash required to support programs and services is based on the long-standing convention of the appropriation acts controlling the sums that “may be paid out of the Consolidated Revenue Fund.” Each vote in an appropriation act provides Parliament with a specific opportunity to scrutinize the flow of cash available to departments.

The Government’s practice of presenting appropriations in cash while the Budget is presented on an accrual basis differs from some other Canadian jurisdictions, such as Ontario and British Columbia. However, from an international perspective, it is not extraordinary. In a 2016 survey, 10 of 32 OECD countries reported that they prepare their Budgets on a full accrual basis but, of that group, only the United Kingdom and New Zealand also have accrual appropriations. Canada and Mexico have cash appropriations, and the appropriations of the others (including Australia) reflect a mix of cash and accrual-based controls. In this context, the blended approaches of planning on an accrual basis, and controlling on a cash basis, can be made more comprehensible if there is full transparency in how cash profiles are derived from the accrual-based plan.

According to the OECD, the continued predominance of cash-based budgeting and appropriations may be based on the “volatility and discretion” in accrual valuations of provisions and depreciation, for example. Many countries also reported various issues with implementing accrual budgeting, including project costs and delays, capacity building, establishing inventories or valuation methods for assets and liabilities, and design and roll-out of supporting systems.

The evolution of Australia’s accrual budgeting framework bears out these observations. The Australian government moved to a full accrual budgeting framework in the 1999-2000 Budget. Key elements of this transition included: introducing accrual concepts into the Budget; applying a capital use charge on departments to reflect the cost of using capital assets; introducing devolved banking arrangements so that each department had its own banker who paid interest on accumulated cash balances; and appropriating funds to departments based on full accrual expenses, including depreciation. In addition to improving the overall rigour of budgeting, these changes were intended to provide incentives for improved asset and cash flow management.

During the eight years following the implementation of full accrual budgeting, two significant reviews prompted reconsideration and adjustment of the original elements, notably: abolishing the capital use charge, abolishing the interest incentive, and removing funding for depreciation from departmental appropriations and instead providing capital budgets on a cash basis for asset acquisition.

This experience needs to be contrasted against jurisdictions such as Ontario and British Columbia which have implemented, and stuck with, an accrual-based vote structure.

If an accrual-based model were to be approved, care must be taken that it is both understandable and meaningful to Parliament. For example, when extending the concepts of accrual to appropriations, one can bump up against the decision to record a liability for such things as a newly discovered contaminated site, a legal action against the Crown, or to book amortization for an asset. These are determinations that are, and should remain, driven by accounting standards and not by the will of Parliament. Some accrual models put such things as amortization of capital assets in a vote to be approved by Parliament, and Parliament is effectively told that they have no choice to approve. This is an example of an aspect of an accrual model that is transparent but may not be meaningful to Parliament.  

Practical Interim options

The virtues of planning on an accrual basis and controlling by cash can be reconciled, as was recently demonstrated in 2016-17 Supplementary Estimates (A) and presented in Figure 8. This high-level reconciliation addressed differences between the Budget and Estimates with respect to the accounting basis (accrual and cash) and scope (Budget items not included in Estimates). The Government would work towards providing more detailed reconciliations.

With more than a decade of experience with accrual budgeting, the government is endeavouring to provide more useful accrual information in the Estimates. For example, the Department of Finance is working with key departments which have significant capital budgets or complex liabilities, in order to improve the quality and timeliness of accrual information available to support the Budget forecast. With sufficient guidance and direction, this information could also be made ready for publication with the Main Estimates. It would also be beneficial to assess how, and whether, the accrual information provided through future-oriented financial statements in the former Reports on Plans and Priorities (RPPs) is used by departments and parliamentarians.

Ultimately, the purpose of reconciling the scope and accounting basis of the Budget and Estimates is to better support parliamentarians in following the progression of a government program from the Budget, through the Estimates, and to implementation and reporting.