Expenditure Management System of the Government of Canada

Foreword

This government is committed to making the best use of taxpayers' dollars to deliver quality services to Canadians. The Expenditure Management System described in this paper supports that objective. The system is built on the principle articulated in Creating Opportunity - also known as the "Red Book" - to funding for new initiatives or priorities by reviewing existing expenditures and then reallocating money.

The government's Expenditure Management System will foster greater fiscal responsibility and help the government to meet its fiscal targets. It will require ministers to look for funds in their existing resources and will ensure that their spending plans are integrated into the government-wide strategic plan, namely the annual Budget. At the same time, ministers will receive more autonomy and flexibility within a corporate framework to manage their resources to best meet the priorities of the people, organizations and businesses they serve.

The ultimate objective is to deliver quality programs and services, described in departmental service standards, within the resources that Canada can afford.

We will adjust these processes over the next few years. I am confident that they will help the government to make the difficult decisions it has to make as we move towards quality services and more affordable government.

Art Eggleton
President of the Treasury Board

Executive Summary

Developing and implementing the government's Expenditure Management System is well underway. Extensive Budget consultations and hearings by the House Standing Committee on Finance in preparation for the 1995 Budget took place in the fall of 1994. The departmental Business Plan process will be implemented in the spring of 1995. Standing committees will receive departmental Outlooks on Program Priorities and Expenditures to help them review future year expenditure trends and priorities.

The government is committed to reducing the deficit to three per cent of the gross domestic product by 1996-97. Meeting this target requires establishing an expenditure management system that results in better strategic planning, the critical review of existing programs and spending and the reallocation from low to high priority initiatives. This paper describes the Expenditure Management System of the Government of Canada.

Its objective is to help the government make responsible spending decisions by delivering the programs and services Canadians need in a way that they can afford and by meeting the required fiscal targets. Service quality, described in service standards, will be key.

To achieve this objective, four principles guide the system:

fiscal and expenditure planning provides a stable environment where changes to spending and programs can be planned well ahead of implementation;
strategic planning for the medium- to long-term emphasizes examining existing programs and delivery systems and reallocating expenditures to new priorities;
parliamentarians and Canadians are consulted in the expenditure planning process; and
incentives encourage effective planning, resource allocation, and performance information and management.

The Expenditure Management System is designed to support the annual preparation of the Budget Consultation Papers in the fall and subsequent consultations and hearings on Budget proposals, the Budget and Estimates tabled in February, and departmental Outlooks on Program Priorities and Expenditures presented to parliamentary standing committees in May. The Outlooks, based on resources allocated in the Budget, will set out departmental strategies to adapt to the fiscal and policy environment and to deliver on specific service-line targets.

The Expenditure Management System has several key features that are discussed in the sections that follow:

Integrating the Budget planning process - Decisions on new initiatives and any spending reallocations required to finance those initiatives will generally occur during the Budget planning process.
Emphasizing the ongoing review of programs and managing within available resources through reallocation - All new initiatives, as well as cost increases in existing programs, will be financed through reallocations from lower priority programs.
Eliminating central policy reserves - Central policy reserves did not encourage the ongoing review of existing programs and spending.
Introducing departmental Business Plans to focus on strategic changes to programs and businesses - Using the business planning approach, departments set out their strategies for changing their businesses to reflect Budget targets and government priorities.
Providing more flexibility to ministers and departments to help them manage within approved resources - If ministers and departments are to manage effectively within approved resources, they require more flexibility within a corporate framework to reallocate resources.
Improving information on program performance to aid decision-making and facilitate accountability - The Treasury Board Secretariat will review ways to improve performance information available to ministers, parliamentarians and the public.
Recognizing the role of the House's standing committees in reviewing the government's spending priorities for future years and introducing departmental Outlooks - The Outlook documents will assist parliamentary standing committees to carry out their responsibilities for reviewing future expenditure trends and priorities and provide a context for examining the Estimates.

Introduction

The government is committed to reducing the deficit to three per cent of the gross domestic product by 199697. Canada's public debt problems can not be solved by economic growth alone. As the scope for increasing revenues is limited, this means that the government must reduce its expenditures. To achieve these ends requires a new way of doing business; the old ways clearly do not work in a time of severe fiscal restraint.

In addition to its deficit target, this government has other public commitments: to a more consultative Budget process; to reviewing critically the continued relevance, importance and performance of existing programs and services; and to reallocating current spending in order to fund new priorities.

This document formally recognizes the approach to decision-making on spending that this government has taken since its election in October 1993 - that is, financing by reallocation as, for example, the government has done with the infrastructure program and other Red Book projects. This and other changes are part of the most significant overhaul of the government's expenditure management system since the Policy and Expenditure Management System (PEMS) was established in the early 1980s.

The Expenditure Management System requires the ongoing review of programs and spending to reduce expenditures and identify opportunities for reallocation to higher priority programs. It provides for parliamentary and public input into the Budget and expenditure planning process. It enhances accountability through a focus on performance and better public information. It also introduces better long-term strategic planning and the adjustment of programs and services to available resources through the implementation of departmental Business Plans.

The Expenditure Management System will support ministers in dealing with the difficult fiscal situation the country faces and help the transition to quality services and affordable government.