Government Operations Committee on March 26th, 2012

[The Chair, NDP, Pat Martin]

I call the meeting to order.

Good afternoon, ladies and gentlemen.

This is the 35th meeting of the Standing Committee on Government Operations and Estimates. Today we are reviewing the process for considering the estimates and supply.

We're very fortunate and very pleased to welcome two interesting witnesses today. First, with us in person is Ned Franks, professor emeritus, Department of Political Studies at Queen's University, and an authority on these issues. Welcome, Mr. Franks.

As well, we are very grateful and appreciative to have Mr. Joachim Wehner with us from a very long distance—Cape Town, South Africa. We thank you for staying up late today. We very much wanted to hear your testimony. I believe it will be about 9:30 at night in Cape Town, but you are most welcome, and we appreciate your being here very much.

The custom of our committee is to ask both of our witnesses to make brief presentations on the subject for five or ten minutes or so. Then we will open rounds of questioning from the members of Parliament of the three parties represented here today.

Perhaps we could start with Professor Franks, if that's agreeable.

[Dr. Ned Franks, Professor Emeritus, Department of Political Studies, Queen's University, As an Individual]

Yes; thank you.

[The Chair, NDP, Pat Martin]

Mr. Franks, you have the floor.

[Dr. Ned Franks]

I prepared a submission. I suspect it was too late to get translated, but—

[The Chair, NDP, Pat Martin]

Actually, we have it here, Mr. Franks.

[Dr. Ned Franks]

That's wonderful.

This question is of great interest to me. I cut my eye teeth—if that's the right expression—on parliamentary finance and government finance in working for the Budget Bureau of the Government of Saskatchewan. One of the things I worked on there was the form of the estimates and the accounting procedures to the legislature. That's where my interest in the accounting officer approach came from, and the estimates have always been of equal interest because I worked on them for many years there.

I'll just go through the comments. The standing committees were reformed in the 1960s. One of the jobs they were given in those reforms was the immediate, medium- and long-term expenditure plans of the departments and the effectiveness of their implementation. You would have thought that this gave the committees all the powers they needed to review departmental finances, financial planning, and the intentions as embodied in the estimates, but members often found dissatisfaction in the process.

In fact, early on, after those reforms of the 1960s, one committee made a substantive report on the estimates that had been referred to it—in other words, a report commenting on them—but the report was not accepted by the Speaker, who ruled that committees cannot make substantive reports on the estimates; they can only approve them as is, or propose a reduction, or propose eliminating them. But they can't do anything else.

This did not make the committees more eager to examine the estimates, and committee attention has dwindled for all the estimates of the government, in all committees, the Parliamentary Budget Officer has said, to about 60 hours in a year.

In the past, there were two parliamentary studies of the estimates and the estimates process by committees. In 1995 the House instructed the Standing Committee on Procedure and House Affairs to undertake a comprehensive review. Similarly, in 2003 the Standing Committee on Government Operations and Estimates also did that and produced Meaningful Scrutiny: Practical Improvements to the Estimates Process, which was 60 pages long, as opposed to 90 pages from the previous committee.

I would like to quote the 1995 committee report: “One of the witnesses, Dr. Franks”—that's me—“expressed doubts—

[The Chair, NDP, Pat Martin]

I thought that might be your father.

[Voices]

Oh, oh!

[Dr. Ned Franks]

No, I'm guilty.

It stated:

One of the witnesses, Dr. Franks, expressed doubts that changes to the committee system or to the techniques used by committees to examine the Estimates would result in any improvement.

So I expressed my doubts, and the committee went on to say:

Although we understand this view, the Committee does not entirely share it. Yes, there are constraints that limit committee effectiveness, but these need not be completely debilitating. The Committee believes that there are ways in which committee study of the Estimates can be made more effective and are confident that the following suggestions will produce positive results.

They made...oh gosh, it was something like 90 recommendations, and nothing happened. There were a couple of tiny changes, but no significant ones. Then, in 2003, also as a witness, I was before a committee that went over the same area. It made fewer recommendations—23—but that did not lead to significant change.

So it might be my fault as adviser to the committees, but with a track record like that, I don't feel that I'm in a position to offer mammoth changes and to say, “Yes, sure, this will happen.” Because it doesn't.

Also, there are some problems in it that are constitutional, in the way the Constitution is interpreted in Canada. The fundamental principles of parliamentary cabinet government limit the role of Parliament in the estimates process. Ours is a system of government in and with Parliament, but not by Parliament, and nowhere is this more apparent than in the financial processes. The government is responsible for preparing the budget and estimates.

Parliament approves the estimates and authorizes the government to spend money, though only for purposes, in amounts, and through processes authorized by Parliament. The government, not Parliament, spends the money. Parliament again enters the financial processes in the third, accountability processes, after the money has been spent, with the audit by the Auditor General and the review of the Auditor General's reports by the public accounts committee.

Even in the estimates process, the role of Parliament is limited. It can only make one of three decisions on a particular expenditure item: it can lower the amount proposed by the government; it can reject the proposal in its entirety; or it can approve it unchanged. Parliament cannot increase an estimate, because this requires the recommendation of the crown. Reduction or elimination of an item of expenditure would normally be regarded as a want of confidence, and not surprisingly, this rarely happens.

I go into a discussion of the vote structure, which is the key to parliamentary control of the estimates.

The budget is divided into votes. The government cannot increase the money in a vote without coming back to Parliament, nor can it shift money from one vote to another. Within a vote, it can shift from one part of the vote, what's called an allotment in Canada, to another. In the U.K. system they are called sub-votes, and the process of moving them is called virement. We adopted our own terminology.

I want to offer my answers to six questions that have come before this and earlier committees.

First, should the budgets be on a cash or accrual basis?

As many of you will know, having been in the private sector, accrual is the normal basis for doing budgets in the private sector. Government is on cash, of course.

I'm conservative enough on this one to think that we should retain the cash system, partly because it's a very simple and straightforward system, whereas in accrual accounting, you get into problems of relating the future to the present. With all due respect, every time you're making a judgment like that, you're opening up more avenues for fudging the books. The experience of governments now is that budgeting, from the parliamentary perspective, is cash budgeting and cash accounting. The internal records are often kept on an accrual basis. I don't mind that difference. The interest of Parliament, which is to make sure they get very accurate figures and know what the government has been given to spend, what they have spent it on, and how much they have spent, is best assured on the year-to-year cash basis. That's my view, and I will not go on any further.

I consider the vote structure the essential element of control over the budget. Parliament grants money in votes, in lump sums. The budget estimates are divided into votes. The government cannot spend more than Parliament grants in that vote without coming back to Parliament. That's an absolute, hard rule. They come back with fairly healthy looking supplementary estimates at the end of it, and I like that idea.

A second question I look at is whether votes should be netted.

The answer, I think, is absolutely no. For the purposes of parliamentary control, the whole budget, the whole, one might say, intrusion of government into the economy, has to be looked at. Whole expenditures, as part of the total finances of the country, you can only get through a non-netted total budget.

There are other reasons too, but what I say here is that how government raises money and how government spends money are two quite separate and distinct matters. There's no logical reason that government programs should break even, let alone make a profit. Government is not a business. How it raises money poses one set of issues; how it spends money poses another and very different one. I believe in separating those as clearly as you can.

Should a distinction be made between capital and operating budgets? Once you make a distinction that way, I worry, because—again—a capital budget is going to relate present expenditures to future needs and expenditures, and vice versa, and again you get into far more complex accounting than I believe Parliament can keep control of.

Should the estimates be deemed to be passed by a given date? I do not like the process of deeming, which means that the votes are deemed to be passed whether they come out of committee or Parliament has approved them or not. But bearing in mind the capacity of parliamentary committees and Parliament itself to delay, procrastinate, and simply obstruct business, I think deeming is an essential part of the Canadian financial processes. It's unfortunate, but yes....

My final comment here is that I'm in favour of a budget speech being held on supply, rather than on ways and means as it now is. The estimates present a more complete picture of the government's intentions on how the government will affect individuals, families, and the nation generally than do matters of ways and means. The government's intentions expressed in expenditure proposals hold more significance for both Parliament and the public than do ways and means issues, and I would like to see it changed.

Another reason, which I didn't put in my written remarks, is that ways and means has a pretty well fixed date for the introduction of the estimates into the House of Commons. So we would have a pretty well established budget speech date and budget presentation if we went to that. That's a change I would like to see.

Thank you.

[The Chair, NDP, Pat Martin]

Thank you very much, Dr. Franks. That was very helpful and very interesting. I'm sure there will be questions on any or all of those points.

Next, then, we would like to hear from Dr. Wehner, who is an associate professor of public policy at the London School of Economics and Political Science.

May I begin by asking if you can hear us well, Dr. Wehner?

[Dr. Joachim Wehner, Associate Professor, Public Policy, London School of Economics and Political Science, As an Individual]

Yes, I can hear you clearly. I hope you can hear me as well.

[The Chair, NDP, Pat Martin]

Yes, it seems to work very well.

You have the floor, Dr. Wehner.

[Dr. Joachim Wehner]

First of all, thank you very much for allowing me to present some thoughts to the committee. I also would like to thank your administrative team for being so helpful in helping me to organize this.

First I'm going to give you some comparative observations. I bring less of the Canadian experience but a bit more of a contrast with other legislatures in the OECD countries in particular.

The first point I would make is that there's no standard model. There's no one best model for parliaments to scrutinize the estimates. You have a really wide diversity of models among the industrialized democracies that range all the way from the traditional Westminster model, which essentially keeps Parliament in a very passive role, all the way to Congress, which takes eight months to look at the President's budget proposals, formulates its own proposals, and sometimes doesn't even manage to pass it in time for the beginning of the fiscal year. You have the entire range in the OECD countries, from essentially just approving the government proposal as it is to writing the budget, and anything in between.

Where you position the parliament is a normative choice. It reflects your view of how public spending should be scrutinized and how much Parliament should affect public spending. So one cannot advocate one single best model. I just wanted to make that clear. However, if your aim is to strengthen parliamentary scrutiny of public finances, then I think there are a few factors you can consider, given comparative experience.

Let me just highlight six of these, which are also discussed in the paper, which I believe your research staff has had access to. Maybe some of you have had time to look at it.

In this paper I compare a number of industrialized countries' national legislatures. I look at six aspects in particular. These are institutional features of the legislative budget process.

The first one is the power of the parliament to amend the executive budget proposal. The second is what happens if the budget is not approved by the time the financial year starts. The third is the degree to which the executive can adjust the budget, as approved by Parliament, during the course of the financial year. The fourth one is how much time Parliament has in advance of the fiscal year to scrutinize the budget. In other words, when is the budget tabled in Parliament relative to the beginning of the fiscal year. The fifth element is the committee capacity within Parliament to scrutinize the budget and to monitor its implementation. And the final point is Parliament's access to independent budget analysis capacity.

I'd be very happy to expand this discussion on individual points if you have any questions, but I'm going to leave it fairly general for the sake of keeping my input short.

What I do in the paper, and you have copies of the results in front of you, is produce a ranking of national legislatures based on these variables. I give high scores to countries where the institutional arrangements favour a high degree of parliamentary control of the budget, and I give low scores to institutional arrangements that make it more difficult for Parliament to scrutinize the budget and to shape budget choices.

If you look at this ranking, which I hope is in the submission you received, you will see that the Westminster parliaments tend to cluster at the very bottom of the distribution among OECD countries. So the inherited system from Westminster is not one, from an institutional perspective, that favours strong parliamentary scrutiny and strong parliamentary input into the budget process.

Despite this, it is at the same time true that a number of legislatures, in particular over the past 10 years, and also in countries that have inherited the western system of parliamentary government, have started to make changes to the budget process, in particular changes that strengthen the role of Parliament in the budget process. With this experience in mind, I would like to proceed to a very short list of some reflections about the situation in Canada that relate to the variables that I just summarized for you.

Drawing on international experience, I think there are a number of possible changes. I'm not saying these are changes you should be making, but changes that could be considered if your aim is to strengthen Parliament.

The first one, in my view, is to protect and enhance the role of the Parliamentary Budget Officer. A number of countries are creating similar institutions, and the Parliament in Canada has really been at the cusp of this development. Internationally, the Parliamentary Budget Officer of Canada is very highly regarded, and it's certainly a major change, in my view, at least, in the degree the parliament in Canada has access to an independent, highly professional research capacity.

I believe that some adjustments are possible to the legal framework for the Parliamentary Budget Officer. In particular, this role could be strengthened, or the status be strengthened, if he were a full officer of Parliament. Moreover, steps could be taken so that the Parliamentary Budget Officer has total access to all relevant information. In the past I believe there have been incidents where departments have not been quite as forthcoming with providing information to the Parliamentary Budget Officer as perhaps they should have been. But overall, I see this as a very positive development, and I see some scope for strengthening it also on the basis of international experience.

The second point—and Professor Franks also talked about this—that is worth considering is the structure of the appropriations. In Canada, if I understand correctly, the appropriations are actually fairly highly aggregated, so the main level of appropriating money is at the vote level, and there are some categories of expenditures within a vote. Parliament certainly does not approve the appropriations on a program basis.

So if you wanted more control over the budget process and over budgets, one move could be to move from approval of votes to approval of programs. You already have a set of main estimates that includes strategic objectives and, within these objectives, programs, and it would be a fairly easy step to structure appropriations in a similar way. A number of western countries have made this exact move in recent years. New Zealand has adopted output-based appropriations, which are more detailed than appropriations at the vote level. A country like South Africa, for example, a few years ago, about 10 years ago, switched from approving budgets on a vote basis to approving budgets on a program basis. This gives you a lot more control over the budget and limits a bit more the still very broad flexibility the executive has in implementing the budget.

Quickly, I'll make three other points. It is possible, in my view, to adjust the timing of the budget process. If you look at the comparative evidence, the Canadian Parliament is one of the very few parliaments in the OECD community where the budget is approved after the beginning of the fiscal year. This is done routinely. The OECD best practices for budget transparency state categorically that the budget should be tabled no less than three months prior to the beginning of the fiscal year. The standard is also in the IMF code of fiscal transparency, so this is a very widely accepted recommendation.

The delay of approval of spending proposals and of spending is really something that is very outdated, and there are possibilities to either adjust the fiscal year or to bring the tabling of the budget forward, which will do away with this outdated and—in my view—inefficient practice, which undermines Parliament.

Very briefly, I have two other points. It might be possible to strengthen committee review in Canada. In many countries that have very in-depth scrutiny by Parliament of the budgets, they have a two-step process, where the finance committee or an appropriations committee is first tasked with looking at the aggregates—the spending totals in the budget and the allocation of the aggregates across individual policy areas—and then sectoral committees are tasked with scrutinizing individual votes.

Several parliaments, such as that of Sweden and the United States, in the past few decades, reformed their process to kind of strengthen the scrutiny of the overall allocations and not just have the sectoral committees scrutinize individual budget votes or departmental budgets.

My final point would be—and this is possibly a bit more controversial, but it is worth noting—that the Canadian Parliament has fairly limited powers to amend the budget proposal of the executive. When I say “budget proposal”, I'm referring to the spending proposals. I'm sorry for this inaccuracy in terms of your terminology, but it's one that I'm very used to.

A number of Westminster parliaments, amongst others, have reshaped their amendment powers over the past few years to allow for a slightly bigger possible role in prioritizing the budget. I just want to mention three examples. The New Zealand Parliament in the 1990s changed its standing orders to allow the parliament to make changes within the votes—so to alter the composition of the votes. This is different from the amendment powers that Professor Franks describes in the Canadian Parliament, where you can only reduce items.

In South Africa, the parliament recently gave itself very broad amendment powers, which are essentially unfettered. An interesting reference point may also be the experience in France where the Loi organique relative aux lois de finances was reformed in 2001. Through this reform, the parliament actually received the power to change allocations between programs within so-called “missions”, which are broader clusters of programs.

So there are several examples of parliaments that have recently extended their powers to allow for, amongst others, the possibility of shifting money between different programs in the budgets.

Thank you.

[The Chair, NDP, Pat Martin]

Thank you very much, Dr. Wehner.

It's a very interesting overview from an international point of view. It's interesting to me, as the chair, just how many countries are in fact struggling with an effort to make the matters of supply and estimates more transparent and comprehensible for the public.

It's interesting as well that some countries are making the changes to these things via standing orders.

I know we have lots of questions. Just for your information, we're represented in this committee in roughly the same proportion as the parties are represented in the House of Commons. We have the government side, with seven members here; we have the official opposition, with three; and the third party, the Liberal Party, with one member.

It's our custom that this committee is chaired by the opposition; I'm a member of the official opposition.

The first round of questioning will go to the opposition and our representative, Mr. Alexandre Boulerice.

Alexandre, you have five minutes.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

Thank you very much, Mr. Chair.

I'd like to thank professors Franks and Wehner for their presentations. They were very learned presentations. They will help us a great deal in our work and the study we are carrying out.

I very much appreciated that Mr. Wehner's brief referred to the advantages of having a parliamentary budget officer, and of being able to benefit from the work he does. I hope that everyone took note of that. It is important.

Regarding appropriations, first of all in context of the main estimates and then in the budget and public accounts, the process is really quite long. It lasts about 18 months. When we receive the main estimates, we are unable to compare them to the main estimates from the previous year because the supplementary estimates are of course not taken into consideration. Moreover, the main estimates are submitted long before the budget. So there is no link between the budget and the main estimates. In short, it is difficult to compare apples, oranges and bananas. I believe you both made suggestions that would lead to changes in the process.

Mr. Wehner, you recommend tabling the budget no less than three months prior to the start of the relevant fiscal year, hence allowing us three months to review it. May I point out that this year, we have three days at our disposal.

Mr. Franks, regarding the timing of the budget speech, you suggested that it not be held on ways and means, but at some other time, on supply.

I would like you tell us more about the timing, and what process would in your opinion be the most logical and the most conducive to our doing our work as parliamentarians properly when we crunch the numbers. Also, we must see to it that the government is accountable to parliamentarians.

[The Chair, NDP, Pat Martin]

Dr. Franks.

[Dr. Ned Franks]

The thing that interests me about the timing is that the expenditure budgets are usually set, I believe—and you should check this with the Treasury Board—by about the end of January at the latest. I don't know if that information was given to you by the Treasury Board, but I'd be surprised if it's any later than that.

I don't see any problem in having the budget speech at about that time when the government knows what it's spending. I don't see any reason why the estimates shouldn't have a regular time for being tabled, say, in February, and the budget speech is given at that time and then the estimates go on to the committees.

I think that would be just fine. I suspect the Treasury Board, Department of Finance, and Privy Council Office wouldn't agree with me on that. But I'm sure that some of the provinces do it closer to that schedule than the federal one.

[The Chair, NDP, Pat Martin]

Dr. Wehner, would you like to respond?

[Dr. Joachim Wehner]

I think the case is really overwhelming that Parliament should have a minimum of three months to look at the standing proposals of the executive before the start of the fiscal year. There are a number of ways in which you can do that. Different parliaments have done this in the past or they have changed the system to achieve this.

Several legislatures have changed their fiscal year. This is quite easily done. It's not very hard to do. The U.S. Congress did that in the mid-1970s. Sweden did it in the mid-1990s. Germany did it a couple of times in the 20th century. These are not uncommon things. Each time the objective was to make sure there was enough time for Parliament to review the budget before the fiscal year started.

One option could easily be to say that the fiscal year will start on the first of July. You could maintain all your existing procedures and shift the fiscal year by a few months. This is what a number of countries have done in the past to achieve this. That is one option.

A second option, I would say, is maybe more gradual or incremental. This is the one that Professor Franks mentioned, which is an attempt to bring forward the tabling of the proposals. Some countries have tried this. We tried it in South Africa when I worked here. There the tabling was similarly late, as in Canada, and it is now taking place a few months earlier. But it is still not enough to ensure three months' scrutiny prior to the beginning of the fiscal year.

These are two options. In my opinion, it is—let me call it this way—a no-brainer. It's something that should be done.

[The Chair, NDP, Pat Martin]

That concludes your time, Alexandre. Thank you for the questioning.

Now for the government side, the Conservatives, we'll go to Jacques Gourde. You have five minutes, Jacques.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Thank you, Mr. Chair.

I thank the two witnesses for having allowed us to benefit from their expertise.

My question is for both witnesses. The enormous amount of information in the votes and estimates is a big challenge in and of itself. Even if most of the time, the parliamentarians feel that the information is of a very high level, it is very difficult for us to make adequate judgments on the basis of the aggregate information that is submitted to us.

Firstly, how could this be improved?

Secondly, how could the financial information contained in the estimates be improved in order to allow parliamentarians to follow up on expenditures?

[Dr. Ned Franks]

I couldn't get this working, and my French is not perfect, but I'll try to answer your question.

The one that interests me is the one on the information available to Parliament on the budget and how Parliament can criticize the budget.

I would offer a couple of thoughts on that. The budget process begins in the departments with, I would guess, and I could be corrected on this, not just 10 pages of information for every page in the expenditure estimates, which are well over 500 pages, but probably 100 pages, maybe even more, which Treasury Board and the departments work with to get the budget down. It's a major operation. Thousands of man-hours of time go into creating the budget estimates.

Parliament has a problem there. There are two sides to it.

One is that the information they have on the expenditure estimates is very limited compared to what's available to the government. The second, to make it very simple, is time and human resources. As I say, this is a huge process of going back and forth between departments and central agencies and producing an expenditure budget. There's a huge investment commitment on the budget when it's presented to Parliament.

The system has evolved. We live in it. The government and the departments themselves and the people involved inside are very resistant to changes from the parliamentary side, to the point that they're almost unheard of.

If Parliament—the House of Commons, of course—wants to look at this more closely and do something, Parliament should set up a schedule of devoting a large part of a committee's time or some committees' time to a budget over a couple of years to try to get to a point where they could influence it.

Within the vote structure there is no problem. Parliament can, within a vote, recommend changes and propose them. But they actually have to be approved by Parliament. There is nothing that constitutionally prevents Parliament there, except the very powerful feeling that exists within both the government and the departments that it's their money and their budget, not Parliament's.

[The Chair, NDP, Pat Martin]

Dr. Wehner.

[Dr. Joachim Wehner]

I have certainly seen more highly aggregated estimates than in Canada, but I did look at the main estimates a few days ago, and at least you have program-level information, which I think is very good. I've seen estimates that include more detailed information below the program level, sub-programs, or whatever you may call them. I don't know if your estimates also include that information. I'm not closely acquainted with that, but there are different ways of presenting estimates, and having programs in the estimates is very important. One could add a level of detail to that on the next level below the program level.

It is also important for estimates to have medium-term figures in them. Of course, you approve budgets on an annual basis, but certainly, in my opinion, in a good set of estimates I would like to see information on past expenditure, the current budget year, and then three years or so out into the future, of which the first year is the budget year. That gives me a range of years that I can then use to query government; I can ask how a program is developing, what is driving spending changes in a particular program. These are some of the things that I'd like to see in a good set of estimates that is given to Parliament.

The level at which you appropriate money is then a second issue, and I have very strongly advocated also appropriating money at the program level. I believe this will also force government, to some degree, to engage more carefully with parliamentary committees, and maybe it will also lead parliamentary committees to ask more detailed questions about programs, because when you just approve the budget at the vote level, you say, “Executive or government, you can do whatever you want”, within very highly aggregated spending lines.

These are just some of the points I would make.

With regard to the last point that was raised on whether it is possible to better analyze the budget, here I can just make the point again that you are extremely fortunate among the OECD countries to have access to the Parliamentary Budget Office. Although this is a growing trend among OECD countries, we have about one-third of all OECD country legislatures having such a research capacity, and the two-thirds that lack it have much less possibility to analyze the budget proposal.

[The Chair, NDP, Pat Martin]

Thank you, Dr. Wehner.

That actually concludes your time, Jacques, but Dr. Franks wanted to add something to this before we move on.