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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.
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.
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.
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:
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.
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
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|
1993-94 |
1997-98 Forecast |
1998-99 Forecast |
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|
$ Millions |
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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 |
|
|
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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
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.
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.
Delivering high-quality federal government services essential to Canadian society remains a bedrock of government policy and the raison-d'être 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. |