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EXPENDITURE REVIEW:EXPENDITURE REVIEW:The Canadian ExperienceThe Canadian Experience
Munir A. Sheikh Munir A. Sheikh Secretary, Expenditure Review CommitteeSecretary, Expenditure Review Committee
Government of CanadaGovernment of Canada March 3, 2005March 3, 2005
Some Canadian FactsSome Canadian Facts
In the International ContextIn the International Context
0
1
2
-1
-2
-3
-4
-5
-6
-7United
KingdomItaly
2004 (OECD estimate) 2005 (OECD projection)
Germany FranceUnitedStates Japan Canada
% of GDP
Total Government Financial Balances (National Accounts Basis)Total Government Financial Balances (National Accounts Basis)
Financial BalancesFinancial Balances
Canada is again expected to be the only G-7 country to record a surplus in 2005 and 2006.
Program SpendingProgram Spending
G-7 avg. United States
Japan United Kingdom
Italy Germany France Canada
per cent of GDP
0
10
20
30
40
50
60
1992 2004 (estimate)
G-7 average in 2004
Program SpendingProgram Spending
Canada’s program spending as a share of GDP is now below the G-7 average.
Total Government Net Financial Liabilities (National Accounts Basis)
Total Government Net Financial Liabilities (National Accounts Basis)
0
20
40
60
80
100
120
G-7 avg. United Kingdom
United States
France Germany Japan Italy Canada
1995 2004 (estimate) 2005 (projection)
per cent of GDP
G-7 average in 2004
Financial LiabilitiesFinancial Liabilities
Canada’s debt burden has declined from the second highest to the lowest among G-7 countries.
Total Government Financial Balances (National Accounts Basis)Total Government Financial Balances (National Accounts Basis)
-6
-5
-4
-3
-2
-1
0
1
2
3
1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05
Canada United States ("on-budget" balance)per cent of GDP
Estimate
Financial BalancesFinancial Balances
The federal government in Canada has maintained a budgetary surplus since 1997-98, unlike the U.S.
Total Government Financial Balances (National Accounts Basis)Total Government Financial Balances (National Accounts Basis)
0
10
20
30
40
50
60
1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05
Canada United Statesper cent of GDP
Estimate
Financial BalancesFinancial Balances
The federal market debt-to-GDP ratio in Canada fell below that of the U.S. in 2003-04.
Why Expenditure Review?Why Expenditure Review?
Given this Performance Given this Performance and the Fiscal Situation,and the Fiscal Situation,
the Question is:the Question is:
… and the answer is… and the answer is
Why Expenditure Review?Why Expenditure Review?
• It is good public policy• Eliminating/reducing programs which are not high
priority would save money• Improving efficiency, reducing cost of programs that
remain would save money• Such savings can be:
• Either spent on high priority programs, or• Used to cut taxes
• The outcome is REALLOCATION that will improve:• Economic outcomes• Social outcomes
Political Challenge• Interest groups
Political Challenge• Interest groups
Bureaucratic Challenge• Continue existing programs
Bureaucratic Challenge• Continue existing programs
But there are ChallengesBut there are Challenges
The government:The government:
Is committed to the expenditure review conceptIs committed to the expenditure review concept
Announced an Expenditure Review Committee of seven senior Ministers to operationalize it
Announced an Expenditure Review Committee of seven senior Ministers to operationalize it
Set up a small secretariat of civil servants to support ERC Set up a small secretariat of civil servants to support ERC
The Canadian Approach The Canadian Approach
Gave ERC 6 months to find first tranch of savings for Budget 2005 (TRACK 1)
Gave ERC 6 months to find first tranch of savings for Budget 2005 (TRACK 1)
Asked ERC to develop a permanent system of expenditure review as part of annual budget cycle (TRACK 2)
Asked ERC to develop a permanent system of expenditure review as part of annual budget cycle (TRACK 2)
ERC PROCESSERC PROCESS
TRACK 1TRACK 1
Overcoming ChallengesOvercoming Challenges
Political Challenge• Prime Minister’s commitment
• ERC to look at programs not in an absolute sense but relative sense
• Focus on program efficiency and administrative efficiency• Reallocate
Bureaucratic Challenge• Prime Minister’s commitment• The 5% method for identifying priorities
Role of ERC SecretariatRole of ERC Secretariat
• Collected all the facts
• Undertook analysis of different programs
• Developed options with pros and cons
• Provided support to ERC Chair, followed his guidance
• Presented options to DM group chaired by the Head of the Public Service to get concurrence
• Secretary presented work to ERC for discussion, decision
Reviewed every proposal in a relative context from the perspective of:• Public policy• Political Impacts• Regional Impacts
Reviewed every proposal in a relative context from the perspective of:• Public policy• Political Impacts• Regional Impacts
Met once or twice a week for 4 months Met once or twice a week for 4 months
Made tough decisions, took ownership of packageMade tough decisions, took ownership of package
Role of ERC Ministers Role of ERC Ministers
Chair played a key roleChair played a key role
Recommended package to Cabinet, Prime Minister, Minister of FinanceRecommended package to Cabinet, Prime Minister, Minister of Finance
Reviewed package from:• Public policy perspective• Political perspective• Regional perspective
Reviewed package from:• Public policy perspective• Political perspective• Regional perspective
Role of CabinetRole of Cabinet
Package in Budget 2005Package in Budget 2005
Savings ramping up to 7% of base by year 3Savings ramping up to 7% of base by year 3
89% improved efficiencies in program delivery, corporate overhead 89% improved efficiencies in program delivery, corporate overhead
Service Canada Service Canada
Key Elements of ERC PackageKey Elements of ERC Package
Procurement practicesProcurement practices
Property management Property management
Departmental cuts Departmental cuts
Key Elements of ERC Package Key Elements of ERC Package
SERVICE CANADA• “One Stop-Shopping”• Rationalize regional offices• Increased use of new technology• Workforce to be reduced initially by 20%
SERVICE CANADA• “One Stop-Shopping”• Rationalize regional offices• Increased use of new technology• Workforce to be reduced initially by 20%
PROCUREMENT PRACTICES• Cost of purchases 5-35% higher than others• Target of 7% savings• Changes made:
• New contract rules• New governance structure• Coordinated/bulk purchases
PROCUREMENT PRACTICES• Cost of purchases 5-35% higher than others• Target of 7% savings• Changes made:
• New contract rules• New governance structure• Coordinated/bulk purchases
Key Elements of ERC Package Key Elements of ERC Package
PROPERTY MANAGEMENT• Enforce existing space rules• Outsourcing
PROPERTY MANAGEMENT• Enforce existing space rules• Outsourcing
DEPARTMENTAL CUTS• Cut off lower priority spending• Enhanced program and administrative efficiencies• Examples:
• Pooling of innovation funds (ACOA)• Electronic coding of tax returns (CRA)• Centralization of administrative services (NRCan)• Elimination of subsidies for export promotion (Agriculture)• Reduced assistance internationally in cases where it is ineffetive or not needed (CIDA)
DEPARTMENTAL CUTS• Cut off lower priority spending• Enhanced program and administrative efficiencies• Examples:
• Pooling of innovation funds (ACOA)• Electronic coding of tax returns (CRA)• Centralization of administrative services (NRCan)• Elimination of subsidies for export promotion (Agriculture)• Reduced assistance internationally in cases where it is ineffetive or not needed (CIDA)
Sources and Uses of the Expenditure ReviewSources and Uses of the Expenditure Review
Total ERC savings Examples of priorities funded by ERC savings
(billions of dollars)
Service delivery 3.1 Defence
Procurement 2.6 National security
Property management 1.0 Environment
Departmental initiatives 3.9 Aboriginal Canadians
Employee benefit savings 0.3 Research and development
Total 10.9 Program integrity1
Reduce EI premiums/
increase benefits
Improve CPP account balance
1 Investments needed to address departmental service levels in key areas of federal responsibility and to maintain capital property.
Track 2:Track 2:
Preliminary ThoughtsPreliminary Thoughts
Permanent System of Expenditure ReviewPermanent System of Expenditure Review
BUDGET
PRIORITIES
GAPS
CHOICES
ACTUAL
SPENDING
PROGRAM
EFFICIENCY
CORPORATE
EFFICIENCY
NEEDED
SPENDING
NEEDED
SPENDING
GAPS
OLD
NEW
System part which alreadyexists and works
System part which exists now but needs strengthening
System part that is needed but not in place
SPENDING DECISIONS
Optimal Expenditure Review System:“What we Have and What we Don’t”
EXPENDITURE REVIEW:EXPENDITURE REVIEW:The Canadian ExperienceThe Canadian Experience
Munir A. Sheikh Munir A. Sheikh Secretary, Expenditure Review CommitteeSecretary, Expenditure Review Committee
Government of CanadaGovernment of Canada March 3, 2005March 3, 2005