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It's a pleasure to be a good neighbour and to discuss the Canadian practice, even though I'm not an expert on it.
I want to begin by indicating that good practice is not necessarily a precondition for good budget outcomes. My own country, the United States, is an example of this. We have perhaps the most widely respected legislative budget organization in the Congressional Budget Office. We also have the largest deficits in the world.
I don't want to correlate the two, but I do want to caution that often budget reform is a substitute for budget policy, and it should never be a substitute. Near the end of my remarks, I'll get back to the issue of parliamentary assistance or staff assistance for parliamentary budget work.
I do want to mention that anything that deals with a budget touches the constitutional framework of a country—the relationship between government and Parliament, between the parties and government, the electoral system. Therefore, one has to be guarded in importing from another country practices that may not be well suited in your own country. This is particularly the case because the Westminster system, of which Canada is a member, is at polar ends from the American congressional system. One has to be wary about exchanging techniques when they may ill fit a particular country.
Having said this, I do want to mention that from a distance, my own distance, there are a few matters of Canadian budgeting that I think deserve some attention. Perhaps the most obvious is the disconnect between the budget and the main estimates.
As a matter of fact, I'm kind of puzzled that what you call the main estimates are not what political leaders would regard as the main estimates. The main estimates should be a statement of policy, if they're truly the main ones, and yet here they deal more with the ongoing work of government, that which is being continued, rather than with revenue changes and with policy changes.
The timing issue is well known in Canada, and that is that the main estimates, I believe, precede the tabling of the budget, and consequently the additional estimates, or supplementary estimates, have to be tabled later in the year to incorporate the policy changes recommended by government.
It would be a reasonable step, not a difficult step, for government to change the timing to coordinate, indeed to consolidate, the estimates and the budget. At one time, in fact, the United Kingdom had a distinction between the estimates process, which they called the “spending process”, and the budget we talk of, particularly with revenues in the U.K. case. Now they have been brought together on the same page, as it were. I think that is something that your own country should well consider.
In doing so, I would urge that the fact that you have a divided process, with estimates coming at one time and the budget at another time, allows you to restructure your entire budget process—not only that they are timed together; that indeed the two different sets of actions occur at different times. This is something that I would urge you to consider. Sweden is among the countries that have successfully introduced the procedure: that is, dividing parliamentary budgetary work into two discrete stages, a framework stage followed much later by an estimates stage.
The framework stage is a matter of policy, of strategy, of changes to revenues and to programs, of major changes to the estimates, and, most importantly, looking ahead to the macroeconomic environment, not only for the year for which estimates are being voted but also three to five years or more ahead.
If you combine strategy and estimates, the big picture and the detail, the likelihood is that one or both of them will be neglected. More often than not, it's the strategy, the policy, that is subordinated to the specifics of the budget.
So what a number of countries have introduced is a divided process in which at the first stage, which I label the framework stage, they do not delve into the details of the estimates. Instead, what they do is look at the economic environment, projections over the medium term, major policy changes by government, particularly with respect to the deficit, the debt, and other key fiscal variables.
While spending details are not tabled during this first framework stage, the government does provide, to use a famous or infamous Canadian term, the “spending envelope” that would be available during the estimates stage—in other words, what will be total expenditure, and that's divided by key sectors or policy arenas.
That's the first stage, and in some countries it's actually voted by parliament; in other countries it's merely discussed by parliament. It's presented by government, and depending on the role of the legislative branch, it either would be recognized by parliament or agreed by parliament. After this occurs, government ministries prepare their budgets consistent with the voted or tabled framework.
This leads to the second stage, which deals with the estimates and appropriation of authorized expenditure. The obvious rule in this case is that the estimates have to be consistent in two ways with the framework that was previously established. The first is with respect to the totals—the details cannot exceed the amount of money voted in a framework. Secondly, with respect to policy initiatives or changes taken by government, those should also be reflected in the estimates.
This would be a significant departure from the situation that currently prevails in Ottawa, but it would be consistent, however, with the fact that you have a divided system, and it would engage Parliament at two different times in the year on budgetary matters, one dealing with strategy and the big picture, the other with the specifics of expenditure.
Now, there's another aspect of Canadian practice that to my distant eye was once quite common around the world. It's still common in many developing countries, but it has virtually disappeared from advanced countries such as Canada. That is the distinction between operating and capital expenditure. At one time it was common around the world that there were actually two separate budgets. We often called them divided budgets: one dealing with the investments of government and the other with current or operating recurring expenditure.
The historical basis for this distinction is that the two sets of expenditure had different sources of funding. One was out of current revenue, and the other was often out of borrowed funds—a kind of golden rule that government can borrow only for finance investment. And to ensure compliance with this rule, they divided the budget and the expenditure into these two categories. For two main reasons, this practice has disappeared from developed countries.
The first reason is that to the extent that government is concerned about its fiscal position, the key aggregates—total revenue, total expenditure, total debt and deficit—you have to have a consolidated picture that does not separate between capital expenditure and operating expenditure.
The second reason is that capital and operating expenditures often are not distinct but are interchangeable with one another. In so many areas of government policy they're actually substitutes. One can proceed down a policy course of action through investment—for example, building clinics in rural areas. That would be in the capital budget. On the other hand, government can seek the same aim to improve health services in rural areas by subventing physicians to practise in rural areas. One is in the capital budget, one is in the operating budget.
The more you do one, for example, building clinics, the less you may need of the other, or vice versa. Consequently, if you want to have a robust analysis of the policy options of government and the connections among them, it makes a lot of sense to merge the two types of budgets, keeping in mind that you still must have sufficient data on the investment position of government.
This doesn't mean that you remove investment and capital information from the budget. It means, however, that they are within one umbrella of the budget. The question then becomes what should that umbrella be. What should be the classification or the framework within which you see both investment and operating expenditure?
There are two main possibilities. One is widely practised. The other is widely recommended. The widely practised one is by organizational units. To the extent that an organization bears both operating and capital costs, they should be combined in that entity's budget.
The alternative is what we call a program budget, or program structure. To the extent that operating and capital expenditure contribute to the same objective, they should be located within the same budgetary program, regardless of organizational location. In other words, a program budget, in some cases, will ignore organizational or ministerial boundaries. This is precisely why the program budget approach is highly recommended but is rarely practised, because to the extent that government, in addition to wanting to make robust policy, which would require that you see capital and operating expenditure contributing to the same objective...government has another purpose in managing its finances, and that is maintaining accountability.
Accountability in almost every case requires that the organization responsible for the expenditure and the activity financed by the expenditure should be in the dock, so to speak. It should be the accountable party. This is deeply embedded in Westminster tradition, and it's something that may be very difficult to surrender.
In fact, many countries call it a program budget, but the program is simply a veneer for organizational entities. To give an example that comes immediately to mind, you may have a bureau of water resources, which is an organizational unit, but instead you label it as a water quality program. The boundaries of the program and the boundaries of the bureau are identical, so in effect you've labelled it a program budget, but it really is an administrative, organizational budget.
Regardless of the way you go, I would think it is worth reconsidering the connection between the operating and the capital budget.
That leads to the third issue that I would like to discuss, which is what should parliament's role be, and more important, how should parliament be assisted to carry out that role responsibly and in an informed manner?
There is a mock trend around the world, not in every country, and certainly less so in Westminster countries than elsewhere, to enlarge the capacity of parliament to review and even to amend the government's budget. Keep in mind what I said at the outset, that the extent to which you want parliament to be able to amend the budget rises to a constitutional issue.
The practice in a growing number of non-Westminster countries is for a vast increase in the volume of amendments tabled in parliament and some subset of them being adopted, but most of the amendments are specific, detailed. They are within the government's fiscal envelope. This is very important.
To the extent that a country enlarges parliamentary discretion with respect to the budget, it is urgent that Parliament be subject to some fiscal constraint in terms of what it does. The combination of an open-ended parliamentary work on the budget without a constraint is something that can lead to fiscal damage to the country.
My own sense is that this is not where Canada is right now. Canada is not going to break away in a fundamental way from its Westminster legacy. Consequently, the issue becomes one of informing parliament rather than empowering parliament. Empowering parliament would mean that parliament can make significant changes to the government's budget. Informing parliament means that what parliament does is to hold government to account by having a robust debate on the options in the budget, the estimates tabled, the economic and programmatic assumptions that underlie those estimates, and the longer-term sustainability of the government's position. This clearly is consistent with the role that your committee has.
In fact, in your opening remarks, Mr. Chairman, when you indicated that you are a member of the opposition, it brought to mind the historical role of public accounts committees, in which that was the basic mechanism for well over a century, perhaps two centuries, for holding government to account: that opposition would chair the public accounts committee, the committee would operate on a non-partisan basis, take evidence from government, and thereby hold government to account.
Perhaps this system is sufficient. It's certainly survived a long time. But the fact that Canada a number of years ago established a Parliamentary Budget Officer tells me, hundreds of kilometres away from Ottawa, that at least there was unease in Ottawa about whether simply having a committee chaired by the opposition was sufficient to hold government to account and to allow for informed debate. After all, if it was sufficient, there would be no need to establish a Parliamentary Budget Officer.
Canada, in so doing, was following a trend that is quite widespread around the world, and that is staffing up parliament to be able to better perform its budget-related responsibilities. In most countries, however, I should note that the staffing occurs at the committee level, so that the additional staffing that is available to parliament to review the estimates, to offer options, to challenge the assumptions when it's appropriate—these are committee staffings, and therefore it has a low profile and is subordinate to the committee process in parliament.
In a small number of countries, including the United States, Mexico, and Korea, rather than relying on the committee structure as the main means for improving parliamentary budgetary work, a separate and independent office has been established. This has been done in Britain. In Britain it's not formally attached to Parliament, but it advises Parliament.
The role often is to review the estimates to see whether they are reliable. The key budget work today around the world is not simply whether the money should be spent, but are the assumptions underlying the estimates robust? Are they reliable?
Now keep in mind what assumptions are. If the table over here is the waterline, everything above the table is the budget and the estimates. They are open and transparent. They can be reviewed and published. Everything below the table line is assumptions. The assumptions are not transparent. They are not visible. But the numbers above the table are dependent on the assumptions below the table, and there's very little sunlight in government around those assumptions. This becomes the difficult task—and perhaps the most important modern task for Parliament—in dealing with a budget.
On the revenue side, clearly, the revenues are driven. They are a function of the economic performance of government. The future economic performance of government can never be known; it can only be assumed. That is the assumption; that is something parliament has to invest in.
What about the sustainability of the budget over a long term? That's critical to the future course and the future fiscal and economic health of your country. That rests on a bed of assumptions.
What about a government introducing a policy change? You want to know over the medium term what would be the budget implications of that policy change. After all, the first-year cost of a policy change usually is quite minimal, quite modest, but it cascades and enlarges in the future. Has the government been forthcoming? Is it using reliable estimates?
One of the reasons why assumptions lie below the waterline, below the table, is that they do not do well in sunlight. Very often, assumptions.... How do we describe them? The back of an envelope, right? Guesswork, okay? Sometimes they're politically massaged, but even when they're not politically massaged, the best thing you can do about assumptions is just to say this: let's assume a different set of assumptions, let's do a critical sensitivity analysis, and let's—to use a modern term—stress-test the assumptions to see whether they can stand the light of day.
I think this is something that parliament can benefit from. I think this is likely to be something that I would urge your committee to consider, whether in the context of the PBO, the Parliamentary Budget Officer, or in a larger framework—I don't know enough about the situation.
But I do think that you have an organization already, the PBO, which in international quarters is widely regarded, and building on it I think would be helpful. My understanding is that while it's a parliamentary budget office, it works closely with committees so that it's not a completely adrift entity. I would think that's something your committee might wish to consider.
These are some of the thoughts I have. I would invite questions or venturing into other areas where you think I might be of assistance.
Thank you.
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Thank you very much for that introduction. It really leaves it for me only to say thank you to all of you for this invitation today. It's a great privilege to be here.
You have a text that I have distributed. I will attempt to speak from it, but I will shorten it down a bit as I go.
The synopsis that I offer there I want to reword slightly by suggesting that I think the basic thing I'm trying to do in this text is respond to the fact that a great deal of our thinking about Parliament is heavily dominated by unexamined assumptions, many of which are traditional. One of the challenges in thinking about anything like the estimates process is to attempt to see how Parliament actually works today, and particularly to take full account of the impact of disciplined political parties on Parliament, and then ask what Parliament really needs, rather than necessarily simply imposing what we think it ought to have or should be doing, based on assumptions with which it's no longer well aligned.
Dissatisfaction with Parliament's role in the scrutiny of government spending is longstanding, both among observers and among many MPs themselves. The central argument I will present today is that unrealistic expectations, and, as I've just said, possibly a misunderstanding of the way the Westminster model of Parliament now works, have been a major contributor to these dissatisfactions. A stronger focus on how Parliament actually works today could result in more realistic expectations, lower the frustration level, and also perhaps suggest some changes that might actually make a difference.
Concerns about Parliament’s effectiveness in scrutinizing government spending date back to the beginning of the modern era in Canada’s Parliament in the mid-sixties. The standing committee structure was originally created in 1965, and made permanent in 1968, partly because estimates debates on the floor of the House had become chaotic affairs, wildly partisan, and typically involved the concurrence in most of the government’s spending in panic sessions running late into the night in the last few days when Parliament was sitting. So it's interesting to realize that in the standing committee structure originally, estimates were one of the main jobs that it was seen as potentially being able to contribute to.
Successive episodes of reform in subsequent years have given committees greater powers, resources, and so on, in theory to strengthen their effectiveness in financial scrutiny. Paradoxically, however, 45 years of procedural reforms, both large and small, do not seem to have made a difference to the basic issues that originally provoked reform. Parliament is still widely seen as ineffective in its financial scrutiny role. MPs continue to express wide frustration with the estimates procedure and the supply process. Indeed, if anything, frustration appears to have increased roughly in tandem with the reforms that were intended to address it.
Why is this? A central explanation would seem to be that during the past 45 years the incentives that apply to committee members as they face the estimates each year have remained essentially unchanged. Government-side members who raise issues that could create ministerial discomfort soon learn that this does not contribute to successful political career development in Ottawa.
Some hon. members: Oh, oh!
Mr. Jack Stillborn: Opposition members may gain temporary glory by raising critical questions, but the inattention of the media and public to committee proceedings on estimates is so profound that these moments remain invisible in the ridings. It is implausible, to say the least, that electoral support in the ridings can be influenced by labour on spending estimates in Ottawa.
The fact that governments view the estimates as matters of confidence, given that they reflect the financial intentions of the government, underlies the incentive problem, along, I suppose, with the current level of party discipline. Under majority conditions, there is really nothing for committees to do with the estimates that might actually change spending plans, and under minority government scenarios, as we have recently seen, the theoretical possibility of changes is inevitably wound up with strategic calculations about bringing the government down rather than being about the substance of the estimates.
I have a section here called “Recent Reforms” that I'm going to treat in a more summary way. It basically makes the point that the major recent reform is the restructuring of reporting to Parliament and the creation of a theoretical future-year focus in the RPPs, which committees can study and make recommendations on outside the constraints of the estimates. That's the major development since that time. But committees have shown singularly little appetite for that kind of study, and I think it's because the basic incentives or disincentives I just reviewed have not changed. Also, this new future-oriented study concept—that just comes out of the Treasury Board Secretariat, actually—requires committees to engage in a level of delayed gratification about their work that is very optimistic about the kind of political timeframes that dominate members' behaviour, because these future-oriented studies won't even come into play until a year or more down the road. It's only then that the results will be visible.
What is to be done?
The dynamics of the Westminster model suggest that even in more attractive formats, with more interesting content, the overwhelming portion of information generated by Parliament about spending will continue to be greeted with seeming indifference by Parliament.
However, beneath the indifference, in committees and elsewhere, there is continuous attentiveness to the possibility of exceptional cases—sponsorships, F-35s, and so on—that have a high level of political resonance. When Parliament becomes seized with these issues, its appetite for relevant information becomes extremely intense and rapidly goes far beyond anything available in the formal estimates reports.
This brings me to my first recommendation. Attempts to improve Parliament’s effectiveness in scrutinizing government spending should focus on what Parliament actually does rather than on what we have traditionally thought it should do.
Parliament’s attention to government spending is issue-driven and highly episodic. The critical improvement challenge is thus the availability of information when needed by Parliament rather than the fine-tuning of formal reports or the attempt to redeem the formal estimates process by means of procedural tweaking.
In the committees, the estimates process will continue to be about looking for issues rather than about actually changing government spending. A flexible online resource that allows MPs and staff to drill down to individual activities and get a concrete picture of planned costs, or what is being accomplished and what the present costs are, should be the priority.
Such a resource might occasionally be useful for the consideration of estimates. More importantly, it could support attention to government spending outside the estimates process, where most parliamentary action actually happens now. It should be designed with that role in mind.
I want to just mention here that a lot of the basis for this already exists in the Treasury Board Secretariat in something called the program activity architecture, which you may have heard about from previous witnesses. It basically requires departments to organize their programming in a hierarchical form. They start at the top, with the outcomes to which they contribute, then move to the programs, then move to activities, sub-activities, and sub-sub-activities, where appropriate.
In theory, that drill-down environment is already there. It just needs to be made available to Parliament.
Second, although the idea has traditionally been anathema to governments, a capacity of this resource to break out activities and spending on a riding-by-riding basis is also needed. Yes, this will predictably produce a great deal of posturing about real or imagined inequities. But it would enable questions relevant to Canadians to be asked. Facts would be provided and explanations given. Ultimately, this is a healthy thing.
My second major point is that the existing structure of estimates needs to be replaced with something that reflects what Parliament actually does and, if the argument I have outlined is correct, will continue to do.
Why not integrate the estimates votes into a single vote on a government spending plan? After all, is this not in the bottom line what Parliament does? Parliament concurs in the estimates every year. Why do you need multiple and, in many cases, treacherously obscure votes to accomplish this?
The spending plan could include any limitations on making funding authorities transferred among what are now separately voted items that are appropriate to ensure that the government doesn't have just a free hand to shunt money back and forth at will. It could also include any principles or guidelines currently used by Treasury Board Secretariat in assessing departmental submissions for reallocating money during the fiscal year. This approach would reflect the modern reality that substantive spending control is actually done by governments, with parliamentary endorsement, rather than—as the phrase “the power of the purse” seems still to suggest to many—by Parliament itself. Furthermore, it could actually strengthen parliamentary and public knowledge about how spending control happens.
A modern supply process should take Parliament seriously, and this includes relieving it from ritual tasks that are too often incomprehensible to MPs. Political accountability is by its nature not a systematic process, but is highly selective based on the political importance of singular issues.
Parliament is uniquely the institution that can do this: selecting issues that are important to the public, holding governments accountable for what they are doing or failing to do, and providing through the contrast between government and opposition positions a very public counterweight to the tendency towards groupthink that is otherwise a pervasive feature of modern institutional life.
I think we should be more appreciative of the political accountability delivered by our Westminster model of Parliament and less troubled by the absence of a more systematic, non-partisan kind of accountability in the committees.
Thank you very much.