Financial Procedures

Introduction

Canada’s system of public finance is founded on a principle of parliamentarism: elected representatives must authorize taxation and public expenditures. The House of Commons plays a central role in this system. It exercises direct control over public finances by examining the government’s proposed expenditures and fiscal measures.

Financial procedures are based on the following long-standing principles:

• the government submits its financial requirements to Parliament;
• Parliament authorizes the raising of taxes and the use of public funds;
• the Crown must recommend any measure providing for public expenditure; and
• financial measures must be subject to thorough consideration in the House and in committee.

These principles ensure a balance between the government’s financial initiative and the control exercised by the House.

Financial Prerogative of the House

The House holds an important financial prerogative: measures imposing a tax or authorizing public expenditure must originate in the House of Commons. However, the initiative for financial measures rests with the Crown, that is, the government acting on the advice of its ministers.

This means that only ministers may

• propose public expenditures (the House may not, on its own initiative, create a new public expenditure); and
• introduce fiscal measures.

This principle helps to keep the government accountable for the management of public finances. Accordingly, the government makes its financial requirements known to the House, and the House authorizes the raising of taxes and the use of public funds. This power is based on the way the constitution has evolved and ensures that the government remains accountable to elected representatives.

Royal Recommendation

Any legislative measure that authorizes the expenditure of public funds must be accompanied by a royal recommendation, that is, a message from the Governor General indicating that the Crown recommends the House’s adoption of a bill providing for public expenditure.

This recommendation

• may be presented by a minister only, thereby confirming that the government supports the proposed measure;
• is required for any bill providing for public expenditure; and
• must be presented during the session when the bill is considered.

Without a royal recommendation, the House may not pass a bill proposing to spend public funds.

Parliamentary Authorization

Although the government proposes financial measures, Parliament holds the power of authorization. The House may therefore examine financial policies, debate expenditures and fiscal measures, and approve or reject government proposals.

By carrying out these functions, the House ensures that public funds are used only for the purposes authorized. This holds the government accountable for the management of public finances.

Parliamentary Financial Cycle

The financial cycle is the annual process that allows Parliament to

• analyze the government’s financial priorities;
• evaluate budget policy and increases in revenues (through the business of ways and means);
• examine proposed public spending (through budget estimates); and
• ensure proper accountability for spending.

The parliamentary financial cycle aligns with the federal government’s fiscal year, which begins on April 1 and ends on March 31 of the following year. The cycle is structured as follows:

• the supply cycle, related to the authorization of expenditures and the business of supply; and
• the budget cycle, related to the raising of taxes and the business of ways and means.

Business of Supply

The business of supply is the process whereby the government seeks Parliament’s authorization to spend public funds. The government submits its financial requirements in the form of estimates, which set out the financial resources needed to fund the activities of federal departments and agencies. The House of Commons examines these activities before authorizing their funding.

Supply Periods

The timetable for the business of supply, based on the government’s fiscal year, is divided into three periods during the parliamentary year. These periods end on March 26, June 23 and December 10, respectively. During each period, the House considers the estimates and must decide on the proposed appropriations.

Allotted Days

During each supply period, certain days are allotted to the opposition parties. These days are known as allotted days or opposition days. There are 22 allotted days per year. They are distributed among opposition parties in proportion to their representation in the House. On these days, opposition parties choose the subject of debate, and their motion takes precedence over government business. This practice derives from a parliamentary tradition whereby the House airs its grievances to the Crown before considering the government’s requests for funding. Only members belonging to a recognized opposition party may move motions on allotted days. These motions may address any matter within Parliament’s jurisdiction, either in the form of resolutions (expressing an opinion) or orders (for example, instructions to a committee or requests for the production of documents).

Supply Cycle

To better understand Parliament’s role in the supply cycle, it can be helpful to identify activities that happen before, during and after the fiscal year.

Before a New Fiscal Year

Main Estimates and Departmental Plans

The main estimates present the government’s spending plans for each federal organization and provide items that will be included in an appropriation bill for Parliament’s approval. It is important to note that these estimates are prepared in late fall and generally do not include spending items announced in the budget. They are best read in conjunction with the departmental plans.

The departmental plans set out the results that departments intend to achieve with the resources provided to them. The plans also outline the human and financial resources allocated to each program or activity.

Votes

The estimates include votes consisting of specific amounts requested to fund programs or activities. Each vote represents an authorization to spend a specified amount. Once tabled in the House, the votes are automatically referred to standing committees for consideration. These committees may approve, reduce or reject the votes. They may not, however, increase the amounts requested.

Interim Supply

Before the beginning of the fiscal year, the House approves interim supply. As full supply is not granted until June, the government needs authorization to spend funds during the first three months of the fiscal year, usually three-twelfths of the amounts outlined in the main estimates.

During the Fiscal Year

Supplementary Estimates

As the main estimates do not include the government’s complete spending needs for the year, such as unforeseen expenditures and those announced in the budget, the government also submits supplementary estimates to Parliament, when needed.

The government normally presents supplementary estimates in May, November and February, each designated successively by A, B or C. The supplementary estimates are also referred to committees for review and approval.

Adoption of Supply

On the final allotted day at the end of each supply period, the House decides on the votes set out in the estimates. Once the votes are approved, the government introduces the appropriation bill for the approved estimates. The House must also decide on this bill on the final allotted day and, once adopted by Parliament, the bill authorizes the government to withdraw the necessary funds from the Consolidated Revenue Fund to finance the approved expenditures.

After the End of the Fiscal Year

Departmental Results Reports

A results report is prepared for each federal department and agency. In the fall, the President of the Treasury Board tables the reports in the House, on behalf of the ministers responsible for each department and agency. These reports describe achievements based on the expectations outlined in the departmental plans. They are deemed referred to the appropriate standing committees, which may examine them.

Public Accounts of Canada

In the same period, the government tables its public accounts through a report prepared by the Receiver General of Canada. This report outlines the government’s actual spending and revenues during the previous fiscal year and its financial position at the end of the fiscal year—its liabilities, assets and net debt.

The Auditor General presents an annual audit of this report to the Speaker, which is tabled in the House and automatically referred to the Standing Committee on Public Accounts.

Business of Ways and Means

The business of ways and means is the process whereby the government presents its economic policy and introduces motions for tax bills that would authorize raising the revenues needed to finance its expenditures.

These proceedings include two main components:

• the budget presentation, also referred to as the budget speech; and
• ways and means motions leading to the adoption of tax legislation.

Pre-budget Consultations

In the fall, the House of Commons’ Standing Committee on Finance holds pre-budget consultations to seek the views of Canadians on the recommendations it should make to the Minister of Finance for the government’s upcoming budget. The Department of Finance also conducts its own pre budget consultations.

Budget Speech

The budget is presented to the House in a speech by the Minister of Finance. It sets out, among other things, the country’s economic situation, the government’s financial priorities and its proposed fiscal measures. It constitutes an overall financial plan; however, it does not in itself authorize the raising of taxes or the spending of public funds. For that purpose, a budget implementation bill is required.

Budget Debate

After the presentation of the budget, the House debates the government’s budgetary policy. The Standing Orders provide for four days of debate on this matter.

Ways and Means Motions

The government must introduce ways and means motions in the House to amend taxation. These motions describe the proposed changes. Parliament authorizes these changes after new legislative measures, such as a budget implementation bill, are reviewed and approved.

Only a minister may introduce a ways and means motion. The minister asks that the motion be placed on the Order Paper as an order of the day for a subsequent sitting. Once adopted, the motion constitutes an order to introduce a bill based on its provisions. Bills arising from ways and means proceedings then follow the normal legislative process of parliamentary review.

Economic Statement

When the government deems it necessary, the Minister of Finance presents an economic and fiscal update providing mid-year information on the country’s economic growth and the state of public finances.