In his February Economic and Fiscal Update, Finance Minister Bill Morneau forecast that total budgetary expenses would be $293.1 billion in 2015-16 and $304.5 billion in 2016-17. The following day, the President of the Treasury Board, Scott Brison, tabled the Main Estimates for 2016-17, showing total expenditures for 2015-16 at $250.7 billion ($42.4 billion lower than forecast by the Minister of Finance) and $250.1 billion for 2016-17 ($54.4 billion lower than forecast by the Minister of Finance).  The President of the Treasury Board is forecasting virtually no growth in government spending between 2015-16 and 2016-17, while the Minister of Finance is forecasting an increase of $11.4 billion (3.4%). 


There has always been a discrepancy between the Main Estimates and the Public Accounts when it comes to government spending.  During the election, the Liberals promised to “ensure accounting consistency between the Estimates and the Public Accounts”. This obviously has not happened.  The Estimates are still on a near cash basis of accounting whereas the Public Accounts (Volume I) and the Budget/Updates are on an accrual basis of accounting.  In addition, the universe of the Public Accounts and the Budget/Updates are much more comprehensive, having adopted the accounting standards recommended by the Public Sector Accounting Board (PSAB).

We have written on this subject on numerous occasions, urging the previous Conservative government to put the two sets of numbers on the same accounting basis and to provide a detailed reconciliation of any differences.  In the tabling of the Main Estimates, the President of the Treasury Board made no reference to the election promise and why it was not honoured at this time. Treasury Board Secretariat officials told us “the Government intends to introduce changes to align the planning and reporting of government spending for fiscal year 2017-18”.

The Main Estimates documents did contain a table showing Major Transfers to Persons and to Other Levels of Government. These numbers were broadly consistent to those included in the November 2015 Update, with respect to coverage.  They included employment insurance benefits and the various components of children’s benefits, which previously were not included.  However, these components of spending, amounting to about $33 billion, were still not included in the total Main Estimates for 2015-16 and 2016-17.

There are three main reasons for the differences between the Estimates and the Public Accounts/Budget/Updates.  The first relates to the universe or coverage.  The Public Accounts includes all components of spending over which the government has discretion. For example, the Public Accounts/Budget/Updates includes employment insurance program costs, as the government has full control over this program, determining the premium rates and eligibility and the amount of the benefits, whereas the Estimates excludes them, on the basis that they are included as part of a specified purpose account.  The Estimates also exclude refundable tax expenditures, arguing that these expenditures are part of the income tax act. PSAB has recommended that such expenditures be included as part of expenses, as the tax system is only used to determine eligibility and amount of benefit and has no effect in calculating tax liability. The Estimates also excludes expenses of enterprise Crown corporations.  PSAB has recommended that such expenses be included as the federal government has ultimate control over these corporations. These exclusions from the Estimates account for most of the difference in spending between the Estimates and the Public Accounts/Budget/Updates.

The second reason is due to the basis of accounting.  As noted, the Estimates are on a near cash basis of accounting, primarily recognizing expenditures when the cash payment is made. In contrast, the Public Accounts/Budget/Updates are presented on an accrual basis of accounting, recognizing an expense when the liability is incurred.  For example, in the Estimates, capital expenditures are accounting for based on the terms of the contract or when the capital is acquired. On an accrual basis, the cost of capital is amortized over its serviceable life.  Accrual adjustments account for about $12 billion of the difference.

The above two factors is partially offset by the treatment of the lapse. The Estimates include the maximum amount a department/agency is authorized by Parliament to spend. However, rarely due they spend the total amount authorized, due to a number of reasons, as outlined by the Parliamentary Budget Office (Parliamentary Budget Officer 2015 “Why does the Government lapse money and why does it matter?).  The Public Accounts, on the other hand, only includes what is actually spent or incurred as a liability in that year.  The Budget/Updates includes an estimate of the under-spending or “lapse” that could occur.  The actual lapse in recent years has amounted to around $10 billion.

There is one final reason for the difference in 2016-17. The government provides information to Parliament on its spending intentions through the Main Estimates, tabled before March 1st of the preceding fiscal year, and Supplementary Estimates tabled during the course of the fiscal year under review. Supplementary Estimates include the cost of budget measures, which were not sufficiently developed in time for inclusion in the Main Estimates or unexpected spending requirements.  Usually, Supplementary Estimates amount to $6 to $10 billion per year. As a result, the Supplementary Estimates increase the total Estimates for the year as a whole. This reduces the difference between the Main Estimates and Public Accounts/Budget/Updates.

It is hoped that the Government will honor its election commitment.  It is also recommend that the Minister of Finance provide a detailed reconciliation in the upcoming budget on the differences between the Estimates and the Budget.  This will improve transparency between the Estimates and the Budget and lead to a better understanding by Parliamentarians and Canadians on how much the government intends to spend in the upcoming fiscal year. 




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