1. EXPENDITURE REVIEW: The Canadian Experience Munir A. Sheikh Secretary, Expenditure Review Committee Government of Canada March 3, 2005 March 3, 2005

2. Some Canadian Facts In the International Context

3. 0 1 2 -2 -3 -4 -5 -6 -7 United Kingdom Italy 2004 (OECD estimate)2005 (OECD projection) GermanyFrance United States JapanCanada % of GDP Total Government Financial Balances (National Accounts Basis) Financial Balances Canada is again expected to be the only G-7 country to record a surplus in 2005 and 2006.

4. Program Spending G-7 avg. United States Japan United Kingdom ItalyGermanyFranceCanada per cent of GDP 0 10 20 30 40 50 60 19922004 (estimate) G-7 average in 2004 Program Spending Canada’s program spending as a share of GDP is now below the G-7 average.

5. 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 FranceGermanyJapanItalyCanada 19952004 (estimate)2005 (projection) per cent of GDP G-7 average in 2004 Financial Liabilities Canada’s debt burden has declined from the second highest to the lowest among G-7 countries.

6. Total Government Financial Balances (National Accounts Basis) -6 -5 -4 -3 -2 0 1 2 3 1992-931993-941994-951995-961996-971997-981998-991999-002000-012001-022002-032003-042004-05 Canada United States ("on-budget" balance) per cent of GDP Estimate Financial Balances The federal government in Canada has maintained a budgetary surplus since 1997-98, unlike the U.S.

7. Total Government Financial Balances (National Accounts Basis) 0 10 20 30 40 50 60 1995-961996-971997-981998-991999-002000-012001-022002-032003-042004-05 CanadaUnited States per cent of GDP Estimate Financial Balances The federal market debt-to-GDP ratio in Canada fell below that of the U.S. in 2003-04.

8. Why Expenditure Review? Given this Performance and the Fiscal Situation, the Question is: the Question is:

9. … and the answer is 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

10. Political Challenge Interest groups Political Challenge Interest groups Bureaucratic Challenge Continue existing programs Bureaucratic Challenge Continue existing programs But there are Challenges

11. The government: Is committed to the expenditure review concept Announced an Expenditure Review Committee of seven senior Ministers to operationalize it Set up a small secretariat of civil servants to support ERC The Canadian Approach 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)

12. ERC PROCESS TRACK 1

13. Overcoming 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

14. Role 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

15. 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 Made tough decisions, took ownership of package Role of ERC Ministers Chair played a key role Recommended package to Cabinet, Prime Minister, Minister of Finance

16. Reviewed package from: Public policy perspective Political perspective Regional perspective Reviewed package from: Public policy perspective Political perspective Regional perspective Role of Cabinet Package in Budget 2005

17. Savings ramping up to 7% of base by year 3 89% improved efficiencies in program delivery, corporate overhead Service Canada Key Elements of ERC Package Procurement practices Property management Departmental cuts

18. 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

19. 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)

20. Sources and Uses of the Expenditure Review

21. Track 2: Preliminary Thoughts Permanent System of Expenditure Review

22. BUDGET PRIORITIESPRIORITIES GAPSGAPS CHOICESCHOICES ACTUALACTUAL SPENDINGSPENDING PROGRAMPROGRAM EFFICIENCYEFFICIENCY CORPORATECORPORATE EFFICIENCYEFFICIENCY NEEDEDNEEDED SPENDINGSPENDING NEEDEDNEEDED SPENDINGSPENDING GAPSGAPS OLD NEW System part which already exists and works System part which exists now but needs strengthening System part that is needed but not in place SPENDING DECISIONSSPENDING DECISIONS Optimal Expenditure Review System: “What we Have and What we Don’t”

23. EXPENDITURE REVIEW: The Canadian Experience Munir A. Sheikh Secretary, Expenditure Review Committee Government of Canada March 3, 2005 March 3, 2005