Federal Program Expenses, Annual Surpluses/Deficits, and National Debt, 1970–2021

	Expenses ($ millions)	Surplus or deficit ($ millions)	National debt ($ millions)
1970–71	14,516	–1,016	20,293
1971–72	16,795	–1,786	22,079
1972–73	19,409	–1,901	23,980
1973–74	22,643	–2,211	26,191
1974–75	28,952	–2,225	28,416
1975–76	34,675	–6,204	34,620
1976–77	37,472	–6,897	41,517
1977–78	40,981	–10,879	52,396
1978–79	44,219	–13,029	65,425
1979–80	46,783	–11,967	77,392
1980–81	57,079	–14,556	91,948
1981–82	67,849	–15,674	107,622
1982–83	79,576	–29,049	136,671
1983–84	77,194	–32,363	157,252
1984–85	84,279	–37,167	194,419
1985–86	83,474	33,389	227,808
1986–87	87,870	–29,842	257,650
1987–88	95,009	–29,017	286,667
1988–89	98,764	–27,947	314,614
1989–90	103,784	–29,143	343,757
1990–91	108,550	–33,899	377,656
1991–92	114,544	–32,319	409,975
1992–93	122,173	–39,019	448,994
1993–94	122,304	–38,530	487,524
1994–95	123,238	–36,632	524,156
1995–96	120,856	–30,006	554,162
1996–97	111,327	–8,719	562,881
1997–98	114,785	2,959	559,922
1998–99	116,438	5,779	554,143
1999–2000	118,766	14,258	539,885
2000–01	130,566	19,891	519,994
2001–02	136,231	8,048	511,946
2002–03	146,679	6,621	505,325
2003–04	155,874	9,145	496,180
2004–05	178,656	1,463	494,717
2005–06	177,353	13,218	481,499
2006–07	190,700	13,752	467,268
2007–08	202,603	9,597	457,637
2008–09	209,654	–9,116	467,946
2009–10	242,252	–56,368	524,103
2010–11	238,402	–34,953	556,914
2011–12	237,966	–28,033	591,917
2012–13	237,875	–21,293	620,610
2013–14	233,672	–8,050	626,000
2014–15	248,664	-550	628,910
2015–16	263,568	-2,861	634,440
2016–17	278,689	-18,957	651,540
2017–18	297,936	-18,961	671,254
2018–19	314,555	-13,964	685,450
2019–20	338,467	-39,392	721,360
2020–21	608,522	-327,729	1,048,746

Source: Department of Finance, Fiscal Reference Tables, 2021, Table 1.

Note: Due to a break in the series following the introduction of full accrual accounting, data from 1983–84 onward are not directly comparable with earlier years.

Dispatch Box: Federal Fiscal Policy Post-COVID-19

As Thinking Government makes clear, the Covid-19 pandemic that began in early 2020 posed a fundamental challenge to Canada, the Canadian people, and to our governments. People, governments, and businesses took extraordinary measures to cope with the pandemic, to attack the disease with public health measures, including the rapid development and deployment of vaccines, and to address the financial needs of individuals and businesses affected by pandemic shutdowns. Between 2020 and 2022, Canadians witnessed a federal government intervention in Canadian society and Canada’s economy rivalled only by the government’s actions during World War II.

In its Economic and Fiscal Update 2021, the federal government released its plans for a return to fiscal normalcy from 2022 to 2027. Here are some key highlights from that document. As these years progress, look to see how well the federal Department of Finance could predict the future.

Outlook for Federal Budgetary Revenues—2020–2027 Projection (in $ billions)

	2020–21	2021–22	2022–23	2023–24	2024–25	2025–26	2026–27
Personal Income Tax	174.8	185.6	194.6	204.0	213.0	222.7	232.8
Corporate Income Tax	54.1	57.3	58.4	60.9	65.5	70.0	73.7
GST, Excise Taxes and Duties	47.0	58.6	63.4	65.7	67.6	69.6	71.4
Total Tax Revenues	283.9	312.1	326.9	342.2	358.2	374.8	391.0
Other Revenues	5.8	27.6	30.5	33.3	35.2	37.7	39.5
Total Budgetary Revenues	316.5	370.5	391.7	413.9	435.7	458.9	481.0
Total Budgetary Revenues as Per cent of GDP	14.3	14.9	14.8	15.0	15.2	15.4	15.6

Outlook for Federal Program Expenses 2020–2027 Projection (in $ billions)

	2020–21	2021–22	2022–23	2023–24	2024–25	2025–26	2026–27
Major Transfers to Persons Total	200.1	147.9	126.0	123.5	128.9	134.8	141.2
Major Transfers to Other Levels of Government Total	106.7	85.0	89.6	96.2	101.1	105.8	109.2
Direct Program Expenses Total	301.8	247.3	200.7	200.7	196.9	201.8	204.9
Total Program Expenses	608.5	480.2	416.3	420.4	427.0	442.5	455.2
Total Program Expenses as Per cent of GDP	27.6	19.3	15.7	15.2	14.9	14.9	14.8

Outlook for Federal Budgetary Deficits and National Debt—2020–2027 Projection (in $ billions)

	2020–21	2021–22	2022–23	2023–24	2024–25	2025–26	2026–27
Budgetary Deficit	-327.7	-144.5	-58.4	-43.9	-29.1	-22.7	-13.1
Federal Debt	1,048.7	1,191.6	1,250.0	1,293.9	1,323.0	1,345.7	1,358.9
Budgetary Deficit as Per cent of GDP	-14.8	-5.8	-2.2	-1.6	-1.0	-0.8	-0.4
Federal Debt as Per cent of GDP	47.5	48.0	47.3	46.9	46.2	45.3	44.0

Source: Canada, Department of Finance, Economic and Fiscal Update 2021, 51, 52, 56.

Dispatch Box: Rational Budgeting: A Brief History

Planning-Programming-Budgeting Systems

As its name suggests, a planning-programming-budgeting system is predicated on strategic planning, begun by establishing policy priorities and objectives. After these have been ranked, the operational means to these ends are conceptualized and assessed. This is the programming component of the system. And in the final, budgeting stage, multi-year funding is established at the appropriate level for programs to meet the planned goals.

A Treasury Board guide (1969, 8) neatly summarized the six essential concepts of PPBS:

1. Setting specific objectives
2. Using systematic analysis to clarify objectives and assess ways to meet them
3. Framing budgetary proposals in terms of the achievement of objectives
4. Projecting costs over a number of years
5. Formalizing plans of achievement year by year for each program
6. Developing an information system for each program that will supply data for monitoring goals and reassessing objectives and program relevance.

Case Study: PPBS and a Hypothetical Budget

The case study of the Federal Court of Canada regional office shows a hypothetical example of a typical program budget. Note how, in a few words, it describes a program and its objectives and priorities. The financial data are presented in three groups:

• The A budget reflects funding levels of all existing and approved programs, taking cost-of-living and service-level fluctuations into account. These figures provide information on the policy and program status quo and the cost of preserving it.
• The B budget describes new undertakings and their financial implications. The PPBS approach always assumed that most critical attention would fall on B budget items, as they show the financial obligations of meeting new policy objectives and initiatives.
• The X budget represents items that are the least important to the sponsoring department and could be eliminated without significant harm to its general priorities.

The X budget never gained much support from program managers who prepared PPBS budgets: few were ever inclined to admit that existing programs in their departments were expendable. During the 1970s, when PPBS was seriously practised by the federal government, growing spending habits rendered the X budget exercise of little value. Only when restraint and cutbacks gained ideological predominance in the 1990s did budget planners show interest in the X budget concept.

The sample budget displays the concern for performance measures. It provides information about the achievements and value of a program. This material is designed to help senior managers and political leaders assess the worthiness of the entire program and of the request for B budget enhancement.

Federal Court of Canada Regional Office Budget

White Paper: PPBS in Practice

PPBS had much to commend it in theory, but in practice it ran into a vortex of problems, many of its own making. And the problems identified here continue to plague all the more recent forms of rationalist budget systems that evolved from PPBS.

On the positive side, program budgeting encourages officials to consider financial management in a comprehensive, holistic, and analytical manner. Program budgeting demands that officials think systematically about ends and means, priorities, objectives, methods, and analysis. In short, it promotes clear, rational, future-oriented thinking.

Setting Priorities within an Institution

But the setting and ranking of government priorities is easier said than done (French 1984, 79–85). Remember that the determination of priorities will condition subsequent program and spending decisions. Therefore, it is in the organizational self-interest of all managers to have their interests and responsibilities ranked high. And that means a multiplicity of perspectives within each institution..

For example, what are the top priorities of the Department of National Defence? Military preparedness? The defence of Canadian territory? Fulfilment of NATO commitments? International peacekeeping? Regional development and institutional support for Canadian armaments and technology manufacturers? The development of a viable militia? Even among those who focus on military preparedness, there might be disagreement over how to achieve it. Supporting the army? The navy? The air force? In a world of limited financial resources, prioritization can be so contentious as to be almost impossible. Officials from each service could develop perfectly rational plans to give priority to their branch of the Canadian Forces, only to find them roundly attacked as misinformed and misguided by those supporting different priorities.

Setting Priorities across the Government

Internecine bureaucratic battling is magnified when attention turns to the entire government as an institution. Under PPBS, cabinet itself was called upon to prioritize general government objectives. But what were the key priorities? Economic growth? Social justice? Job creation? Fiscal responsibility? Constitutional reform? International harmony? Environmental protection? Support for women’s interests? Support for children’s interests? Support for business interests? Support for labour interests? Support for First Nations interests? The list could go on and on.

The upper echelons of government were confronted with the problems of prioritization that had been generated in every department. The Department of Finance has historically supported the goals of stable economic growth and fiscal prudence. The old Department of Health and Welfare long supported the development of an expansive and expensive social safety net. The Department of the Environment advocated the enforcement of environmental regulations. And so on.

The government ultimately treated the task of ranking these thoroughly researched and forcefully presented positions as both impossible and unnecessary, since, in the 1970s and 1980s, there was always some money to be expended on each objective. But this caused the concept of prioritization to lose its impact. Budgetary decision making and resource allocation became subject instead to the power of particular departments and ministers. These power relations (canvassed in Chapter 4) led authors such as French (1984) and Hartle (1976) to refer to the policy-making approaches of the 1970s as “chaotic,” governed more by politics than by rational discussion and analysis. In the current era of fiscal restraint, interest in prioritization has revived, but its difficulty has led governments to turn to simpler and blunter methods of exacting cutbacks.

Measuring and Analyzing Objectives

PPBS also experienced great problems respecting the measurement and analysis of program activities and future needs. Any program has many objectives, each necessitating a different form of evaluation. For example, how can the success of federal regional development programs be measured? By the amount of money spent? The number of jobs created? The economic activity generated? By an analysis of demonstrated economic outcomes in comparison to opportunity costs? What about the preservation of communities and ways of life? Or the likelihood that the governing party will be re-elected in the affected ridings? All these factors can be elements of an evaluation, depending on the perspective of the evaluator.

Forecasting Political and Economic Conditions

PPBS called for long-range planning involving multi-year forecasting of economic and political trends, financial considerations, and alterations in service level demands. And that raised another significant problem. All such planning is prone to break down due to the unpredictability of economic developments and human behaviour. Unexpected economic slowdown can make the most detailed five-year financial plan worthless, and unexpected political developments can leave a hitherto sound strategic plan in tatters. Defence departments throughout the NATO countries are still adjusting to the unprecedented shock of the collapse of their prime enemy and raison d’être—the Soviet Union. Political conditions can change rapidly, making multi-year or five-year planning as useful as gazing into a crystal ball. Just think of the changes in attitude to border and airline security between September 10 and September 12, 2001.

Concentrating Decision-Making Power

The changes in bureaucratic power relations inaugurated by PPBS created another set of problems. The system shifted decision-making power into the hands of senior policy analysts and managers within departments and central agencies and out of the hands of middle managers (Kernaghan and Siegel 1999, 628–29). The concentration of central planning and decision making in the upper ranks made most middle-ranking department officials leery of the new system. Clearly, they were losing authority and prestige to their departmental overseers and to the rising elite in the central agencies, and this did not bode well for amicable cooperation between these actors.

The greatest power shift involved the central agencies. In the new world of centralized planning and programming, institutions such as the PCO, the TBS, and Finance came to play major roles. They were called upon not only to develop their own advisory positions on strategic government priorities but also to give to cabinet and its committees detailed critical appraisals of the plans of other departments and agencies. Under the old departmentalized system of policy decision making, department budgets had been subjected to little external review, but now such review was gruelling and ministers came to rely very heavily on analysis and advice from the central agencies. As a result, these agencies carved out a niche for themselves within the corridors of power in Ottawa. They claimed that they were not beholden to any particular policy or program initiative or subject to the influence of any interest group, and that their appraisals were more sound because they were operationally removed from program delivery.

There was a certain degree of truth in this contention, much to the chagrin of department officials, and the point was not lost on cabinet ministers. On the other hand, as French (1984, chap. 2) has pointed out, the central agencies themselves came to be identified with certain policy approaches and priorities. Of course, all the institutional actors in the system eventually became identified with particular approaches and interests and none could rightfully claim to be independent and impartial. As Hartle (1976, chap. 1) has observed, by the time the system was fully operationalized, the upper echelons of the federal government resembled a jungle of bureaucratic warfare, motivated by institutional self-interest, in which every actor fought every other actor for priority status and access to financial resources.

Analyzing the System

The new system consciously established competing sources of power and required those involved to interact as they prepared priorities, objectives, programs, and budget requests. Thus it required an enormous amount of analysis:

• Budget makers were asked to assess needs over five years.
• Department managers had to situate their program activities in the context of overall departmental policy priorities.
• Central agency analysts were expected to conceptualize policy priorities for the entire government and plan departmental strategies accordingly.
• Departmental actors had to analyze their own work closely while the central agencies and other departments looked over their shoulders.
• Central agencies had to develop analytical frameworks for their own approaches to policies and programs that responded to commentary and criticisms from departments.

Analysis became the buzzword, and it eventually paralyzed the system. Too many senior officials were spending too much time analyzing what the government should be doing, rather than getting on with the job of governing (Adie and Thomas 1987, 267–68). PPBS came to require superhuman strength to operate, and not surprisingly, few superhumans were available to make it work.

The budgeting system began to lose support in the federal government throughout the 1970s, and by 1978 it was dead in the water (French 1984, 148). Many factors help to explain this failure, but a simple truth should not be overlooked. For any bureaucratic undertaking to survive, it must possess the virtue of simplicity, so that those within the system view it as an aid to their work. If the system becomes so cumbersome that it dominates and frustrates the organizational life of the actors it is meant to serve, it is dysfunctional and needs to be replaced.

Modified Rationalism

Although support for PPBS waned, this was not the case for the concept of budgetary rationalism. Senior bureaucratic and political leaders in Ottawa and the provinces were still attracted to rationalism for its perceived ability to promote prioritization, planning, analysis, and systematic program development. After all, these are integral elements of the management process, and an organization ignores them at its peril.

Moreover, in bureaucracies predicated on the belief that knowledge is power, there was the understandable belief that reasonable, well-educated human beings could overcome the difficulties associated with rational planning in a rational manner, leaving the benefits intact. So, while PPBS disappeared into bureaucratic history, the federal government experimented with other forms of rational budgeting.

The Policy and Expenditure Management System (PEMS)

The planning-programming-budgeting system, management by objectives (MBO), the operational performance measurement system (OPMS), and the fledgling zero-based budgeting system (ZBB) came and went as senior officials and policy analysts recognized the theoretical and practical value of making budgetary decisions based on informed judgments. There was a clear reluctance in Ottawa officialdom to reject rationalism outright in a tantamount acceptance of incrementalism—with all its short-term, backward-looking, non-analytical organizational features.

Despite the problems with PPBS, a new policy and budgetary planning system was inaugurated in Ottawa in 1979 by the Progressive Conservative government of Joe Clark: the policy and expenditure management system (PEMS). This system was a modification of PPBS that integrated planning, programming, and financial allocation and gave ministers and departments greater control over their budgets. Each year, the government was to establish a Multi-Year Fiscal Plan, setting out broad priorities along with revenue and expenditure projections. The fiscal plan was the foundation for allocating funding levels to the various sector committees of cabinet, to be used in establishing A and B budgets for departments. To assist the cabinet committees, each department prepared two operational plans every year: a Multi-Year Operational Plan (MYOP) listing priorities, plans, and financial needs over three years; and a Budget-Year Operational Plan (BYOP) denoting program and fiscal requirements for the upcoming year. Cabinet committees would base their spending allocations per department on these MYOPs and BYOPs. They would also set policy reserves, fixed amounts of money for funding new initiatives or enhancing established programs. Both cabinet committees and departments played important roles: cabinet committees through formal budget allocation, and departments through their annual operational plans.

But PEMS suffered from the same defects as any form of rational planning. Over the 15 years it existed, it was subjected to many alterations. And though it was superseded by the Chrétien government’s expenditure management system, its structural logic still exerts influence over the current model of financial management within Ottawa (Adie and Thomas 1987, 268–74; Inwood 2012, 323–24).

The Expenditure Management System

By the early 1990s it was apparent to officials within Ottawa that PEMS was unable to give the government sufficient control over financial management to reduce seemingly ever-growing deficits and debts. When Jean Chrétien’s Liberals came to power in the fall of 1993, the prime minister and his finance minister, Paul Martin, opted to replace PEMS with a modified system that would give senior managers much better control over the growth of spending and would facilitate spending cuts. Throughout 1994, the Department of Finance and the TBS, in conjunction with the PCO, worked on redesigning the overall system of financial management and expenditure control. The result was the expenditure management system (EMS) in February 1995. Although EMS was an initiative of the Chrétien government, it was maintained by the Martin government in 2004 and adopted by the Harper government in 2006. When the Conservative government modified the system of financial management in 2007, it maintained the basic operational structure and logic of EMS.

As with its immediate precursor, EMS was designed as a general system of financial management, linking together in a systematic method the demands of planning, programming, budgeting, and subsequent evaluation. Departments were given greater relative latitude to develop and implement policy and program priorities, while central authorities were enabled to exercise greater financial controls over the entire working of the government.

Though EMS and PEMS have much in common, they differ most in their grand strategic orientation. Whereas PEMS was intended generally to oversee the growth of government activity in light of key priorities, EMS had as its specific objective to restrain government spending. In the words of the TBS itself, “The Expenditure Management System requires the ongoing review of programs and spending to reduce expenditures and identify opportunities for reallocation to higher priority programs.... The Expenditure Management System will support ministers in dealing with the difficult fiscal situation the country faces and help the transition to quality services and affordable government” (Treasury Board of Canada Secretariat 1995, 2).

The Mechanics of the System

Under EMS, the Department of Finance, in consultation with cabinet committees and TBS, prepares a budget plan establishing multi-year funding targets for all departments and agencies, in keeping with broad government priorities for program services and financial restraint. Departments and agencies receive their funds directly from the Treasury and are responsible for program delivery. Unlike PEMS, however, EMS makes no provision for a policy reserve; there are no B budgets. If a department wants to undertake a new initiative, it has to be funded out of its established reference level of funding—the money it already has. Any reallocation of funds requires the review and support of both the TBS, for financial implications, and the cabinet, for policy implications. In this respect, a substantial degree of centralized control has been applied, notwithstanding the official assertion of greater departmental autonomy. The TBS, moreover, maintains a small contingency and operating reserve, to be used in emergencies when unanticipated spending is required. The cycle of review and approval is shown in Figure 6.2.

Dispatch Box: The Expenditure Management System

Figure 6.2 from Thinking Government 3e: The Expenditure Management System
Source: Treasury Board of Canada 1995, 8.

The expenditure management system presents officials with a cyclical annual budgeting process. Departments begin planning for the next year’s budget in the spring by preparing their business plans: assessing their ongoing program commitments and the resources to fund them. In the early summer these plans are fashioned into departmental outlooks, detailing their operational aims for the coming year. The outlooks go to cabinet committees for review and approval in June. By September, cabinet is deeply involved in budget consultations, prioritizing departmental objectives. In the fall, the Department of Finance releases consultation papers, which outline possible policy and program directions to facilitate discussion with stakeholders such as the business community and organized labour, immigrant, and women’s groups. The consultation process concludes in late fall as the prime minister, the minister of finance, and the cabinet make final decisions on the policy and program details to be included in the final budget that will be presented to parliament, typically in February or early March.

The other new initiative under EMS is that the department planning process has been significantly altered. Multi-year operational plans (MYOPs) and budget-year operational plans (BYOPs) are now things of the past, replaced by departmental business plans. These offer a three-year perspective on a department’s priorities and objectives in light of its existing level of funding. They provide an overview of goals and program targets, strategies and expected actions, and management approaches and performance measures to assess the quality of program delivery. They also contain information on current program performance and expected enhancements, allowing for informed appraisals of the effectiveness of departmental activities. As such, the departmental business plan is a MYOP and a BYOP rolled into one.

Departmental plans are developed in consultation with the TBS and integrated into its system of managing for results (MFR). Through MFR, the TBS is mandated

• to review all departmental business plans in terms of clarity, viability, accuracy, and efficacy; and
• to assess the competence with which departments are measuring their performance and the degree to which they are achieving the results they have set for themselves.

The self-proclaimed role of the TBS, however, is not that of a meddling superior but of a supportive facilitator, working with departments to “enhance management and resource flexibility.” Performance measurement, a classic goal of budgetary rationalism, is at the heart of MFR, and as the TBS asserts, departments and their managers must be committed to this goal. Through MFR, all managers “are expected to define results, ensure that their attention is continually directed toward results achievement, measure performance regularly and objectively, and learn and adjust to improve efficiency and effectiveness. Managers at all levels are accountable for the results they achieve to higher management, to ministers, to Parliament, and to Canadians” (Treasury Board of Canada Secretariat 2000, chap. 1). TBS analyses of departmental business plans, of course, are part of the information that the Secretariat brings to its consultations with cabinet committees and the Department of Finance when the budget plan and Main Estimates are being prepared (Figure 6.3).

Figure 6.3 from Thinking Government 4e: Roles in the Expenditure Management System
Source: Treasury Board of Canada 1995, 10

Evaluating EMS

EMS has been in official operation since February 1995, and that was also the beginning of several years of deep spending cuts inaugurated by a system of program review. Program review was an explicit deficit reduction initiative established by the Chrétien government in 1994. It compelled departments to engage in a rationalistic analysis and prioritization of all their spending initiatives in order to identify expendable programs. And it required departments to report back to an ad hoc program review committee of cabinet chaired by the finance minister on the spending cuts they could make. In reality, however, the committee and the Department of Finance simply issued instructions, ordering departments to make specified cuts to their budgets. Rather than an exercise in budgetary rationalism, program review is better understood as an example of incrementalist budget cutting (Savoie 1999, 179–81). We explore its rationale and consequences further in Chapters 7 and 8.

Indeed, it can be persuasively argued that the elimination of the federal deficit at this time had little to do with EMS but was accomplished outside of the official planning framework. Furthermore, program review and deficit elimination in the mid-1990s bore scant resemblance to rationalistic systems of financial management. But this is not to say that EMS has been irrelevant to the major financial management actions of the federal government over the past two decades.

Where EMS has been important is in highlighting power relationships with respect to financial management decision making in Ottawa. In evaluating the operational worth of EMS, Maslove and Moore (1998, 34) argue that the system “has significantly contributed to the government’s ability to control program spending. It has done so largely by consolidating budgetary power in the hands of the ‘guardian’ central agencies, particularly the Department of Finance.” This was exactly the strategic intention of the system’s developers.

While Savoie makes much the same point, he also notes the emphasis EMS places on performance evaluation, via MFR, and the requirement that departments identify how they will assess program performance in all their submissions to the TBS (Savoie 1999, 221–22). This points to a basic problem facing EMS in general and MFR in particular. As with any of their rationalist predecessors, they face the classic rationalist issue of how to gain consensus on planning, prioritization, and evaluation, as bureaucratic and political actors with vested interests struggle to advance their goals. Even drafting a list of desired performance standards can be a challenge, risking simple platitudes and overgeneralization, or excessively detailed focus on repetitive and easily achievable operational standards, or sharp divisions of opinion about broad policy and program goals. EMS also faces the complexity, voluminous paperwork, and excessive time consumption found within earlier systems.

These limitations, and the nature of the bureaucratic politics they illuminate, led the central players in the Chrétien government to question the ability of EMS to address the deficit problem on its own. While EMS could provide a more streamlined method of financial planning and management, Chrétien and Martin doubted that it would enable the government to make substantial, consistent, and persistent spending cuts to ongoing programs. For that the government needed a special instrument of financial management: program review.

The Expenditure Management Information System

In 2007 the Harper Conservatives, who of course had a minority and thus faced particular budgetary challenges, sought to put their own stamp on the financial management system of the federal government. The new expenditure management information system (EMIS) is essentially built on the framework of the EMS process, as its name suggests. It is designed to give departments and agencies, and the government overall, greater control over spending and priority setting by providing them with better information about their programs. According to the TBS, the strategic objectives of EMIS are the following:

• building government-wide capacity to exchange and integrate information on priorities, planned and actual spending, and results;
• putting in place the necessary information systems and analytical tools to support TBS’s role as a Budget Office and Management Board;
• improving the process of reporting government expenditures and results to Canadians and parliament; and
• improving the transactional relationship between organizational elements within TBS and between TBS, central agencies, and departments. (Treasury Board of Canada Secretariat 2006)

Managing for Results

One of the key intentions of EMIS has been to strengthen the process of MFR, or managing for results. Through elaborate reporting relationships, departments and agencies have to detail not only monies spent but also how those expenditures related directly to organizational objectives. Although this process is simply a reiteration of the MFR principle that was a key part of EMS and every rationalist system dating back to PPBS, its repetition in this context indicates how important the ends–means relationship and cost–benefit analysis are to rationalist budget planning, as well, perhaps, as acknowledging how hard it is to achieve them in the real world of government.

Strategic Review

Central to EMIS is that departments and agencies are required to engage in a strategic review of program spending on a four-year cycle against a set of criteria. This enables an organization to determine which activities are working well, which need reform, and which might be eliminated and thus free money for higher priority activities. As asserted by the TBS, the purpose of such reviews is to ensure that federal organizations

• increase efficiencies and effectiveness: programs deliver real results for Canadians and provide value for money;
• focus on core roles: programs and services must be aligned with the federal role and must be delivered by those best positioned to do so; and
• meet the priorities of Canadians. (Treasury Board of Canada Secretariat 2010)

As part of the EMIS strategic review process, departments and agencies are “required to identify a total of five percent of their program spending from their lowest performing, lower priority programs. These funds are proposed for reallocation to higher priorities” (Treasury Board of Canada Secretariat 2010). In essence this is a new twist on the X budget. The goal is to develop a routine of assessing program spending against core priorities in order to identify the weakest links and to gain economies and efficiencies by reallocating spending accordingly. As this rationalist assessment becomes embedded in government operations, it is expected that departments and agencies will be more consistently able to develop and achieve program effectiveness. The results of strategic reviews are published in the annexes of the annual federal budget.

Although EMIS is still new, we can note two dynamics. First, as with its predecessors, it takes a rationalist approach to priority setting and cost–benefit analysis. Second, determining the poorest performing, lowest priority programs is still far from an objective science. Despite the appeal to rationalism in the language used by the TBS to describe strategic reviews, the process of ranking programs is likely to remain highly contested and all too subjective.

Dispatch Box: Where Your Tax Dollar Goes: Total Federal Spending for 2014–15

Personal Income Tax and Corporate Tax as Proportions of Federal Revenue

Year	Personal Income Tax	Corporate Income Tax
2010–11	47.9%	13.4%
2011–12	48.9%	13.6%
2012–13	49.4%	13.8%
2013–14	48.4%	13.6%
2014–15	48.5%	14.1%
2015–16	49.5%	14.2%
2016–17	49.4%	14.5%
2017–18	49.4%	15.4%
2016–17	49.4%	14.5%
2018–19	49.3%	15.2%
2019–20	50.2%	15.0%
2020–21	55.2%	17.1%

Source: Department of Finance, Fiscal Reference Tables, 2021, Table 5.

1. Explain the difference between a revenue and an expenditure budget.

A revenue budget highlights money brought into government coffers. It covers such items as:

• individual and corporate taxation;
• service charges;
• fees and duties; and
• borrowing.

The revenue budget gets the most media attention due to its taxation provisions.

The expenditure budget highlights how the government is going to spend the money it has raised. Each department and agency prepares its own expenditure budget for approval by the cabinet and, ultimately, by parliament. The expenditure budget is contained in the Main Estimates.

For each department and agency, the Main Estimates highlight the programs, levels, purposes, and objectives of public spending to be undertaken. The details provide benchmarks by which departments and agencies can be held accountable for their use of public money.

2. What is budgetary incrementalism? What are its main strengths and weaknesses?

Incrementalism is the most traditional form of government expenditure budget making. It is based on a comparative listing of line items such as salaries, employee benefits, office equipment, rentals, and travel, used by a government department, agency, branch, or unit in the performance of its duties. The figures from the past year, the current year, and the next anticipated year are compared.

The main strengths of budgetary incrementalism are:

• organizational stability;
• a common framework for managers in developing the budget;
• the absence of any necessity to justify the purpose of every organizational activity with every budget;
• guaranteed continuing funding for established programs; and
• a relatively easy and not very time-consuming process for budget making.

The main weaknesses of budgetary incrementalism are that it:

• is very rudimentary and of limited use as a planning tool;
• provides little information to senior managers about the quality of work being undertaken;
• does not contain data to assess how efficiently resources are being used, or the effectiveness of programs over time; and
• is essentially backward looking, basing next year’s budget on last year’s activities.

3. What is performance budgeting? What are its main strengths and weaknesses?

Performance budgeting was designed as an improvement on incremental budgeting. It is based on incremental line-item budgeting but incorporates efficiency measures into the budgetary process. Middle managers must list not only the specific expenditures on various line items but also basic operational activities in relation to money spent.

The benefits of performance budgeting are that it:

• provides information to managers on the activities of a given unit;
• enables managers to assess the efficiency of a given department/agency or office/branch over different years; and
• enables managers to compare the efficiency of different bureaucratic units and apportion funding accordingly.

The main weaknesses of performance budgeting are that:

• efficiency ratings are rudimentary because they measure bureaucratic activity quantitatively rather than qualitatively; and
• not all bureaucratic activities are easily quantifiable.

4. What is budgetary rationalism? What are its main strengths and weaknesses?

Budgetary rationalism is the systematic attempt to link budgeting to planning and programming. It requires managers to set and rank priorities, which are then assessed in terms of cost–benefit analysis. Desired priorities are then conceptualized into programs, which are also prioritized and assessed in terms of cost–benefit analysis.

Chosen programs are then given budgetary support and regularly evaluated to see whether they have achieved their desired objectives.

The benefits of budgetary rationalism are that it is:

• forward-looking;
• part of a planning process;
• rooted in priority setting and rigorous evaluation;
• able to provide senior managers with effective tools to set priorities and to assess programs; and
• able to provide public servants with a rationale for their actions.

The drawbacks of budgetary rationalism are as follows:

• Priority setting is difficult and can become very divisive.
• Cost–benefit analysis is difficult and time-consuming and assumes that qualitative conditions can be subjected to quantitative analysis.
• Priorities and programs must be re-evaluated every year, even if this requirement is perfunctory, placing a great burden on organizations.
• Budgetary rationalism assumes that bureaucrats are rational and will agree on so-called objective evidence derived through prioritization and cost–benefit analysis, even when their vested interests differ.

5. Briefly compare the budget-making tactics of spenders and guardians.

Spender tactics:

• Inflate the budget.
• Spend now, save later.
• Mobilize interest groups.
• Drive in the thin end of the wedge.
• Take advantage of crisis.
• Attack popular programs.
• Make an end run.

Guardian tactics:

• Set the rules.
• Demand documentation.
• Confer and investigate.
• Know thy opponent.
• Just say no.

1. Which of the following is not a guardian?

• a. the Department of Finance
• b. the Privy Council Office
• c. the Prime Minister’s Office
• d. the Treasury Board Secretariat

2. The Office of the Auditor is responsible for auditing

• a. Crown corporations
• b. the public accounts of Yukon, Northwest Territories, and Nunavut
• c. both a and b
• d. neither a nor b

3. What are the three Es?

• a. economy, expediency, effectiveness
• b. economy, efficiency, effectiveness
• c. expediency, efficiency, effectiveness
• d. expeditiousness, economy, effectiveness

4. Which of the following is not consistent with a line-item budget?

• a. incremental listing of expenditures
• b. assessment of cost-of-living increases
• c. cost–benefit analysis of expenditures
• d. decentralized budget planning

5. Which of the following points is consistent with PPBS?

• a. setting specific objectives
• b. engaging in cost–benefit analysis
• c. monitoring and reassessing objectives
• d. all of the above

6. Identify the weaknesses in rational budgeting systems

• a. too time consuming
• b. too much middle management influence
• c. too backward looking
• d. too forward looking

7. Which of the following is not an offshoot of PPBS?

• a. PEMS
• b. CSIS
• c. EMS
• d. EMIS

8. What is the role of the public in EMS?

• a. to comment on proposed spending plans
• b. to provide input to individual ministers
• c. both a and b
• d. neither a nor b

9. Which of the following is not an objective of EMIS?

• a. to enhance government-wide planning
• b. to reduce the influence of the PMO
• c. to enhance the role of the TBS
• d. to improve the degree of accountability reporting

10. The strategic review process found in EMIS is designed to promote:

• a. the role of the Parliamentary Budget Officer
• b. the ability of the Treasury Board to impose departmental penalties
• c. five-year strategic planning
• d. none of the above

Chapter 6 Answer Key

• 1. d
• 2. c
• 3. b
• 4. c
• 5. d
• 6. a
• 7. b
• 8. c
• 9. b
• 10. d

Table 6.1 Federal Revenues, 1979-2021 ($ millions)

Table 6.2 Federal Expenses, 1979-2021 ($ millions)

Table 6.3 Federal Budget and National Debt, 1979-2021 ($ millions)

Figure 6.1 The Expenditure Management System

Table 6.4 Summary statement of transactions, 2021

Table 6.5 Hypothetical Line-Item Budget, Federal Court of Canada Regional Office

Figure 6.2 Roles in the Expenditure Management System

accountability
The duty owed by elected politicians and public servants who are responsible for the procedural and substantive merit of their decision making and are called upon to abide by the concepts of ministerial responsibility, the rule of law, and social responsiveness.

attest and compliance auditing
A traditional form of audit that provides a narrow accounting of monies spent in a department or agency, the legal authority for spending, a comparison of planned and actual expenditure, and any irregularities. See also comprehensive auditing.

auditing
The management process by which expenses incurred are measured and evaluated in light of pre-established criteria.

auditor general of Canada
An officer of parliament appointed to a ten-year term and given responsibility for conducting comprehensive audits of all federal departments and agencies, many Crown corporations, and the territorial governments. The auditor general’s reports usually find that most government programs are implemented appropriately, and a critical report can become a major political headache for the government of the day.

budgetary rationalism
A system of budgeting in which program spending is systematically linked to program planning, prioritization, development, and evaluation. Rational systems of budgeting attempt to base all expenditures on comprehensive plans under which programs are subjected to critical cost–benefit analysis and priority setting. Budgetary rationalism emerged in Canada in the 1960s and has remained a potent force in financial management thinking ever since. See also planning-programming-budgeting system; policy and expenditure management system.

comprehensive auditing
A form of auditing that assesses government programs for economy, efficiency, effectiveness, and accountability. See also auditing.

expenditure budget
The portion of the general federal budget dealing with government expenditure on policies and programs. The expenditure budget highlights how, where, and toward what desired goals the federal government will expend public monies. See also revenue budget.

expenditure management information system
A rationalist financial management system adopted by the Harper government in 2007, closely based on the expenditure management system (EMS) that preceded it. EMIS seeks to integrate planning, programming, and budgeting into a seamless whole but differs from EMS in placing more emphasis on using modern information technologies to do so. See also expenditure management system; managing for results.

expenditure management system
A rationalist financial management system adopted by the Chrétien government in 1995 as a successor to the policy and expenditure management system (PEMS). While EMS was very similar to PEMS, it differed in that it was designed to reduce government spending by helping ministers and deputy ministers review ongoing programs and identify areas for spending reduction. Central to EMS was the system of managing for results. See also policy and expenditure management system; managing for results.

guardian
An official in a central agency such as Finance or the Treasury Board of Canada Secretariat whose responsibility is to ensure that all departmental budgets are as prudent as possible and that all spending is subject to strict control and scrutiny. See also spender.

incremental budgeting
A system of budgeting based on incremental changes to the previous year’s budget, also known as line-item budgeting. Managers constructing such a budget simply take the one from the previous year as a reference point and alter it to take account of marginal changes in the costs of running its programs. This very simple form of budgeting was officially transcended by rational budgeting but has great staying power as a way of thinking and acting. See also budgetary rationalism; performance budgeting.

Main Estimates
The complete list of all government spending, by department and program, for an entire budgetary year and selected future years. The Main Estimates are presented to the House of Commons following the annual budget presentation by the minister of finance.

managing for results
A component of the expenditure management system (EMS) and expenditure management information system (EMIS) established in 1995. MFR obligates departments to produce annual business plans that articulate departmental policy and program objectives and the resources needed to achieve them. MFR also requires that departments and the Treasury Board of Canada Secretariat measure the degree to which those goals are being met, and whether alternative, less costly means are viable. MFR remains a vital part of current federal financial management policy via EMIS. See also expenditure management information system; expenditure management system.

parliamentary budget officer
A position created in 2006 as part of the Harper government’s commitment to greater accountability. The PBO has a mandate to provide independent analysis to parliament on the state of the nation’s finances, the government’s estimates, and economic trends and, at the request of a parliamentary committee or an MP, to estimate the cost of any proposal over which parliament has jurisdiction.

performance budgeting
A system of budgeting between incremental and rational approaches, in which an incremental budget is embellished with efficiency evaluations that correlate program expenditures to services provided. See also budgetary rationalism; incremental budgeting.

planning-programming-budgeting system
A macro-system of financial management employed by the federal government from 1969 to 1979. PPBS was a comprehensive system of rational budgeting marked by extensive planning, prioritization, cost–benefit analysis, multiyear programming and budgeting, and intricate operational measurement systems. It necessitated enormous time and effort in the development of budgets and became an ongoing dynamic in government departments. See also budgetary rationalism.

policy and expenditure management system
A macro-system of financial management employed by the federal government from 1979 to 1993. PEMS was based on the earlier PPBS and similarly endorsed rational planning, prioritization, and program management but allowed departments and ministers more control over financial matters. See also budgetary rationalism.

program review
An initiative of the Chrétien government established in 1994 to assist the prime minister and cabinet in eliminating the deficit. Program review required all departments, with the exception of Indian and Northern Affairs, to engage in a highly rationalist assessment of their policy and program fields, distinguishing between core and secondary or tertiary responsibilities and objectives. The latter were to be downsized or transferred to other levels of government or privatized, while the former were to be streamlined.

Public Accounts Committee
A permanent committee of the House of Commons always chaired by a member of the official Opposition party. The PAC has the duty to oversee the financial management of the federal government by closely reviewing the reports of the auditor general of Canada and conducting investigations when it deems them necessary.

revenue budget
The portion of the general federal budget dealing with the revenues that the government takes in through taxes, duties, tariffs, user fees, sales of goods and properties, and other income-generating measures in a given year. See also expenditure budget.

spender
An official in a line department and or agency who is primarily interested in increasing the flow of monies into that institution in order to enhance its program of work and, correspondingly, increase the official’s own power, prestige, and workforce. See also guardian.

Department of Finance Canada

Office of the Auditor General of Canada

Treasury Board of Canada Secretariat