IV. CANADA

Reforms made in the system of transfers to the provinces resulted in making them more cost effective and flexible, requiring amendments to the FederalProvincial Fiscal Arrangements Act. The new Canada Health and Social Transfer, made in the form of a block grant to the provinces, replaced transfers under the Canada Assistance Plan, with funding of provincial social welfare programmes based on a shared-cost basis and on the Established Programmes Financing System, which provided block grants to finance provincial post-secondary education and health.

The more flexible programme review arrangements contributed to a sounder fiscal position. Large and growing deficits were replaced by sustained surpluses, as from 1997, through expenditure reduction and prudent budget planning. After rising for more than 20 years, total government debt has been diminishing since 1996.

2. Principles underlying budget system laws

Like other countries with Westminster governments, Canada does not systematically embody budget principles in law. At federal level, however, some principles are embodied in budget system law. The principle of parliamentary authority, relating to the authorisation of taxation and public expenditures, is incorporated in the Constitution Act 1867. The FAA also requires the government to obtain the approval of Parliament to raise revenues or spend public expenditures (Arts. 17 and 26). The FAA specifies the principle of an annual budget (Art. 2) operating within the rolling two-year budget framework. The fiscal year begins on 1st April and ends on 31 March of the following year. The government is required to formulate the draft budget for each fiscal year, which is then approved by Parliament. The principle of accountability is embodied in the AGA. The Auditor General is required to see if the government spent public money for the specific purposes intended by Parliament (principle of specificity). The principle of universality of all revenues and expenditures is embodied in the concept of a Consolidated Revenue Fund (FAA, Art. 17). However, the principle of universality is not applied nationwide, and consolidated outcome data for federal and provincial budgets are not systematically produced. The principle of unity – that all revenues and expenditure are included in a single budget – is not fully practised. Whereas the budget presents both revenues and expenditures, tax bills and appropriation bills are presented separately.

The principle of stability is not embodied in law since the Spending Control Act 1992 lapsed in 1996. However, the government aims to achieve “a balanced budget or better”. The principle of transparency is not embodied in law either. However, the International Monetary Fund evaluated that “fiscal management in Canada meets the requirements of the fiscal transparency code and in a number of instances represents best practice” (IMF, 2002).