September 5, 2024 – The system the federal government uses to manage public spending is broken and requires significant change, according to a new report by the C.D. Howe Institute called “Minding the Purse Strings: Major Reforms Needed to the Federal Government’s Expenditure Management System” by John Lester.
The Expenditure Management System (EMS) is supposed to assess policy proposals, measure and evaluate program performance, and share information on spending and performance with Parliament and the public. But Lester finds it is deeply flawed.
“Most importantly, value for money gets short shrift. Distressingly, there is no requirement to demonstrate that spending programs provide taxpayers with value for money when they are proposed,” Lester says. “Plus, assessments of existing programs almost always focus on the response of program beneficiaries, not the value to Canadians overall.”
“Virtually ignoring value for money means that program evaluations cannot be used for their intended purpose: Helping politicians make sound spending decisions. This is a longstanding problem that goes back decades.”
An important weakness in the EMS is that spending programs authorized through the Income Tax Act escape scrutiny. This includes refundable tax credits, the Canada Child Benefit, and business investment incentives. Such spending amounted to about $75 billion in 2022.
Another major flaw of the system is the absence of an overall constraint on spending. Five-year spending plans are announced every year in the budget, but they are not binding. That often results in governments spending much more than they originally planned. For example, program spending as a share of GDP in 2024/25 will be almost 2 percentage points higher than projected in the 2019 Economic and Fiscal Update.
Lester recommends that Ottawa:
- make value for money assessments of existing programs mandatory, not optional;
- subject spending proposals to a simplified value-for-money assessment with the results made public, as is now required for regulatory proposals and environmental initiatives; and,
- follow the lead of 12 OECD member countries, and Alberta, by adopting a ceiling on non-cyclical program spending.
The spending cap would be included in election platforms and be binding over a new government’s mandate – giving it more incentive to set priorities and eliminate underperforming programs.
For more information contact: John Lester, Fellow-in-Residence, C.D. Howe Institute; and Daniel Kitts, Communications Officer, C.D. Howe Institute, 416-865-1904, Ext. 9520, dkitts@cdhowe.org
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.