Supplementary document to the 2003-04 Departmental Performance Report (DPR) regarding implementation of the 2001-03 Sustainable Development Strategy (SDS)

Key Issue 1: Building the Future

Objective 1a: Maintaining a Healthy Fiscal Climate

1a.1: Continue the Government’s commitment to balanced budgets or better in 2000-2001 and 2001-2002

In the March 2004 federal budget, the Government projected balanced budgets or better for 2003-04, 2004-05 and 2005-06.

1a.2: Continue to pursue the Government’s Debt Repayment Plan to ensure the debt-to-GDP (gross domestic product) ratio remains on a permanent downward track

The federal debt was reduced from 46.7 per cent of GDP in 2001-02 to 44.2 per cent in 2002-03. The March 2004 budget projected that the debt-to-GDP ratio would decline further to 41.9 per cent in 2003-04. With the commitment to balanced budgets in each of the next two fiscal years, the debt-to-GDP ratio is forecast to decline to about 38 per cent in 2005-06.

Budget 2004 also set out a new objective of reducing the debt-to-GDP ratio to 25 per cent within the next ten years.

1a.3: Continue implementation of the Government’s Five-Year Tax Reduction Plan

Implementation of the Five-Year Tax Reduction Plan continued as scheduled in 2003-04. By the end of the year, virtually all measures under the Plan had been implemented. The final measures are scheduled for implementation in 2004-05. Measures previously announced in the 2003 Budget and new announcements in the 2004 Budget built on the Five-Year Tax Reduction Plan, reducing taxes further.

Objective 1b: Building a Strong Society

1b.1: Ensure predictable and growing funding for health and social programs

As provided for in the 2003 Accord, federal support for health care will increase by $36.8 billion over the five-year period 2003-04 to 2007-08. The majority of this funding, $31.5 billion, is being provided to provinces and territories through increased transfer payments, including:

• $16.0 billion over five years through the Health Reform Transfer;
• $14.0 billion (including the $2 billion in additional funding) for increases to health and social transfers; and
• $1.5 billion for diagnostic and medical equipment.

A legislated five-year funding track for transfers in support of health and other social programs was put in place to 2007-08. Total cash transfers are scheduled to reach $28.1 billion in 2007-08 from $19.1 billion in 2002-03, including the newly created Health Reform Transfer. This new funding track for cash transfers reflects average annual growth of 8 per cent over the five-year period.

Following the Health Accord, the territories were provided $60 million in additional health transition funding over three years.

A legislated five-year funding track for transfers in support of health and other social programs was put in place to 2007-08. Total cash transfers are scheduled to reach $28.1 billion in 2007-08 from $19.1 billion in 2002-03, including the newly created Health Reform Transfer. This new funding track for cash transfers reflects average annual growth of 8 per cent over the five-year period.

Following the Health Accord, the territories were provided $60 million in additional health transition funding over three years.

1b.2: Conduct a mid-term review of the Canada Health and Social Transfer (CHST) in 2003-04 and set a new five-year legislative funding track by the end of 2003-04

Legislation was passed in Parliament to enable the restructuring of the CHST effective April 1, 2004, which allowed the creation of two new transfers: a Canada Health Transfer (CHT) in support of health; and a Canada Social Transfer (CST) in support of post-secondary education, social assistance and social services, including early childhood development and early learning and childcare.

Federal/provincial/territorial officials met regularly over the course of the year in the lead up to the January 2004 First Ministers’ Meeting. Following discussions with First Ministers, the Prime Minister confirmed that an additional $2 billion would be provided to provinces and territories as a cash supplement to the CHST. The Prime Minister also committed to a meeting of First Ministers to discuss health sustainability within the context of the national agenda in the Summer of 2004.

1b.3: Ensure fiscal disparities are addressed through the equalization and Territorial Formula Financing programs

After numerous meetings and consultations of federal, provincial and territorial officials and of Ministers of Finance, an Equalization renewal package was presented to Parliament in March and was passed in May. The renewal legislation includes changes to the program to ensure that it continues to reflect the taxing practices of provinces and also provide for greater stability of payments.

As part of the TFF renewal arrangement, the federal government committed to increase TFF funding by $150 million over 5 years. In addition, the health transition funding provided following the 2003 First Ministers’ Meeting will be made ongoing within TFF in 2006-07, providing an annual benefit of $20 million.

1b.4: Monitor developments and make adjustments when necessary, or in the context of the Canada Pension Plan (CPP) 2001-03 review, to ensure that the retirement income system remains sustainable and meets seniors’ needs

Federal/provincial/territorial officials met over the course of the year to prepare the triennial review.

Legislation passed to clarify employee and employer contribution requirements, and to allow for the reinstatement of a CPP disability pension within two-years (and benefits to children of a person whose disability pension is reinstated) following an unsuccessful return to work because of the disabling condition. The changes contribute to the on-going financial sustainability of the Plan.

Bill C-3 passed by Parliament in April 2003 and comes into force in April 2004 following the required provincial consent process.

The RPP and RRSP limit increases announced in the 2003 budget have been legislated. For 2004, the money purchase RPP dollar limit has been increased to $16,500, the RRSP dollar limit has been increased $15,500 and the maximum pension limit per year of service for defined benefit RPPs has been increased to $1,833. The RPP and RRSP dollar limits will be increased to $18,000 by 2005 and 2006 respectively, and the maximum pension limit increased to $2,000 by 2005. The limits will be indexed to average wage growth for subsequent years.

The 2002-03 CPP annual report, prepared jointly with Human Resources Development Canada, was completed and awaits publication.

Objective 1c: Implementing Key Federal Sustainable Development Priorities

1c.1: In the context of planning for future budgets, work with other federal departments and stakeholders to identify ways to address sustainable development priorities

Budget 2003 provided funding of $2 billion over five years for climate change measures, including $250 million for Sustainable Development Technology Canada (SDTC) and $50 million for the Canadian Foundation for Climate and Atmospheric Sciences in 2003-04. The Government announced the details of $1 billion in climate change program spending on August 12, 2003; the final $700 million will be allocated in future years. Finance officials actively participated in the policy recommendation process. (More information on the $1 billion spending announcement in August 2003 can be found at: http://www.climatechange.gc.ca/english/newsroom/
2003/budget/20030812_budget.asp.)

Budget 2004 provided additional new investments in support of sustainable development, including:

• $3.5 billion over ten years to accelerate the ongoing cleanup of contaminated sites for which federal departments are responsible. This represents one of the single largest environmental investments ever made in Canada.
• Up to $500 million over ten years to provide support for remediation activities consistent with federal responsibilities and policies on shared-liability contaminated sites.
• $1 billion in support of new environmental technologies.
• $15 million over the next two years to develop and report environmental indicators on clean air, clean water and greenhouse gas emissions.

Key Issue 2: Integrating the Economy and the Environment

Objective 2a: Using the Tax System

2a.1: Examine areas where the tax system may be having an impact on the longer-term goals of sustainable development

The Department continued to analyze aspects of the tax system and proposals for change in consideration of how they impact the long-term goals of sustainable development. The Department also monitored the work of non-governmental organizations, academics, and other departments on potential tax measures to encourage environmentally sustainable behaviour. Areas examined include the examples that follow.

In September 2003, the Department published the annual report on Tax Expenditures and Evaluations, which contains estimates of the fiscal cost of a variety of provisions in the personal and corporate income tax and commodity tax systems that are designed to achieve various economic, social and environmental objectives. This report provides basic data that can be useful in evaluating the impact of the tax system on sustainable development.

The 2001 budget extended the existing intergenerational tax-deferred rollover available for farm property to transfers of commercial woodlots that are farming businesses, operated in accordance with a prescribed forest management plan. Draft proposals regarding prescribed forest management plans were developed and in January 2004 were provided to stakeholders for their review. Comments have been received from certain stakeholders and the Department has been giving these consideration. It should be noted, in this context, that Budget 2001 announced that the intergenerational transfer measure for woodlots would apply to transfers that occur after December 10, 2001 and that for transfers occur before the specified criteria for forest management plans are developed and prescribed, it will be required that a plan exist providing for the necessary attention to a woodlot’s growth, health, quality and composition.

The Department continued during the year to examine options to extend eligibility for accelerated capital cost allowance under Class 43.1 to new technologies. This class is designed to encourage investment in certain assets that produce energy from alternative or renewable sources or through the efficient use of fossil fuels.

The 2004 budget proposed measures to ensure that fines and penalties imposed by law are not deductible for Canadian income tax purposes. It is generally recognized that allowing a deduction for a fine or penalty in respect of a particular act or omission diminishes the disincentive to engage in that activity. The new measures will ensure, for example, that a business cannot deduct a fine levied under an environmental protection law.

2a.2: Assess policy options aimed at leveling the playing field between various economic activities

For several years, the Department has been analyzing options to improve the income tax treatment of the resource sector. Following an extensive series of consultations, Budget 2003 announced a series of changes to be phased in over a period of five years. Details of the proposals were set out in the March 2003 technical paper, Improving the Income Taxation of the Resource Sector, and implementing legislation (Bill C-48) was enacted on November 7, 2003. This legislation implemented the following measures:

• extension to mining and oil and gas income of the reduced general corporate tax rate of 21 per cent (from 28 per cent);
• a deduction for actual Crown royalties and mining taxes paid and elimination of the arbitrary 25-per-cent resource allowance deduction, which in some cases exceeded the actual costs faced by firms; and
• a new 10-per-cent corporate tax credit for qualifying mineral exploration expenditures.

By establishing a common statutory rate of corporate income tax for all sectors and by treating costs more consistently, both across resource projects and between the resource sector and other sectors, these changes will result in an allocation of resources more consistent with underlying economic factors, thus promoting the efficient development of Canada’s natural resource base. The new structure will be simpler, streamlining compliance and administration and sending clearer signals to investors.

Budget 2003 also extended the excise tax exemption on the ethanol or methanol component of gasoline so that the ethanol or methanol component of diesel fuel would also be exempt from the excise tax on diesel fuel. As well, a related measure was enacted that exempts bio-diesel, which is produced from biomass or renewable feedstock, when it is used directly as a motive fuel or blended with regular diesel fuel.

2a.3: Evaluate all environment-related tax proposals received from stakeholders, including those to encourage environmentally positive activities and discourage environmentally negative ones

The Department evaluates tax proposals put forward by, and monitors the work of, stakeholders on an ongoing basis. In 2003-04, the Department received and assessed submissions from individual taxpayers (personal and corporate), industry associations, environmental organizations such as the National Round Table on the Environment and the Economy, and other federal government departments.

The Department examined proposals in a range of areas including, for example: eligibility for Class 43.1 accelerated capital cost allowance and flow-through share financing for Canadian Renewable and Conservation Expenses (CRCE); application of the rules on qualifying environmental trusts; changes to specific tax measures for the resource industry; taxes on toxic substances; and tax incentives for actions considered to be environmentally beneficial (e.g., purchase of energy efficient vehicles and public transit passes).

Objective 2b: Developing Uses of Economic Instruments

2b.1: Lead further work on the design of a potential greenhouse gas emissions trading system in co-operation with other federal departments, other governments and stakeholders

Finance officials participated in bilateral and multilateral discussions with other departments and key industry stakeholders on the design of a potential greenhouse gas emissions trading system to reduce emissions from Canada’s largest emitters in a cost-effective manner. Department of Finance analysis focused on: the economic impact of the proposed regulations on industrial sectors; the potential tax treatment of various emissions permit trading options; the design and associated fiscal risk of the proposed $15 Price Assurance Mechanism and credits for research and development.

Department of Finance officials also attended various seminars and conferences on international emissions trading and have followed the development of the international carbon market.

2b.2: Continue to conduct economic research and analysis, including through the use of one of the economic models the Department maintains, to assess the potential costs of a major economic instrument, such as emissions trading, and other policy options to reduce emissions of greenhouse gases

The Department conducted an analysis on the economic impact of curbing greenhouse gas emissions using an output-based permit trading system.

A related working paper was prepared ("Contrôle des Émissions de GES à l’Aide d’un Système de Permis Échangeables avec Allocation Basée sur la Production: Une Analyse en Équilibre Général Calculable") and is now on the Department of Finance website.

The results of the analysis have been presented in Ottawa to senior representatives of other federal departments and at the Canadian Economic Association meeting in Toronto.

2b.3: Participate in an initiative led by the National Round Table on the Environment and the Economy (NRTEE) on ecological fiscal reform (EFR) over 2000-02

Officials from the Economic Development and Corporate Finance (EDCF) Branch participated as ex-officio members in the NRTEE’s EFR and Energy Task Force, and acted as observers on various EFR and Energy working groups, including: Renewable Energy, Energy Efficiency and Hydrogen.

2b.4: Monitor and evaluate the use of economic instruments in the Organisation for Economic Co-operation and Development (OECD) countries

The Department continues to interact with the OECD, and other member countries, through ongoing participation in the Working Party on National Environmental Policy (WPNEP) and the Ad Hoc Group of Tax Experts.

The WPNEP meets twice a year to discuss progress on a range of issues. For instance, the WPNEP has discussed the impacts of environmental policy on employment, the use of instruments in a selected number of environmental areas, and the distributive implications of environmental policy. At times, the WPNEP also discusses work that is ongoing in other working groups. For example, the Ad Hoc Group on Sustainable Development has carried out work on obstacles to policy reform, such as environmentally harmful subsidies.

Objective 2c: Integrated Decision Making – Increasing the Knowledge Base

2c.1: Participate in the Budget 2000 initiative on environmental and sustainable development indicators led by NRTEE and Environment Canada over 2000-03

Finance officials participated in as ex-officio members in the NRTEE’s Environment and Sustainable Development Indicators (ESDI) Steering Committee. The ESDI program final report, entitled "Environment and Sustainable Development Indicators for Canada", was released in May 2003.

2c.2: Prepare a case study on different nations’ use of assistance for green power to be completed by 2003

The study entitled "Economic Instruments to Promote Green Power" was completed in December of 2002 and was made available within the Department through the Sustainable Development Working Group. The study was also made available to NGOs through the consultation sessions for the 2004-06 SDS held in summer 2003.

2c.3: Develop an inventory of economic research on the links between the new economy and the environment beginning in 2001

The centrally-held inventory is available on the Department’s internal website. It provides automatically-updated links to research on key sustainable development topics.

Key Issue 3: Sustainable Development in the Global Economy

Objective 3a: Participating in Negotiating International Environmental Agreements

3a.1: Assist in the preparation of Canada’s approach to international negotiations on climate change

The Department participated in several interdepartmental working groups on negotiations for the first and second commitment periods of the Kyoto Protocol.

3a.2: Support initiatives to enhance the understanding of linkages between multilateral environmental agreements (MEAs) and trade rules

The Department was consulted and provided input in the preparation of Canada’s submission to the WTO Committee on Trade and Environment, WT/CTE/W/234, submitted March 19, 2004, which proposes a work plan for the Committee.

Objective 3b: Integrating Environment Into Future Negotiations on Trade and Investment Agreements

3b.1: Work with the Department of Foreign Affairs and International Trade (DFAIT) on trade and environment linkages in the context of the WTO and possible future trade negotiations

The Department has taken part in interdepartmental consultations led by Foreign Affairs Canada that precede each meeting of the WTO’s Committee on Trade and Environment (CTE) and Committee on Trade and Environment in Special Session (CTESS). In this regard the Department reviews and provides input to the instructions that guide the Canadian delegation at CTE and CTESS meetings.

The Department, together with other interested departments, commented on drafts of the report.

3b.2: Work with DFAIT and Industry Canada to promote free trade in the environmental sector and continue to review specific requests to remove tariffs where they are identified as a significant disincentive to the acquisition of environmental technology products

The Department helped to develop the Canadian position for negotiations as a follow-up to the Doha Ministerial Declaration. The Declaration calls for negotiations on the reduction or, as appropriate, elimination of tariff and non-tariff barriers to environmental goods and services. The Department participated in interdepartmental discussions concerning what constitutes environmental goods for the purposes of trade negotiations. This process was ongoing at the end of the reporting period.

In international meetings Canada has continued to push for the reduction of barriers to trade in environmental goods.

Objective 3c: Developing Environmental Assessment Guidelines for Export Credit Agencies

3c.1: Together with DFAIT, actively participate in and contribute to the work of developing common environmental guidelines for export credit agencies at the OECD and at the G-8 level

This target was completed last fiscal year, when Canada joined all OECD members, including the US and Turkey, in implementing an agreed framework for the environmental review of projects supported by official export credit agencies.

Objective 3d: Working With International Financial Institutions (IFIs)

3d.1: Promote macroeconomic stability in the international financial system and in individual emerging economies

The Department represented Canada at the G-7, World Bank and IMF meetings directed at strengthening developing countries’ institutional capacity, improving IMF lending to promote ownership and effectiveness of country programs, and strengthening support for low income countries. In these meetings, Canada also advanced the discussion of reforms to the operations of the World Bank and IMF. Progress has been made on enhancing IMF surveillance and limiting exceptional access to IMF resources and implementing measurable results management at the World Bank. The Department participated in efforts to promote the use of collective action clauses, which will promote macroeconomic stability in the international financial system by facilitating the orderly restructuring of sovereign debt. The strategic review that the G-7 launched in February 2004 will advance and consolidate these reforms.

The Department contributed to analytical work in the G-20, specifically intended to strengthen the international financial system’s ability to deal with remittances to developing countries.

3d.2: Support the work of IFIs in the development of alternative energy projects

The Department, working with the Office of Canada’s Executive Director at the World Bank, continued to monitor their policy work on sustainable development. In the summer of 2003, the World Bank established the Community Development Carbon Fund, expanding its initiatives to promote alternative energy.

3d.3: Work with IFIs, civil society and other stakeholders to operationalize the Comprehensive Development Framework (CDF) as a practical strategy for promoting long-term sustainable development in poor countries

The Department provided input through the Executive Directors at the World Bank and IMF to the Board discussions of country programs and strategies, including Country Assistance Strategies (CASs) and Poverty Reduction Strategy Papers (PRSPs). In preparing policy advice for these discussions, the Department considered a wide range of issues, such as governance, environment, and health to help ensure these programs and strategies promote efficient, long-term sustainable development. For this purpose, the Department also regularly consulted with other government departments, IFI staff and representatives in the field.

The World Bank’s Water Resources Strategy, approved in February 2003, articulates a principled and pragmatic approach that respects efficiency, equity and sustainability. The Department worked with the World Bank, through Canada’s Executive Director, to develop the institution’s strategy to mobilize financing and meet environmental and social standards.

In the fall of 2003, the Development Committee of the Boards of Governors of the World Bank and the IMF, in which Canada participates, discussed the implementation of the World Bank’s Infrastructure Action Plan. This Plan will guide innovations in the Bank’s approach to infrastructure development, ensuring that these investments are socially and environmentally responsible and sustainable.

The Department of Finance and other government departments have encouraged the IMF to collaborate more closely with other organizations and national governments where there are clear links between its core activities and environmental issues. Since the Johannesburg World Sustainable Development Summit in 2002, much of this collaboration has been in such areas as taxation and other fiscal instruments that can have an impact on the environment.

3d.4: Expand the focus on sustainable development in the Department’s annual reports to Parliament on the Bretton Woods institutions and the European Bank for Reconstruction and Development (EBRD)

A discussion of environmental and sustainable development issues was included in the Department’s 2003 Report on Operations Under the Bretton Woods and Related Agreements Act and its 2003 Report on Operations under the EBRD Agreement Act. Alongside discussion of individual projects, both reports highlighted reforms within the institutions, including the EBRD’s intention to publish annual reports on environmental performance and the World Bank’s continuing efforts to strengthen safeguards in projects.

Objective 3e: Increasing Knowledge and Understanding of International Environmental Financial Practices

3e.1: Participate in upcoming activities and conferences of the United Nations Environment Programme (UNEP) Financial Services Initiatives

Finance officials attended the 2003 UNEP FI Annual Global Roundtable Meeting on Finance and Sustainability in Tokyo and gave a presentation on Canada’s financial institution Public Accountability Statement requirements in October 2003.

The Department attended the 2003 Corporate Social Responsibility Conference organized by the Conference Board of Canada in May 2003.

The Department also attended the corporate social responsibility interdepartmental working group workshop sponsored by the former Department of Foreign Affairs and International Trade and Industry Canada in January 2004.

The Department provided input on a number of sustainable development/corporate social responsibility initiatives pertaining to financial institutions such as Environment Canada's Corporate Environmental Innovation (CEI) public website.

Key Issue 4: Greeting Operations

Objective 4a: Enhancing Awareness of the Environmental Impact of Our Operations

4a.1: Develop and implement a communications strategy to encourage the adoption of best practices

A Communication strategy has been implemented since 2002. The strategy assists in directing both the content and method of Departmental communications regarding the greening of our operations. Following the use of a particular communications method the strategy is updated to reflect newly discovered pros and cons. In this manner, the strategy provides the opportunity for continuous improvements to communications.

4a.2: Promote Earth Day and Canadian Environment Week

Earth Day was celebrated within the Department on Tuesday April 22, 2003. The event was promoted by various means including: sending communiqués to all Department employees; a poster contest for employee’s children; an on-line environmental quiz; a clothing and toy drive, and; a display in the shopping concourse at the Department’s L’Esplanade Laurier location promoting environmental issues.

Environment Week was celebrated within the Department from June 1 to 7, 2003. The event was promoted by various means, including: sending communiqués to all Department employees about the week’s events; an on-line environmental quiz; a "get spotted" contest; a trade fair to raise awareness of environmental issues, and; encouraging employee participation in the Commuter Challenge. In the 2003 Commuter Challenge, the Department came in first place for workplace populations under 100 000, with a 13% participation rate.

Objective 4b: Developing Tools and Implementing Programs to Support Best Practices

4b.1: Review the Department’s existing internal environmental programs

A comprehensive review of the Department’s existing internal environmental programs was completed in 2003. All programs were re-evaluated to establish the efficacy of past mitigation procedures, as well as to determine if any new programs should be initiated.

4b.2: Establish baselines and benchmarks for progress in five areas (solid waste, energy use, fleet management, procurement and toxic substances)

Baselines and benchmarks were established for energy efficiency awareness, duplex photocopying, the side-saddle garbage bin program and toxic substances. However baselines and benchmarks were not developed for the purchasing guide and procurement related training, as all required elements could not be put into place to complete the commitment by the end of 2003-04. They are expected to be completed in 2004-05.

4b.3: Develop departmental inventories in key areas for regulated substances

A departmental inventory in key areas for regulated substances (e.g. coolants from late model refrigerants and halons used to dry fire extinguishing systems) was completed in 2003, and is monitored and updated by Corporate Services Branch when required.

4b.4: Promote the use of ethanol-blended fuels for Finance’s three vehicles

An information package on the benefits of ethanol fuel (developed by NRCan), along with a laminated "glover box" map of all the ethanol fueling stations located in the National Capital region, was distributed to each Departmental driver in 2003.

4b.5: Develop a purchasing guide for and provide related training to the relevant departmental employees

As the Department did not have the in-house expertise to deliver the training, a partnership with Public Works and Government Services Canada (PWGSC) was sought, as they already have a training program in place. In late September 2003 an MOU between Finance Canada and PWGSC was drafted; however due to time constraints all required elements could not be put in place in order to complete the training by the end of 2003-04. The Department has re-committed to providing green procurement training by December 31, 2004 within the 2004-2006 Sustainable Development Strategy.

4b.6: Develop means for selling debt to Canadians electronically

The April 03 launch of www.mybonds.gc.ca , the new on-line redemption and enquiry service, far exceeded first year objectives with nearly one in three subscribers participating. The success of this initiative has enabled the elimination of the June statement to bondholders by providing all information online.

The number of private sector organizations participating in E-campaign for payroll has also increased, allowing more campaign and marketing material to be delivered in electronic format and more bondholders to join the program online.

Electronic communication with customers is expected to continue growing in 2004. Tracking of the web site, www.csb.gc.ca, indicates that users are spending more time, and finding more information, on the site.

Important Notices