Departmental Performance Report
for the period ending March 31, 2000: 1
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Executive  Summary

The department’s activities addressed the priorities the government set for itself in the 1999 Speech from the Throne: developing our children and youth, building a dynamic economy, strengthening health and quality care, ensuring the quality of our environment, building stronger communities, improving the relationship with Canada’s aboriginal peoples and advancing Canada’s place in the world. It did so through actions in the six important areas described below.

Sound Financial Management

For 1999–2000 the government recorded its third consecutive budget surplus, and the 2000 budget included a commitment to balanced budgets or better in 2000–2001 and 2001–2002. This would be the first time in fifty years that the budget has been balanced or there has been a surplus for five consecutive years. In fact, since Confederation, on only two other occasions has the government had balanced budgets or better for five or more consecutive years.

Balanced budgets or better have allowed for a $18.7 billion reduction in the amount of net outstanding public debt since 1997–98. Combined with strong economic growth, they have also permitted a significant reduction in the ratio of net public debt to Gross Domestic Product (GDP) from a peak of 71.2 percent in 1995–1996 to 58.9 per cent at the end of 1999–2000.

Reduced Tax Burden

Building on previous actions, the 2000 budget proposed a five-year tax reduction plan that includes the most important changes to the tax system in more than a decade.

The plan will restore full indexation; reduce the middle tax rate to 23 per cent from 26 per cent; eliminate the surtax; increase the amount that Canadians can earn tax-free to at least $8,000; increase the amounts at which the middle and top tax rates apply, to at least $35,000 and $70,000; enrich the Canada Child Tax Benefit by $2.5 billion a year by 2004 to more than $9 billion annually; increase the partial exemption for scholarship, bursary and fellowship income to $3,000; and lower the capital gains inclusion rate to two thirds from three quarters.

The plan also lowers the burden on the most highly taxed sectors of the economy and addresses deficiencies in the tax structure. By 2004 the tax rate on the most highly taxed sectors will go to 21 per cent from 28 per cent. The tax rate on income between $200,000 and $300,000 earned by a small business will be reduced from 28 per cent to 21 per cent on January 1, 2001.

The department prepared the legislation implementing the 1999 budget income tax measures; negotiated and concluded income tax treaties with a number of countries; and developed legislative proposals to improve the fairness and efficiency of the sales and excise tax systems.

Secure Social Programs

The 2000 budget announced an additional $2.5 billion in Canada Health and Social Transfer (CHST) payments for post-secondary education and health, following an investment over five years of $11.5 billion for health in the previous budget.

Subsequent to the 1999–2000 fiscal year, Canada’s first ministers concluded agreements on health care renewal and early childhood development. The federal government will contribute increased funding of $23.4 billion over five years in support of these agreements.

Major transfers to provinces and territories were put on a common five-year track for the first time, making them more predictable for planning purposes. Changes were also enacted so that provinces will receive identical CHST entitlements in 2001–2002, providing equal support for health, post-secondary education, and social assistance and services to all Canadians. The new Equalization regulations for 1999–2000 to 2003–2004 were approved in March 2000, and consultations have begun on issues for the next program renewal in 2004.

The Canada Pension Plan Investment Board (CPPIB) regulations were put in place in April 1999, and by April 2000 the Board had received about $2.9 billion. By the end of the review period, the CPPIB reported a return on investment of 40.1 per cent. Regulations are now being amended to allow the CPPIB full discretion on investment of up to 50 per cent of funds allocated for domestic equities.

A Secure Global Financial Future

In its role as member of the G–7, Chair of the G–20 and Co-Chair of the Western Hemisphere Finance Ministers’ Process, Canada has worked to develop an international consensus on appropriate ways to promote a stronger, more stable, international financial system. Canada will host the second meeting of the G–20 in Montreal in October 2000.

In collaboration with other federal departments, Finance plays an active role in advancing international trade objectives. The department helped develop priorities and positions for import policy and trade in services, and participated in negotiations to establish a free trade agreement with the European Free Trade Association. It participated in the management of international trade and investment disputes.

A number of specific trade actions were also undertaken during the review period, and in January 2000 Canada and Chile acted to accelerate the elimination of tariffs on over two hundred items under the Canada-Chile Free Trade Agreement.

The department participated in the Tradeable Permits Working Group (TPWG) and the Analysis and Modeling Group, whose reports were released during the review period and will be used to develop national strategies regarding greenhouse gas emissions.

A Competitive and Secure Financial Services Sector

In June 1999 the government released Reforming Canada’s Financial Services Sector: A Framework for the Future. The enabling legislation, Bill C-38, was introduced in the House in June 2000 and key policy statements not requiring legislation and Merger Review Guidelines were released. These initiatives are crucial to maintaining the strength of Canada’s financial institutions, while safeguarding the interests of Canadians and contributing to economic growth.

Legislation and draft regulations put in place in February 1999 mean that the new foreign bank branch regime is now in place. Two foreign branches have been approved, and more are expected in the future.

Demutualization legislation came into force in March 1999. By March 2000 Canada’s four largest mutual life insurance companies converted to stock companies.

In April 1999 the department assumed responsibility for developing an effective anti-money laundering regime. Canada’s new proceeds-of-crime legislation received Royal Assent in June 2000, bringing Canada in line with international anti-money laundering standards. The Financial Transactions and Reports Analysis Centre of Canada was established July 5, 2000. During the review period, regulatory amendments were put into effect to withdraw the $1000 bill from circulation in May 2000.

Contributions to "Getting Government Right"

The department has contributed in a variety of ways to enhanced federal-provincial tax co-ordination, including the provinces’ move to tax-on-income regimes and the renewal of Reciprocal Taxation Agreements. In April 1999 the department also released a draft legislative framework to replace archaic excise legislation, with proposed final legislation now being prepared for tabling.

The department improved its communication with Canadians through better use of electronic communications, for example, in its on-line publication of the 2000 budget. Furthermore, the budget itself provided funding for the initiation of the federal Government On-Line program. The department also contributed to the government’s smooth transition to the Year 2000.

Section I: Minister’s Message

The Honourable Paul Martin, P.C., M.P.

The government recorded its third consecutive budget surplus in 1999–2000. Thanks to continued sound economic and fiscal management, we are now firmly in an era of budget surpluses.

This is not just a bookkeeping matter. It means very real benefits for Canadians. Indeed, in the 2000 budget we announced significant additional investments in post-secondary education and health care and a five-year tax reduction plan that will cut personal income taxes by an average of 15 per cent. We also stated that we would present more than $4 billion in initiatives to build a more innovative economy and to invest in skills and knowledge that Canadians will need to take full advantage of opportunities in the new economy, now and in the future.

Good public awareness and understanding of the facts were vital in the government’s successful battle against the deficit. They will continue to be just as important as the government manages issues in an era of surpluses. That is why I am pleased to submit the 1999–2000 Departmental Performance Report. By providing a detailed account of the activities and accomplishments of the Department of Finance over the past year, this report places Canadians in a better position to judge how well it is fulfilling its mandate.

I also want to take this opportunity to thank officials of the department for their extraordinary efforts in support of a prosperous and secure future for all Canadians.

Section II: Departmental Overview

1. Mandate and Mission

The department’s fundamental purpose is to assist the government in developing and implementing economic, social and financial policies and programs that foster growth, create jobs and promote a secure society. The department serves as the government’s primary source of analysis and advice on the broad economic and financial affairs of Canada. In addition to preparing the budget, the department provides analysis, advice and recommendations on tax and trade policy, and prepares tax and trade legislation; it provides analysis, advice and recommendations relating to the management of federal financial assets and liabilities, including the management of federal Crown corporation borrowing on financial markets; it manages transfers to the provinces and territories and fiscal relations with them; it provides analysis and advice on the setting of the annual Employment Insurance premium rate, where joint approval by the Minister of Finance and the Minister of Human Resources Development is required by law; it represents Canada within international financial institutions and international economic and trade forums; and it provides advice on the financial sector and financial markets and develops policies regarding them.

This requires monitoring and researching the performance of the Canadian economy in the all-important aspects of output and growth; employment and income; inflation and interest rates; and long-term structural changes. The department is also vitally concerned with financial market developments, and with trade and other international economic matters that bear on Canada’s domestic economic performance; and competitiveness.

In its central agency role, the department advises on the economic, fiscal, social and tax implications of key priorities. These priorities include jobs and growth; productivity; education and training; science, technology and innovation policies; environment initiatives; privatization and commercialization initiatives; defence and international assistance expenditures; efforts to advance Canada’s social policies and programs; and federal-provincial transfer programs.

Finance operates two statutory spending programs: the Public Debt Program and the Federal-Provincial Transfers Program. The department is responsible for the delivery of payments to major international financial institutions, such as the International Monetary Fund, the World Bank and the European Bank for Reconstruction and Development. It is also responsible for the Domestic Coinage program. While all Domestic Coinage payments are statutory in nature, transactions with international financial institutions include payments made under both statutory and voted authorities.

The department interacts with other government departments, agencies and Crown corporations, as well as private-sector stakeholders, to encourage co-ordination and harmony among all federal initiatives, particularly those affecting the economy and financial markets. Furthermore, the department constantly works towards improved co-operation – especially on fiscal, trade, taxation and financial sector issues – between the federal and provincial governments and internationally.

The department provides services to the following client groups:

• The Government, Cabinet and the Treasury Board – by providing analysis, advice and recommendations on the economic, social and financial affairs of Canada as well as on tax matters. The department also has legislative responsibilities in these areas.

• Parliament and the public – by supporting an expanded program of public information and consultation, with emphasis on the provision of basic facts to Canadians on key economic and fiscal issues, to facilitate wide participation in a more open, broad-based consultation process. This supplements ongoing and wide-ranging consultation with the public on such other key departmental responsibilities as the formation of tax policy and financial sector policy.

• Departments and agencies – by playing an active role in encouraging co-ordination and harmony among all federal initiatives which have an effect on the economy, the financial sector and financial markets.

• International economic and finance community – by being responsible for the development of Canada’s policy with respect to the Bretton Woods Institutions – the World Bank and the International Monetary Fund (IMF) – and the European Bank for Reconstruction and Development; by negotiating double taxation treaties with our treaty partners; and by representing Canada in a broad range of official international forums, including the financial elements of the G–7, the G–20, the Organization for Economic Co-operation and Development (OECD), the Asia-Pacific Economic Co-operation (APEC) Forum and the Western Hemisphere Finance Ministers’ Process, among others.

• Financial market participants – by working with market participants to improve debt management practices and to promote the maintenance of a well-functioning market for Government of Canada securities and well-functioning Canadian capital markets in general; and by ensuring that investors in Canadian government debt are well-informed of financial and economic developments.

• International trade community – by being responsible for Canada’s economic-import policy, including the Customs Tariff and trade remedy legislation; by participating in international trade forums such as the World Trade Organization and the OECD; and by engaging in related negotiations as they concern trade, import policy, services and investment issues.

• Provincial and territorial governments – by constantly working towards improved co-operation on fiscal and taxation issues; and by working with provinces as the joint stewards of the Canada Pension Plan (CPP) to ensure that it remains sustainable.

• House of Commons and Senate committees – by being the primary source of bills on taxation, import policy and financial matters and steering them through the parliamentary process.

• Canadian interest groups – by consulting widely with representatives of business, labour, social, volunteer and other groups in the Canadian economy on potential budget measures and a wide range of other policies and initiatives.

2. Departmental Organization

The department oversees three programs that account for all Public Debt expenditures, for Federal-Provincial Fiscal Arrangements expenditures, and for a portion of expenditures out of the international assistance envelope. These programs and associated business lines – depicted in the chart on a following page – are delivered by six policy branches with the support of the Consultations and Communications Branch, the Law Branch and the Corporate Services Branch.

A. Departmental Organization: Lines of Business

The business lines and their objectives are presented below for each of the three departmental programs.

Economic, Social and Financial Policies Program

• Policies and Advice – Appropriate policies and sound advice with respect to economic, social and financial conditions and the government’s agenda.

• International Financial Organizations – Responsible administration of international financial obligations and subscriptions.

• Domestic Coinage – Payment of the production and distribution costs for domestic circulating coinage.

• Corporate Administration – Effective and efficient corporate administration.

Public Debt Program

• Interest and Other Costs – The funding of interest and of service costs of the public debt and of the issuing costs of non-retail debt, if required; the provision of stable, low-cost funding for the government; and the maintenance of a well-functioning market in Government of Canada securities.

• Canada Investment and Savings – The provision of funding for the government consistent with its fiscal plan, and balancing cost, risk and market considerations; maintenance of a reasonable and sustainable retail share of the total federal debt, thereby ensuring a broad investor base for government debt; and the offer of a family of attractive products, including new ones in key market segments, that benefit all Canadians.

Federal-Provincial Transfers Program

• Transfer Payments – To make transfer payments pursuant to statutes with respect to the Canada Health and Social Transfer (CHST), Equalization and other transfers, and pursuant to agreements with respect to Territorial Formula Financing.

B. Departmental Organization: Branch Structure

Specific branch responsibilities are described below.

• Economic and Fiscal Policy – develops appropriate policies and provides sound advice on the domestic and international economic and financial outlook; on the government’s overall fiscal framework, expenditure plan and resource allocation; and on the government’s overall economic policy framework.

• International Trade and Finance – develops appropriate policies and international negotiating strategies and provides sound advice on international trade and finance with specific reference to import tariffs and trade remedies; foreign direct investment and economic co-operation; defence policies and expenditures; international development assistance; and international financial relations.

• Tax Policy – develops and evaluates federal taxation policies and legislation with respect to income, sales and excise taxes.

• Financial Sector Policy – develops appropriate policies and provides sound advice on the management of the government’s financial assets and liabilities, including government debt management; on legislation governing federally regulated financial institutions; on financial, investment and borrowing issues relating to Crown corporations, departments and agencies; and on government pension plans investment policies.

• Federal-Provincial Relations and Social Policy – develops appropriate polices and provides sound advice on federal-provincial fiscal arrangements and on Canadian social policies and programs, including Old Age Security programs and the Canada Pension Plan.

• Economic Development and Corporate Finance – develops appropriate policies and provides sound advice on the economic, fiscal and financial implications of the government’s microeconomic policies and programs, including loans, investments and guarantees of the Crown; on proposals for assistance to major projects or corporate restructuring initiatives advanced by the private sector; and on the management and, as appropriate, the privatization of Crown corporations and other corporate holdings; and on the commercialization/privatization of government services.

• Consultations and Communications – provides strategic communications advice and suitable public affairs support.

• Law Branch – provides sound legal advice and processes applications under the Access to Information Act and the Privacy Act in an accurate and timely manner.

• Corporate Services – provides effective and efficient financial, human resources, information technology, security and administrative systems and expertise.

Program, Business Line and Organization Chart

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