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Departmental Performance Report: 2
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Section III: Departmental Performance

This section of the report consists of two subsections: Performance Expectations and Performance Accomplishments. The Performance Expectations subsection presents department-wide outcomes as they apply equally to all three departmental programs. Performance Accomplishments -- being somewhat more specific -- are reported on a program/business line basis.

I. Performance Expectations

Results expectations established for the 1998–99 fiscal year revolved around the four key outcomes identified in the department's Chart of Key Results Commitments (found in Annex B of the President of the Treasury Board's Annual Report to Parliament Managing for Results 1998, and on pp. iii-iv of this document.) To ensure delivery on these four key outcomes, the department established a number of key priority areas. These key priority areas, which have been linked to one of the four key outcomes, are listed below.

The department is committed to providing Canadians with:

A Secure Financial Future

• Sound Economic and Financial Management

• Tax Policy

• Asia-Pacific Economic Co-operation (APEC) Finance Ministerial and Commonwealth Finance Ministers' Meeting and G-7 Ministerials

• Trade and Investment Policy

• International Financial Organizations

• Financial Asset and Liability Management

• Canada Investment and Savings

A Competitive and Secure Financial Services Sector

• Financial Sector

Contributions to Getting Government Right

• Advancement of the Privatization/Commercialization Agenda

Secure Social Programs

• Canada Pension Plan

• Old Age Security

• Renewal of Equalization

• New Financial Arrangements for Yukon, the Northwest Territories and Nunavut

The following sub-section presents the Key Plans and Strategies and Expected Results, specified in the 1998-99 Report on Plans and Priorities, and also details the Performance Measures and Accomplishments for each of the above-noted priority areas -- on a Program/Business Line basis.

II. Performance Accomplishments

A. Economic, Social and Financial Policies Program

Objective

Appropriate policies and sound advice with respect to economic, social and financial conditions, and to the government's agenda; responsible administration of international financial obligations and subscriptions; payment of the production costs for domestic circulating coinage; responsible financing of special projects; and effective and efficient corporate administration.

A.1 Policies and Advice Business Line

Objective

Appropriate policies and sound advice with respect to economic, social and financial conditions, and to the government's agenda.

A Secure Financial Future

Sound Economic and Financial Management

Key Plans and Strategies

• timely assessment of near-term economic developments and future economic prospects

• development of prudent planning assumptions

• development of appropriate fiscal policy objectives

• elaboration of short- and medium-term fiscal framework

• advice on appropriate monetary policy objectives and implementation

Expected Results

• prudent planning assumptions that protect the fiscal framework from undue exposure to economic fluctuations

• elaboration of fiscal framework and overall policy settings that deliver on the government's stated objectives of

• balancing the budget no later than 1998–99

• securing a permanent decline in the debt-to-GDP ratio, the measure of the burden imposed by the public debt

• planning on the basis of a balanced budget or better in the future

• applying the Contingency Reserve to pay down debt each year if economic performance turns out as assumed for budget planning purposes and, therefore, the Reserve is not applied to unexpected requirements

Performance Measures

• public accounts balance

• financial balance

• ratio of federal government's net debt to GDP

• federal spending-to-GDP ratio

Accomplishments

• public accounts surplus of $3.5 billion in 1997-98 was followed by a $2.9 billion surplus recorded in 1998-99 (see Annual Financial Report released September 23, 1999, for details on this and the following measures); first back-to-back budgetary surpluses recorded since 1951-52

• financial surplus of $12.7 billion in 1997-98 (excluding foreign exchange transactions) followed by financial surplus of $11.5 billion in 1998-99 marking a third consecutive surplus, a performance unmatched in the G-7

• federal government's net debt-to-GDP ratio down again in 1998-99, falling to 64.4 per cent from 66.3 per cent in 1997-98 and from a high of 71.2 per cent in 1995–96

• program spending-to-GDP ratio down to 12.4 per cent in 1998-99 from 16.6 per cent in 1993-94

• prudent fiscal planning framework developed for 1999 budget allowing government to commit to balanced budgets in 1999-2000 and 2000-01 while proposing balanced policy strategy including further tax relief totalling $7.7 billion over three years, new spending on priority initiatives totalling $14.1 billion over four years and continuation of the Debt Repayment Plan over the planning period

Tax Policy

A key element of the activities and responsibilities of the Department of Finance Canada is the development and implementation of tax policy. Tax policy plays three major roles in achieving the government's financial and economic goals. First, it is one of the framework tools (fiscal policy is another) within which the economy operates and so is central to the country's economic and social performance. Second, a key objective of tax policy is to raise taxes in a fair and equitable manner. Third, a number of tax instruments can be used to influence specific aspects of economic and social policy.

The following contribute to the objective of fostering a strong economy through the tax system:

• Tax levies over a broad range of sources collect the needed level of revenues (e.g. income taxes on businesses and individuals, sales and excise taxes). This helps to keep tax rates low and revenues stable.

• In certain limited circumstances, tax policy instruments can be used to achieve desirable economic goals and offset the impact of market imperfections.

• A continuous monitoring of the tax system will ensure that taxes owed are, indeed, collected.

On fairness, the key objective is that Canadians pay taxes according to their ability to pay. Furthermore, the tax system can positively assist those in need. All major Canadian tax sources play a part in achieving the fairness objective. For example, the Canadian personal income tax system is progressive and takes account of both income and individual circumstances to measure ability to pay. It also provides refundable tax credits such as the Canada Child Tax Benefit, which provide benefits to low- and middle-income earners. With respect to the Goods and Services Tax (GST), the income-tested, refundable GST credit plays a similar role. Businesses pay a corporate income tax to ensure that they contribute to the provision of necessary public services, and some businesses that can, do pay relatively more. Levying taxes on corporations also helps to ensure that foreign-based corporations pay tax on the income they earn in Canada.

Key Plans and Strategies

• examining issues related to general tax relief and tax burden

• examining issues related to targeted tax relief

• improving tax fairness

• organizing public information and consultations

• assessing the report from the Technical Committee on Business Taxation

• drafting regulations and legislation

Expected Results

• a tax system that raises the needed revenue in a fair and efficient fashion and effectively targets incentives to meet governmental objectives

• a tax system that is consistent with other government policy objectives (e.g. economic, social and cultural)

The major forum for making required changes as they relate to tax policy is the annual federal budget.

Performance Measures

Identify and act upon opportunities to improve the fairness and efficiency of the tax system through legislative changes and policy initiatives based on sound analysis of statistical, financial and administrative data. Improve the effectiveness and responsiveness of tax policy development through regular information exchange with key public-and private-sector players.

Accomplishments

Personal Income Tax

The Canadian personal income tax system is progressive and takes account of both income and individual circumstances to measure the ability to pay. It also has a number of measures designed to achieve social and economic objectives. One of the government's goals is to reduce Canadians' personal income tax burden in coming years. The 1999 budget continued the process of general tax relief begun in 1998. In addition, the budget proposed changes to achieve the government's social and economic objectives regarding families and persons with disabilities

• General Tax Relief – The 1999 budget proposed further direct personal income tax relief to Canadians by:

• extending to all taxpayers the $500 supplement provided to low-income Canadians in the 1998 budget;

• further increasing the personal amounts by $175 for all taxpayers; and

• eliminating the 3-per-cent surtax for all taxpayers whose surtax remained following action in the 1998 budget.
  
  

These measures will result in a $2.6-billion personal income tax reduction in 2000–01. As a result of these changes 200,000 low-income individuals will be removed from the tax rolls in addition to the 400,000 removed by the action taken in the 1998 budget. Moreover, an additional 2.7 million taxpayers will benefit from the complete elimination of the surtax.

• Families – The government is committed to strengthening families and investing in children. To help Canadian families meet the challenges of child rearing, the 1999 budget proposed to increase the National Child Benefit supplement to the Canada Child Tax Benefit (CCTB) by $350 per child by July 2000. This will provide an additional $850 million in assistance to low-income families with children, as promised in the 1998 budget. This federal action will be complemented by changes to provincial programs that will assist children and remove barriers to work among low-income families.
  
  

In addition, the 1999 budget enriched benefits under the CCTB by $300 million for modest- and middle-income families. The income threshold at which the CCTB base benefit starts to be reduced will be raised from $25,921 to $29,590, increasing benefits by $184 for a typical middle-income family with two children.

These measures were complemented by a modification to the Goods and Services Tax Credit that will increase benefits by $105 for 300,000 single parents with an income under $12,000. Work is also under way to improve the responsiveness of the credit to changes in family situations and streamline its administration.

• Persons with Disabilities – The 1999 budget proposed to improve assistance for the care and education of persons with disabilities by extending the medical expenses tax credit to expenses in respect of the remuneration for:

• The care and supervision of persons with severe and prolonged disabilities living in a group home;

• therapy for persons with severe and prolonged disabilities; and

• tutoring for persons with learning disabilities.

Business Income Tax

With respect to business income taxes, the focus has been on addressing deficiencies in the existing tax structures, ensuring that businesses bear their fair share of the tax burden while promoting growth in the economy, and providing targeted incentives to meet specific government objectives. Initiatives included:

• providing tax relief for the acquisition of computer hardware and software to replace computer equipment that is not Year 2000 compliant -- this measure helps small- and medium-sized businesses address Year 2000 computer compliance problems;

• improving the capital cost allowance regime for electrical generating equipment using solution gas that would otherwise be flared during the production of crude oil -- this 1999 budget measure encourages the productive use of flared gas;

• extending the manufacturing and processing tax credit to corporations that produce electrical energy or steam for sale -- this 1999 budget measure ensures that electricity-generating activities are taxed equitably;

• proposing changes to address deficiencies in the rules relating to the taxation of foreign trusts and foreign-based investment funds; and

• updating rules governing Labour-Sponsored Venture Capital Corporations -- this 1999 budget measure ensures consistency with provincial programs and addresses issues relating to corporate structures.

The Technical Committee on Business Taxation released its report in April 1998. The Committee's mandate was to consider ways in which Canada's business taxation system could contribute more to the creation of jobs and economic growth, how it could be simplified to facilitate compliance and administration, and how it could be made fairer to ensure that all businesses share the costs of providing government services. Their recommendations regarding business taxation were required to raise the same amount of revenue. The Committee has brought important issues to the fore and identified certain problems that the federal and provincial governments will need to consider in planning tax policy in the coming years. During 1998–99, the recommendations in the report were reviewed and reactions to the report from industry associations and provincial governments were monitored.

Sales and Commodity Taxes

Improved the fairness and efficiency of the sales tax system by:

• clarifying the application of the GST/HST to insurers and segregated funds;

• simplifying the GST/HST rules for the energy sector;

• broadening the GST rebate for purchases of specially equipped vehicles for the disabled, and for purchases of books by qualifying organizations;

• clarifying the GST/HST rules relating to administrative and management services provided to investment plans;

• refining the GST/HST rules relating to Canadian partnerships, meal and entertainment expenses, and construction services; and

• fine-tuning the application of the GST in a number of areas, including sale-leaseback arrangements, barter clubs, real property supplies and rebates, health care services, tax disclosure requirements, de minimus financial institutions, and gaming industry transactions.

Enhanced the effectiveness and responsiveness of sales tax policy development through:

• regular meetings with officials in other federal departments and provinces;

• participation in Canadian and international sales tax policy conferences and working groups; and

• briefings and correspondence with various industry associations, interest groups, and individual taxpayers.

Intergovernmental Tax Policy

An update of all Tax Collection Agreements (TCAs) with the provinces and territories currently in force has been initiated to reflect the following changes:

• the schedule of payments under the TCAs has been adjusted forward by two weeks to the last week of January from the second week of February;

• the implementation of tax on income;

• the new costing methodology contained in the new guidelines for federal administration of provincial taxes;

• all amendments and additions made through exchanges of letters between ministers of finance in recent years; and the fact that

• the process for determining which provincial measures are to be administered by the federal government on behalf of provinces has been clarified.

A new set of guidelines has been adopted for determining which provincial taxes and measures will be administered:

• the new guidelines recognize that the use of a common tax base and the avoidance of double taxation are desirable and necessary goals, and

• take a flexible approach to administering provincial taxes and tax measures by specifying how administration costs will be charged for taxes and tax measures.

A document describing recent changes in federal-provincial relations with respect to tax policy has been prepared and will be forwarded to provincial ministers of finance by the federal ministers of Finance and National Revenue -- who are going to sign the foreword to the document.

The efficient administration of the TCAs requires that the department continue to meet its obligations under the TCAs to pay provincial governments the assessed value of their personal and corporate income taxes.

The Indian Government Taxation Review is the ongoing development and implementation of the federal government's policy on the tax powers available to Aboriginal governments and the tax treatment of their governance institutions.

To enhance First Nations' self-government and self-reliance and help Aboriginal communities develop new revenue sources and provide better services to their communities, the government enacted legislation enabling certain interested First Nations to levy a sales tax on their reserves.

To date, arrangements have been implemented to allow the Cowichan Tribes to tax sales of tobacco products to Aboriginal peoples, the Westbank First Nation and the Kamloops Indian Band to tax all sales of tobacco products, alcoholic beverages and fuel, and the Sliammon First Nation to tax all sales of tobacco products and fuel on their respective reserves.

Tax Collection and Sharing Agreements on personal income tax have been reached with the seven self-governing Yukon First Nations. Discussions have also begun on the co-ordination of other taxes.

Preliminary discussions on tax powers have also been initiated with other First Nations.

Tax Legislation

The department's Tax Legislation Division has primary responsibility for the development of all federal income tax legislation. The unit also conducts related analysis, negotiates tax treaties with other countries, serves as taxpayers' and tax professionals' main point of contact with the department on technical tax matters, and represents the department and the government in meetings relating to its areas of responsibility.

During the 1998–99 fiscal year, the Division's main legislative projects were the preparation of bills to enact the income tax measures announced in the 1998 budget, and income tax treaties with Chile, Croatia and Vietnam.

Major policy projects during the period included work on tax rules for:

• averaging mechanism for certain lump sum payments

• Canada education savings grants and registered education savings plans

• employment expenses incurred by certain categories of employees

• foreign branch banking

• income-splitting

• Labour-Sponsored Venture Capital Corporations

• pension adjustment reversal rules

• scientific research and experimental development

• split-run magazines

• standardized accounting

• tax-exempt status of Indian and provincially regulated corporations

• taxpayer migration

• third-party penalties and

• trusts

Tax treaties were negotiated or renegotiated during the period with Barbados, Colombia, the Czech Republic, Egypt, Germany, Jordan, Lebanon, Luxembourg, Moldova, Portugal, the Slovak Republic, the United Arab Emirates, and the United States.

Tax Evaluation

In addition to developing and implementing tax policy, the department is responsible for evaluating existing tax measures to ensure that they continue to meet their objectives. As part of this program of tax evaluations, the department published its annual Tax Expenditure Report, which provides estimates of the revenue foregone from a wide range of tax concessions. This report also includes projections of the future costs of these concessions.

Asia-Pacific Economic Co-operation (APEC) Finance Ministerial, Commonwealth Finance Ministers' Meeting and G-7 Ministerials

Key Plans and Strategies

• successfully host meetings (at the levels of ministers, deputies and working groups)

• provide requisite support

• work with G-7 partners to contribute to a more stable international financial system

Expected Results

APEC Finance Ministerial

Frank and meaningful discussion of the Asian financial crisis.

Discussion of policy measures to reduce risk of financial instability and deal with instability when it does arise.

Propose work on a program of technical assistance and co-operation in the development of healthy financial sectors in the APEC region.

Provide an enriching, but not ostentatious, cultural experience for Canada's guests.

Commonwealth Finance Ministers' Meeting

Promote exchange of views on a variety of development issues, including the effect of the Asian crisis on the outlook for developing countries.

Further the development and implementation of good governance policies in the Commonwealth.

Provide an enriching, but not ostentatious, cultural experience for Canada's guests.

Accomplishments

APEC Finance Ministerial

Canada successfully hosted the APEC Finance Ministerial in May 1998. At the meeting, finance ministers across the 21 APEC economies (including Russia, Peru and Vietnam as observers) had an open and frank discussion of the Asian financial crisis, its causes and consequences. Canada used the opportunity to garner support for its ideas on how to reduce the likelihood of such crises in the future, such as a peer-review process to enhance surveillance of financial sector supervisory regimes. This idea was endorsed by APEC finance ministers in their joint statement at the close of the meeting. Canada also used the meeting to draw attention to the social consequences of the financial crisis.

Commonwealth Finance Ministers' Meeting

Canada hosted the Commonwealth Finance Ministers' Meeting in September 1998. At the meeting, representatives from 46 Commonwealth nations discussed the contagious effects of the Asian financial crisis; the problems of heavily indebted poor countries; and good governance and the elimination of corruption in economic management. Canada used this meeting to gain recognition for its proposals to strengthen the capacity of the international financial system to prevent and manage future international financial crises and for reforming the international architecture. On debt, the meeting allowed Canada to enhance the visibility of its efforts to support the timely, flexible and generous treatment of poor countries' debt and to encourage the Commonwealth to call on all creditors to write-off aid-related loans. The meeting also allowed Canada to underline the importance it attaches to efforts that support and promote good governance. In this respect, Canada has been instrumental in initiating work to develop a global agreement between developed and developing countries to combat corruption.

G-7 Ministerials

In 1998–99, Canada worked towards implementation of a number of initiatives aimed at achieving a more stable and prosperous global economy and international financial system. A number of these measures were contained in Canada's Six Point Plan to deal with Global Financial Turmoil, announced by the Minister of Finance in September 1998. A number of the plan's elements were subsequently implemented by the international community and have contributed to more orderly international financial markets and improved global economic conditions. Canada strongly supported the establishment of the Financial Stability Forum in February 1999 as a way of helping to strengthen financial sector regulation and supervision in industrial countries and emerging markets. Canada also worked throughout the year on ways of improving the involvement of the private sector in crisis prevention and resolution.

Trade and Investment Policy

Key Plans and Strategies

Provide advice on import, trade and investment policy matters.

Conduct research and analysis associated with the development of domestic policy and legislation -- and with the refinement of objectives for international discussions and negotiations on trade remedies, market access and investment policies.

Continue follow-up to the World Trade Organization (WTO) multilateral trade agreements, in particular those on market access, subsidy disciplines, trade remedies, investment, services and dispute settlement, including implementation issues and various ‘built-in agenda' work programs.

Continue follow-up to the North American Free Trade Agreement (NAFTA) and the Canada-Chile Free Trade Agreement (CCFTA), including negotiation and implementation of tariff reduction acceleration and issues associated with rules of origin.

Participate in the pursuit of further trade liberalization opportunities in bilateral, plurilateral and multilateral forums by contributing to the formulation of objectives and positions and participating in the negotiations.

Contribute to the formulation of objectives and positions for multilateral investment discussions and negotiations.

Amend the Special Import Measures Act (SIMA) and related instruments in accordance with the government's response to the House of Commons Report on the Special Import Measures Act.

Review sectoral and product-based, tariff-related proposals from domestic industry and rules of origin issues with a view to improving the competitiveness of Canadian industry.

Participate in the resolution of international trade disputes related to import and investment policy issues.

Maintain active contact on trade and investment issues with provincial governments, Canadian businesses and concerned private-sector groups.

Expected Results

Complete the preparation of legislation to amend SIMA and the Canadian International Trade Tribunal Act (CITT Act) with a view to having the legislation tabled and passed in 1998 and amend the related SIMA and CITT Act rules and regulations as required.

Trade Remedies

Provide ongoing policy advice on trade remedies and SIMA.

Customs Tariff

Ensure smooth implementation of the new Customs Tariff.

Launch and complete WTO Article XXVIII renegotiations relating to the new Customs Tariff.

Provide ongoing policy advice on tariff-related matters.

In the context of NAFTA (Mexico) and the Canada-Chile Free Trade Agreement, complete NAFTA/Chile tariff acceleration negotiations.

Canada Customs and Revenue Agency (CCRA)

Provide policy advice related to the establishment of the CCRA and participate in drafting the legislation for the establishment of the CCRA.

Sectoral Policy Reviews

Participate in the Industry Canada-led automotive competitiveness review, particularly as this relates to trade policy aspects.

Participate in the Industry Canada-led competitiveness review of the textile and apparel industries.

Economic Summits

Contribute to the development of trade policy advice for leaders' and ministers' summits.

APEC

Participate in sectoral trade liberalization follow-up activities flowing from the APEC Vancouver Summit.

World Trade Organization (WTO)

Co-ordinate departmental views on, and participate in, the development of the Canadian approach to the WTO Ministerial Meeting, and represent the Department of Finance Canada in consequential follow-up work.

Manage the Canadian input to the WTO Subsidies and Anti-dumping Committees.

Prepare for the 1998–99 review of key provisions of the Subsidies Agreement and the Dispute Settlement Agreement.

• Participate in negotiations on the expansion of product coverage for the Information Technology Agreement (ITA) and the Pharmaceutical Understanding.

• Participate in WTO negotiations and discussions on the harmonization of rules of origin.

• Participate in the development of the Canadian position relating to disputes brought before the WTO.

• Co-ordinate departmental views on, and participate in, the WTO General Agreement on Trade in Services work program respecting possible disciplines on subsidies and trade safeguards.

Investment

Co-ordinate departmental views on, and participate in, the expected final phase of the OECD's Multilateral Agreement on Investment (MAI) negotiations (and participate with the Department of Foreign Affairs and International Trade (DFAIT) and Industry Canada in the management of consequential follow-up) and the WTO Working Group on Trade and Investment.

Continue to co-ordinate departmental views respecting the negotiation of bilateral Foreign Investment Protection Agreements.

Performance Measures

Currently under development.

Accomplishments

Special Import Measures Act

Revisions to SIMA and the CITT Act received Royal Assent on March 25, 1999, and are expected to enter into force in the fall of 1999 pending completion of the related rules and regulations. These changes will enhance the systemic efficiency/transparency for the Canadian trade remedies system while ensuring that it effectively balances the needs of Canadian industry in a manner consistent with Canada's international rights and obligations.

Trade Remedies

SIMA-related policy advice focused primarily on three areas: revisions to SIMA and the CITT Act noted above; policy development and reporting responsibilities in relation to international trade agreements and initiatives (e.g. NAFTA, the Free Trade Agreement of the Americas (FTAA) initiative and the WTO dumping and subsidies agreements); and analysis and advice regarding requests for the remission of SIMA duties.

Customs Tariff

The transition to the new simplified Customs Tariff, which came into effect on January 1, 1998, was well received by Canadian business and trading interests. Six technical Orders were approved during the 1998–99 review period to ensure policy consistency and correct minor technical errors identified by the government and Canadian business.

In accordance with WTO Article XXVIII, Canada notified the WTO of its new Customs Tariff, introduced on January 1, 1998. Departmental officials attended international meetings to explain the changes and answer questions and have resolved outstanding issues with most WTO members.

Departmental officials reviewed requests for tariff relief and provided advice to ministers consistent with Canadian tariff policy. During the review period, various tariff relief measures were introduced by the government to help improve the competitiveness of Canadian business.

The results of the tariff acceleration negotiations with Mexico were implemented on August 1, 1998. The tariff acceleration negotiations with Chile were begun early in 1999 and are expected to be implemented by January 1, 2000.

Departmental officials contributed to the development of the Canadian negotiating position on and participated in the market access discussions associated with the free trade agreement negotiations with the European Free Trade Association, which started in the fall of 1998.

Canada Customs and Revenue Agency (CCRA)

Ensured that import policy considerations were taken into account in the legislation establishing the CCRA, which received Royal Assent on April 29, 1999, and is scheduled to come into force on November 1,  1999.

Sectoral Policy Reviews

Departmental officials were actively involved in analysis and advice related to the Industry Canada-led automotive competitiveness review, the final report of which was released in June 1998.

Departmental officials remained actively involved in the competitiveness review of the textile and apparel industries.

Economic Summits

Participated in the development of the Canadian positions on trade and import policy matters for leaders' and ministers' summits.

APEC

Contributed to Canadian tariff policy proposals for the APEC Early Voluntary Sector Liberalization (EVSL) initiative and attended senior officials' meetings in Asia as part of the Canadian delegation. The APEC EVSL initiative has been moved to the WTO.

World Trade Organization (WTO)

Contributed to Canadian positions on trade and investment issues for the May 1998 WTO ministerial meeting, including the preparation of analytical papers and participation in the meetings.

Co-ordinated Canada's semi-annual reports for the WTO Subsidies and Anti-dumping Committees, actively participated in the Ad Hoc Group on Implementation of the WTO Anti-dumping Agreement and the Informal Group on Anti-circumvention, prepared various analytical papers/contributions for these meetings and headed the Canadian delegation in the various WTO anti-dumping and subsidy-related forums.

Prepared analyses for, and participated in the development of, Canadian positions regarding the mandatory 1998–99 review of key provisions of the WTO Subsidies and Dispute Settlement Agreements.

Participated in the development of the Canadian position relating to the Pharmaceutical Understanding, which was concluded in early 1999 and implemented on July 1, 1999.

Participated in the development of the Canadian position relating to expanding the coverage of the Information Technology Agreement, which is expected to be completed by the end of 1999.

Participated in the development of the Canadian policy position for the purposes of the negotiations and discussions on the harmonization of the WTO rules of origin.

Participated in the development of the Canadian position relating to disputes brought before the WTO on, among others, magazines, aircraft, automobiles, dairy pricing and beef, as well as a review of the WTO Dispute Settlement Agreement itself.

Followed the WTO work program and participated in various domestic and international meetings for the purposes of developing a negotiating framework for possible disciplines on subsidies and trade safeguards in the context of trade in services.

Investment

The MAI negotiations ceased in October 1998. Departmental officials continued to be involved in a work program at the OECD on investment issues. More attention, however, was devoted to developing a Canadian position for possible WTO negotiations.

Continued to offer input to the Department of Foreign Affairs and International Trade respecting the negotiation of bilateral Foreign Investment Protection Agreements (FIPAs) and participated in bilateral negotiations with eight countries. Two FIPAs entered into force and several bilateral FIPAs were agreed-to in principle.

International Financial Organizations

Key Plans and Strategies

Continuing work with other shareholder governments to promote a broad reform agenda in international financial institutions.

Working closely with the Canadian International Development Agency (CIDA) to reduce the share of the aid program directed to international financial organizations.

Expected Results

Policy changes currently under way will continue to strengthen the effectiveness of international financial organizations.

The share of the aid program that is directed to international financial organizations will shortly be reduced to the 18-to-20-per-cent range, as required under the Program Review exercise.

Currently being developed

Accomplishments

Reduced the share of the aid program that is directed to international financial organizations.

For a complete discussion of the Key Plans and Strategies, Expected Results, Performance Measures, and Accomplishments, reference should be made to the International Financial Organizations business line later in this document.

Financial Asset and Liability Management

Key Plans and Strategies

The Department of Finance Canada, in conjunction with the Bank of Canada, works to maintain:

• Stable, low-cost funding for the government -- prudent debt structure, transparent operations across key maturities, benchmark building, and promotion of a well-functioning market for Government of Canada securities.

• Progressive restructuring of domestic debt programs, in consultation with market participants as federal market debt declines, with the aim of promoting the maintenance of a well-functioning market for Government of Canada securities.

• Prudent financial risk management policies for the government and financial Crown corporations consistent with regulatory and international best practices.

• Prudent levels of cash and Canada's international reserves to foster orderly conditions in the foreign exchange market and provide a sound liquidity position.

• Prudent management of the government's foreign currency assets and liabilities to immunize interest rates and currency risks and minimize cost of carry.

For further discussion of this key plan, reference should be made to the Interest and Other Costs business line of the Public Debt Program.

Expected Results

Debt charges not exceeding those projected in the budget, including the contingency reserve, in any given year.

For a complete discussion of this expected result, reference should be made to the Interest and Other Costs business line of the Public Debt Program.

Performance Measures

Reference should be made to the Interest and Other Costs business line of the Public Debt Program for details.

Accomplishments

Reference should be made to the Interest and Other Costs business line of the Public Debt Program for details.

Canada Investment and Savings

For a complete discussion of  KeyPlans and Strategies, Expected Results, Performance Measures and Accomplishments, reference should be made to the Canada Investment and Savings business line of the Public Debt Program.

A Competitive and Secure Financial Services Sector

Financial Sector

Key Plans and Strategies

Task Force on the Future of the Financial Services Sector

Carry out ongoing analysis in anticipation of the September 1998 Task Force report. Once the report is obtained, an extensive analysis of its recommendations will be carried out for the purposes of preparing proposals for the Minister on possible legislative and regulatory initiatives.

Foreign Bank Branching Regime

Prepare legislation and regulations that will improve access to foreign banks wishing to operate in Canada by enabling them to conduct activities in Canada directly through a full-service or lending branch operation.

Demutualization Regime

Develop legislation and regulations to enable all federally incorporated mutual life insurance companies to convert to stock insurance companies.

Proposed Bank Mergers

Undertake a detailed analysis of the two bank merger proposals and advise the Minister of Finance on the likely public interest considerations that would arise.

Expected Results

Task Force on the Future of the Financial Services Sector

Conclusions of the Task Force will form the basis of work on new legislation to modernize the financial sector.

Extensive public consultations on the Task Force's findings.

Legislation must be passed no later than June 2002.

Foreign Bank Branching Regime

Will allow foreign banks to branch directly into Canada in addition to subsidiaries.

Will help maintain a healthy foreign bank presence in Canada by making their operations more cost effective.

Will reduce the regulatory burden for foreign banks that do not wish to take deposits in Canada.

Demutualization Regime

Will give all federally incorporated mutual life insurance companies the flexibility to pursue a stock company structure and thereby gain access to more sources of capital.

Proposed Bank Mergers

Render a decision that is in the public interest, based on the independent advice of the Competition Bureau and the Office of the Superintendent of Financial Institutions, as well as on a careful analysis of public interest considerations.

Performance Measures

Foreign Bank Branching Regime

To be demonstrated by the extent to which foreign banks make use of the new regime and establish branch operations in Canada.

Demutualization Regime

To be demonstrated by the extent to which Canada's mutual life insurance companies, with the approval of their policyholders, opt to convert to stock companies under the new regime.

Financial Sector Review

Following the release of the report of the Task Force on the Future of the Financial Services Sector in September 1998, the Department of Finance Canada conducted in-depth analyses and extensive consultations with respect to the recommendations.

Accomplishments

Foreign Bank Branching Regime

Legislation and related regulations to implement the regime came into force on June 28, 1999.

The Office of the Superintendent of Financial Institutions is now accepting applications from foreign banks that wish to establish branch operations in Canada.

Demutualization Regime

Legislation and regulations to implement the regime came into force on March 12, 1999.

Canada's four largest mutual life insurance companies have indicated their intention to pursue demutualization; two companies have completed their conversions and the remaining two are at various stages in the demutualization process.

Financial Sector Review

Release on June 25, 1999, of a policy paper entitled Reforming Canada's Financial Services Sector: A Framework for the Future, which contains 57 measures that will form the basis of legislation to reform the financial services sector, and that are aimed at:

• promoting efficiency and growth

• fostering domestic competition

• empowering and protecting consumers of financial services

• improving the regulatory environment

Proposed Bank Mergers

On December 14, 1998, the Minister of Finance announced that the proposed mergers would not be allowed to proceed because they would have led to an unacceptable concentration of economic power, a significant reduction of competition and reduced policy flexibility for the government to address potential prudential concerns. At the time of the decision, the Minister of Finance also stated that the immediate priority of the government was to focus on establishing the appropriate policy framework for the financial sector for the twenty-first century.

Contributions to Getting Government Right

Advancement of the Privatization/Commercialization Agenda

Key Plans and Strategies

Provide analysis and advice on federal privatization initiatives including, where appropriate, assistance to line departments in reviewing privatization and commercialization initiatives and undertaking the privatization of federal Crown corporations and equity holdings.

Expected Results

Subject to market conditions and government objectives, to sell all or part of the government's 18-per-cent shareholding in Petro-Canada in this or subsequent fiscal years.

Subject to the receipt of an acceptable purchase proposal, to assist the Canada Development Investment Corporation in completing the sale of its wholly owned subsidiary, Theratronics International Ltd.

Performance Measures

Selling all or part of the government's stake in Petro-Canada.

Assisting the Canada Development Investment Corporation in completing the sale of its wholly owned subsidiary, Theratronics International Ltd.

Accomplishments

Theratronics International Ltd. was sold to the MDS Health Group Ltd. on May 20, 1998, for $15.5 million.

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