Terrence J. Thomas
CABINET AND ECONOMIC POLICY
The Department of Finance
The Bank of Canada
Auditor General (AG)
Director of Investigation and Research (Bureau of Competition Policy)
Office of the Superintendent of Financial Institutions (OSFI)
The Economic Council of Canada
National Council on Welfare
The Canadian Tax Foundation
The Fraser Institute
The Institute for Research on Public Policy (IRPP)
General Agreement on Tariffs and Trade (GATT)
International Bank for Reconstruction and Development (IBRD or World Bank)
International Monetary Fund (IMF)
Organisation for Economic Co-operation and Development (OECD)
paper describes the most important advisers on economic policy in Canada.
These are not specific individuals (for example, the current Minister
of Finance), but rather departments, agencies, committees and other groups
that make or influence economic policy or provide information and analysis
of use to policymakers. The emphasis is on groups concerned with macroeconomic
policy or general issues of expenditure or regulation, particularly those
who are often in the news or who are known to provide information to government.
The paper does not attempt to discuss provincial economic policy or the
provincial organizations dealing with it.
policy falls into four general categories:
1. Fiscal Policy
first two (macroeconomic) policies are obviously linked to the Department
of Finance (Fiscal Policy) and the Bank of Canada (Monetary Policy). These
two institutions and the links between them will be discussed below.
is more difficult to identify advisers on regulatory policy and redistributive
policy. Every minister in Cabinet (and each organization under the minister)
is concerned with these policies, but it is beyond the scope of this paper
to describe every department and government organization in Ottawa. Moreover,
there are scores, if not hundreds, of groups outside government that provide
information and analysis in hope of influencing these policies.
CABINET AND ECONOMIC POLICY
government of the day, and ultimately the Prime Minister, is held responsible
for economic policy. This is true, but it is more useful to go to the
second tier of responsibility and examine decisionmaking and the Cabinet.
following figure shows the Cabinet committee structure following the recent
Cabinet shuffle. Several observers have pointed out that the new structure
has been set up to make it easier to refuse requests for spending; this
is reasonable, given the priority apparently being given by the government
to deficit reduction. There is, however, nothing in the structure that
will automatically lead to expenditure cuts.
the most important changes in the Cabinet structure were the creation
of the Expenditure Review Committee with the Prime Minister in the chair,
and the Operations Committee (Ops) with the Deputy Prime Minister in the
chair. The former committee, on which the Deputy Minister, the Minister
of Finance and the Treasury Board Secretary serve, is based on similar
Cabinet committees in the U.K. and Australia, and will actively seek expenditure
cuts. Officials from the Department of Finance are helping to staff this
committee. The Treasury Board Committee continues to authorize spending
for approved programs. Its traditional role of promoting efficiency in
spending will, of course, complement any moves towards restraint.
Operations Committee coordinates the policy committees and controls access
to the Priorities and Planning Committee (P and P) which approves all
new spending. Policy committees thus have no spending power of their own.
Several commentators have pointed out that the mandatory route from Ops
to P and P offers two chances to close the door on new spending proposals.
This structure also gives more prominence to P and P and more power to
the chairman of Ops. In theory, it will no longer be possible for a minister
to go directly to Cabinet or the Prime Minister, a practice that showed
the need for discipline among Cabinet committees, and led to the informal
Ops function in place since about 1986.
have noted that ministers who are not on the Treasury Board, Ops or P
and P Committees have lost some power by the recent reorganization, while
the Deputy Prime Minister has increased in power. This new power flows
from the new structure, and the new structure may, in part, reflect the
personality of the Deputy Prime Minister.
on the powers and personality of the Deputy Prime Minister, however, has
drawn attention away from the new position of the Minister of Finance.
This Minister is on the four main Committees, and, as noted, officials
from his department will help staff the new Expenditure Review Committee.
following are brief descriptions of those departments and organizations
most concerned with economic policy in Canada. The descriptions are based
on information provided in the Canada Year Book, CCH Canadian
Government Programs and Services Report (looseleaf service, regularly
updated), annual reports and publications of the organizations described,
and unpublished papers by economists in the Research Branch of the Library
of Parliament. As the discussion above brought out, the Department of
Finance is the central player.
The Department of Finance
Department advises the federal government on the general economic and
financial affairs of Canada. Its broad interests are reflected in its
and Legislation Branch
Development Policy Branch
and Economic Analysis Branch
Sector Policy Branch
Trade and Finance Branch
Relations and Social Policy Branch
Department also has a Law Branch, staffed by the Department of Justice,
and an Administrative Branch.
by the Department deals with short-run economic developments and long-run,
or structural, developments. The former are focused on the budget, which
reflects the success or failure of past economic policy and the significance
of any shocks to the economy (such as a change in economic policy in the
U.S.). The budget is the responsibility of the Minister of Finance, whose
officials, because of the tradition of budget secrecy, provide its most
important input. Advisers outside the department attempt to influence
budgets by providing analysis of topical issues for example, proposed
areas for spending cuts or tax increases.
long-run influence of the Department on the economy is produced by its
suggested changes in economic legislation. The recent Stage One reform
of the income tax system is a case in point. Stage Two will deal with
sales tax reform. The Department is also working on revisions to legislation
covering federally regulated trust companies and the Bank Act,
whose next revision is due in 1990.
policy is a natural concern of the Department because of the short-run
and long-run effects of such policy on the Canadian economy. The next
section, on the Bank of Canada, discusses the role of the Department in
Department publishes the Quarterly Economic Review, of which one
issue each year contains reference tables for the main economic, fiscal
and financial aggregates for the past few decades.
B. The Bank of
Banks primary task is to maintain the stability of the domestic
currency. In practice, this means that it formulates and implements monetary
policy so as to curb inflationary pressures. To do this, the Bank influences
interest rates and thus the rate of growth of total spending in the economy.
Between 1975 and 1982, the Bank emphasized the growth of the narrow monetary
aggregate, M1, defined as currency plus demand deposits at chartered banks.
Even during this period, however, the cutting edge of monetary policy
was short-term interest rates; the growth of M1 was a useful indicator
of monetary expansion and inflationary pressure - one of several indicators
used - but the control of M1 was never an end in itself.
the focus of monetary policy, short-term interest rates, is narrow, the
Bank must take a broad view of economic developments in Canada and in
other countries, especially the U.S., to determine the desired level for
these rates. The four policy departments give an indication of the broad
title "Research Department" is somewhat misleading as all the
policy departments carry out research in their specific areas. The Research
Department monitors developments on the "real" (or non-financial)
side of the economy, including fiscal policy as set by the Department
fiscal and monetary policy interact. Neither the Bank of Canada nor the
Department of Finance can ignore the other, and their policies, in the
long run, must be consistent. The Bank is independent of political pressure
in the day-to-day operations of monetary policy, although the Bank
of Canada Act recognizes that the ultimate responsibility for monetary
policy rests with the federal government.
are two ways in which the federal government ensures that monetary and
fiscal policy are consistent. the first is by regular consultation between
the Governor of the Bank and the Minister of Finance, as required by the
Act, and the second is by constant but informal consultation between senior
officials of the Bank and the Department.
is possible, of course, that even with consultation, the Governor and
the Minister could disagree over the stance of monetary policy. As a last
resort, the Minister may issue the Bank a written directive, approved
by the Governor in Council, setting out the monetary policy to be followed.
The directive must cover a specific time period and set out specific terms
(that is, it must do more than say that future monetary policy is to be
eased or tightened). To date, no such directive has been issued. Most
observers feel that in such a case the Governor would resign and there
would be a crisis of confidence in money and exchange markets.
addition to formulating and implementing monetary policy, the Bank is
responsible for the issuance of bank notes and acts as fiscal agent for
the government and as its agent in the operations of the Exchange Fund
Account and related foreign transactions. The agency roles are linked
to monetary policy, as changing interest rates affect the cost of the
national debt and the level of exchange rates.
Bank of Canada publishes weekly financial statistics, a monthly review
containing more comprehensive statistics and articles on the Canadian
economy, and technical papers and reports written by professionals both
at the Bank and outside it.
Treasury Board was established in 1867 as a committee of the Queens
Privy Council for Canada. As seen above, it continues to have an important
role among Cabinet committees. The Board consists of six members: the
President of the Treasury Board, the Minister of Finance, and four other
Ministers. It authorizes spending for programs already approved.
1966, the Treasury Board Secretariat was established as a separate department
of the government, with the President of the Treasury Board as its Minister.
The Treasury Board is charged with managing the financial and material
resources of the government. As official employer of the public service,
it supervises employee compensation and job classification and conducts
labour negotiations with public service unions. As supervisor for the
governments budget, it reviews and approves the spending plans of
each federal department and agency.
D. Auditor General
the Office of the Auditor General was established in the late nineteenth
century, the AGs mandate was redefined and broadened with the Auditor
General Act, 1976-77. The AG is appointed by the Governor in Council
as auditor of the accounts of Canada. As well, the AG audits a number
of Crown corporations, expresses an opinion on the financial statements
in the Public Accounts, and brings to the attention of the House of Commons
anything significant with respect to the management of public funds.
year, the Auditor General puts out a report that includes observations
on the governments financial statements, annual audits of government
agencies and departments, follow-ups from previous annual reports, and
special audits. The Auditor Generals report for 1988 was a massive
600-page document. Media and public attention naturally focuses on the
horror stories in the report - boats that wont float, helicopters
that wont fly and bridges that lead nowhere - but there is much
more in the report than sensational stories. The central concern is with
the need for accurate, timely, comprehensible information that will allow
policy makers to monitor the effectiveness of their policies.
the AG analyses the effectiveness of policy and exposes any overspending
or possible mismanagement of public funds, he has some influence over
current economic policy.
E. Director of
Investigation and Research (Bureau of Competition Policy)
the recent increase in merger activity, the Director of Investigation
and Research in the Bureau of Competition Policy is often in the news.
Part VIII of the new Competition Act requires parties to a large
merger proposal to notify the Director and provide information on the
proposal. The Director then determines whether the merger will prevent
or substantially lessen competition in Canada. As the Directors
Annual Report for the year ending 31 March 1988 points out:
Competition Act provides that the assessment of merger transactions
is not to be based solely on quantitative criteria such as concentration
ratios or market share. Thus, a non-exhaustive list of qualitative
factors that may be considered in assessing a merger is contained
in the legislation. Of these factors, the extent of current or likely
foreign competition and the existence of tariff or other barriers
to entry are playing an increasingly significant role in some merger
assessments as trade considerations become more important in the
changing global environment. In addition, the efficiency gains provision
is increasingly being relied upon by parties in their submissions
regarding proposed mergers and has been an important consideration
in our assessment of a number of mergers. In assessing efficiency
gains, international trade effects are taken into account in accordance
with the Act.
Director also investigates criminal law prohibitions against agreements
to lessen competition, anti-competitive behaviour and deceptive marketing
practices. He also conducts inquiries into non-criminal matters, such
as tied selling. These activities of the Director are discussed in the
Annual Report, which is part of a new public education and information
other countries, in which economic data are generally collected by individual
users (for example, in the U.S. the Bureau of Labor collects labour force
statistics while another agency collects data on the national accounts)
Canada has a centralized statistical agency - Statistics Canada. This
agency collects, processes and distributes data on most aspects of Canadian
society and the economy. It also cooperates with other federal agencies
(for example, the Bank of Canada) and provincial departments to improve
the flow of data in the country. The breadth of information provided by
Statistics Canada is staggering. For almost any analysis of policy, actual
or proposed, Statistics Canada provides a starting point. Statistics Canada
has a very important, although necessarily indirect, influence on economic
mid-1985, the Foreign Investment Review Agency (FIRA) was transformed
into Investment Canada. Both were established to provide the federal government
with the authority to review foreign investment in Canada, although they
reflect different attitudes towards such investment. FIRA was established
to screen foreign investment and ensure that it was a "significant
benefit to Canada." Investment Canadas role is to encourage
and facilitate domestic and foreign investment that will benefit the country.
The Investment Canada Act substantially narrowed the foreign investment
that requires review by Investment Canada. Reviewable investments include:
of Canadian businesses with assets of $5 million or more;
acquisitions (i.e., acquisitions resulting from the acquisition of
a parent company outside Canada) of Canadian businesses with assets
of $50 million or more;
acquisitions of Canadian businesses with assets between $5 million
and $50 million if the Canadian assets represent more than 50% of
the total value of the international transaction; and
or new businesses in "prescribed" business activities related
to Canadas cultural heritage or national identity, if the government
considers a review to be in the public interest.
businesses, unless included in the last category, do not need review.
H. Office of the Superintendent
of Financial Institutions (OSFI)
came into being in 1987 as a designated department of the government,
with the Minister of Finance as its head. The deputy head of OSFI is the
Superintendent of Financial Institutions, who, with some additional powers,
replaced the previous positions of Inspector General of Banks and the
Superintendent of Insurance. OSFI has two main functions: regulating financial
institutions and employer-employee pension plans under federal jurisdiction,
and providing actuarial services to the government. Under the first function,
OSFI has recently been concerned with the capital adequacy of financial
institutions, given international competition; the questionable status
of Third World debt; and increasing links between different types of financial
institutions (for example, bank ownership of brokerage firms). OSFI also
occasionally finds itself perceived as a financial ombudsman.
Economic Council of Canada
Economic Council of Canada was established in 1963 to advise on the best
means by which Canada could achieve the highest possible levels of employment
and efficiency while enjoying consistently high economic growth. It may
conduct and report on any study related to its duties and possibly make
recommendations to the government. The Council is required to publish
an annual review of the medium- and long-term prospects and problems facing
the economy. Although the Economic Council reports to Parliament through
the Prime Minister, it does not have a direct role in making economic
J. National Council
National Council of Welfare was established by the government in 1969
as a citizens advisory body whose mandate was to advise the Minister
of National Health and Welfare on welfare matters. There are 21 members
of the Council, drawn from past and present welfare recipients, public
housing tenants, other low-income citizens and concerned professionals.
Council reports deal with a wide range of issues, such as income security
programs, medicare, poverty lines and poverty statistics.
Canadian Tax Foundation
Canadian Tax Foundation is an independent tax research organization whose
Governors are nominated by the Canadian Bar Association and the Canadian
Institute of Chartered Accountants. The Foundation provides impartial
research, carried out by a permanent staff and by outside experts commissioned
for special studies, on current problems of taxation and government finance.
The Foundation publishes the Canadian Tax Journal (every two months),
National Finance (every year), and Provincial and Municipal
Finances (every two years).
L. The Fraser
following is the Institutes description of itself:
Fraser Institute is an independent Canadian economic and social
research and educational organization. It has as its objective the
redirection of public attention to the role of competitive markets
in providing for the well-being of Canadians. Where markets work,
the Institutes interest lies in trying to discover prospects
for improvement. Where markets do not work, its interest lies in
finding the reasons. Where competitive markets have been replaced
by government control, the interest of the Institute lies in documenting
objectively the nature of the improvement or deterioration resulting
from government intervention.
Fraser Institute is a national, federally chartered, non-profit organization.
It is funded by contributions from its members and proceeds from the sale
of its publications, which include studies on affirmative action, rent
control, competition policy and taxation in Canada.
Institute for Research on Public Policy (IRPP)
following is the Institutes description of itself:
in 1972, the Institute for Research on Public Policy is a national
organization whose independence and autonomy are ensured by the
revenues of an endowment fund which is supported by the federal
and provincial governments and by the private sector. In addition,
the Institute receives grants and contracts from governments, corporations
and foundations to carry out specific research projects.
raison dÍtre of the Institute is three-fold:
as a catalyst within the national community by helping to facilitate
informed public debate on issues of major public interest;
participation by all segments of the national community in the
process that leads to public policymaking; and
practical solutions to important public policy problems, thus
aiding in the development of sound public policies.
with its objectives, IRPP publishes studies that cover a wide range of
topics. Publications range from the general (for example, a 1987 study
on the future of social welfare systems) to the specific (a 1987 study
of the softwood lumber dispute).
are probably hundreds of consulting firms in Canada. Some are one-person
operations with a narrow focus. Others are large groups capable of research
on almost any economic topic. Some of the larger organizations use macro-econometric
models to forecast GNP, unemployment, the level of prices and interest
rates, and many other economic variables. Among the organizations with
large econometric models of the Canadian economy are the Conference Board
of Canada, Data Resources of Canada, Informetrica and the Institute for
Policy Analysis (connected with the University of Toronto).
consulting groups have an indirect influence on economic policy since
they can provide new or more accurate information to influence policymakers.
By specializing and focusing their research, consulting firms, even small
ones, may provide information that is unavailable or not readily available
to public servants. Large firms can also influence policy through the
publicity given by the media to their forecasts and studies.
like advertising, has two functions - it persuades and it informs. Because
changes in economic policy can have huge impacts on specific industries,
it is not surprising that industries or even individual firms spend money
trying to influence policy. Consumers are, of course, also affected by
changes in economic policy, and there are consumer lobby groups such as
the Consumers Association of Canada. Professionals, for example,
lawyers and accountants, also have organizations that attempt to influence
caricature of the lobbyist is of one who influences policy through personal
ties to policymakers or by misrepresentation of the effects of proposed
policy. Though there may be some cases where this is true (just as any
caricature may at times be true), in practice the lobbyists greatest
influence comes from the accuracy of the information he or she provides
to policymakers. A lobby group representing, for example, the insurance
industry may have access to industry data otherwise unavailable to the
Department of Finance.
new data may greatly influence a proposed policy change. And accurate
data should have an influence on policy. Naturally, data presented by
an industry will be biased - to the extent that its lobbyists would not
voluntarily provide information that would promote policies they regarded
as unfavourable, such as heavier taxation of that industry - but the data
will be accurate. Any lobbyist providing false information would soon
have no job. Recognizing the bias in a lobbyists presentation is
obviously important, but lobbyists can still be the best source of information
on specific policy proposals.
benefits of competition can be seen in the improvement in financial journalism
in Canada over recent years. The Financial Post now publishes daily
and competes with the Globe & Mail business section, while
other daily newspapers must compete with these two national dailies. The
result is increased coverage of business and financial news. All the dailies,
in turn, face competition from the weekly Financial Times, specialized
magazines such as Canadian Business and the Globe & Mails
Report on Business, and the increased economic coverage in magazines
such as Macleans.
addition to the Canadian print media, there is foreign competition: the
daily Wall Street Journal, the weekly British Economist
and Business Week, and the bi-weekly Fortune and Forbes.
There are also radio and television reports on business.
the last decade, competition has increased the quality of financial journalism
as well as its quantity. More and better economic journalism should have
an increased effect on economic policy, both by influencing public opinion
and by providing information and analysis to policymakers.
Canada has an open economy, its economic policy is influenced by what
happens in other countries, especially the United States. Because of the
importance of trade, financial flows and the state of the world economy,
Canada is active in many international organizations. This participation
allows Canada to exchange information with other countries and gives it
a voice in the world economy. As a small country, Canada will usually
not have the same impact as Germany or Japan, but being active with some
possible influence in a world organization is better than having no say
in policy debates.
following descriptions are based on information in The Europa Year
Book for 1988.
A. General Agreement
on Tariffs and Trade (GATT)
was established in 1948 as a multilateral treaty aiming to liberalize
world trade. It is based on several fundamental principles.
be based on non-discrimination (the famous "most-favoured-nation"
clause whereby all contracting parties are granted treatment as favourable
as received by any country);
is given essentially through a customs tariff (to make level of protection
tariff levels negotiated among contracting parties are listed for
each country in tariff schedules;
is used to avoid damage to the trading interests of contracting parties;
circumstances warrant, a member may seek a waiver from a particular
of developing countries receive special attention; and
a framework for negotiations to reduce tariffs and other barriers
to trade, and a means for putting the results of such negotiations
into a legal instrument.
the beginning of GATT, there have been seven rounds of multilateral trade
negotiations. These rounds have contributed to the reduction in tariffs
throughout the world and to the growth of world trade. Canada is, of course,
an important player in these negotiations. The two most recent rounds
were the "Kennedy Round" (1964-67) and the "Tokyo Round"
(1973-79). A new round began in September 1986 in Punta del Este, Uruguay
(hence the name "Uruguay Round").
Bank for Reconstruction and Development (IBRD or World Bank)
World Bank was established at the end of 1945 and at first concerned itself
with post-war reconstruction in Europe. Since that time, the World Bank
has redirected its focus towards the less developed countries in the world.
It assists the economic development of member countries - there are over
150 members - by making loans where private capital is not available on
reasonable terms to finance productive investments. Along with the loans,
the Bank provides technical assistance in the form of economic, sector
and project analysis. The Banks capital comes from members
subscriptions to capital shares; part is paid-in and the rest is subject
to call if required. In mid-1987, the total subscribed capital was $85.2
billion (U.S.) of which 9% was paid-in.
Bank puts out numerous publications, including the World Bank Annual
Report and the annual World Development Report, which provide
useful surveys of the state of the world economy. Because of the nature
of its activities, the World Bank is obviously concerned with the Third
World debt crisis and produces an annual publication, World Debt Tables,
that provides basic information on this subject.
Monetary Fund (IMF)
IMF was established at the same time as the World Bank. Its purpose is
to promote international monetary cooperation, the balanced growth of
trade, and stability in foreign exchange. Founders of the IMF wished to
avoid the competitive devaluations that occurred during the interwar period.
To do this, they established a permanent institution that would allow
continuous consultation and collaboration on monetary problems.
its general resources, the Fund can provide temporary assistance to allow
members to correct maladjustments in their balance of payments without
resorting to measures harmful to domestic or international prosperity.
Members subscriptions form the basic resource of the IMF. In mid-1987,
Canadas quota represented 3,27%. Capital borrowing supplements the
subscriptions, which are related to a members national income, monetary
reserves, trade balance and other economic indicators.
the World Bank, the IMF produces many useful publications that survey
the world economy and provide data for international comparisons of important
economic variables. The most important source of international statistics
is probably the IMF publication International Financial Statistics,
which is published monthly and annually.
for Economic Co-operation and Development (OECD)
in 1961, OECD replaced the Organisation for European Economic Co-operation
(OEEC), which had been established in 1948 in connection with the Marshall
Plan. At OECD, representatives of the governments of the industrialized
democracies discuss and attempt to coordinate economic and social policies.
The main vehicle used for this coordination is the Economic Policy Committee,
which is composed of chief economic advisers and central bankers. It meets
two or three times a year to review economic and financial developments
and the policies of member countries.
and Development Review Committee examines the economic situation in each
country and then usually issues a report. This Committee is one of about
200 bodies (committees, working parties and other groups) that cover almost
all aspects of economic and social policy, and produce a wealth of regular
and occasional studies on energy, science, technology and industry, the
environment, manpower, social affairs and education, as well as straightforward,
economic studies on trade, finance and fiscal policy. Like those of the
IMF, OECD data are useful for anyone making international comparisons.