Why Does the Government Lapse Money and Why Does It Matter?

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Summary
Each year, billions of dollars approved by Parliament are not spent. In 2013-14, this unspent funding
totaled $9.3 billion; it corresponded to lower-than-budgeted spending on programs such as veterans’
benefits, national defence and capital infrastructure projects. Left unspent, these funds reduce net
federal debt at the end of the year.

 

Unspent money is a natural consequence of the federal government’s budgeting process. The funding
approved by Parliament for departments and agencies is a “maximum” ceiling, meaning that prudent
managers will always spend less than their total budget to respect the law.

As well, the Government maintains an elaborate internal administrative control system that can delay
the implementation of programs – even after the funding has already been approved by Parliament.

 

Parliament provides standing legal authority for part of this unspent money to be spent later. In 2013-
14, this totaled $2.0 billion, of which $1.1 billion pertained to money for the Canada Border Services
Agency, Canada Revenue Agency and Parks Canada. However, most of the unspent money is only
approved for a single fiscal year; hence, the legal authority to spend the funding “lapses” on March 31.
This amount totaled $7.3 billion in 2013-14.

While the composition and magnitude of lapses has varied over the past 20 years, there has been a
steady upward trend in the rate at which funding lapses. This is primarily in response to changes in the
Government’s fiscal policy posture.

 

As the annual rate of growth in Direct Program Expenses (DPE) increased, the lapse rate increased in
turn. Most recently, in a period of fiscal restraint, the rate of lapsed funding decreased to pre-
economic stimulus levels, as public service managers worked within a context of lower funding to meet
program objectives.

While Budget 2015 assumes that lapse rates will return to the historically low levels seen in the early
2000s, which is reflected in the projected increases in DPE, the Parliamentary Budget Officer’s analysis
indicates that changes in the composition of spending suggest otherwise.