Federal departments failed to spend $38B last year

OTTAWA - The federal government failed to spend tens of billions of dollars in the last fiscal year on promised programs and services, including new military equipment, affordable housing and support for veterans.

Federal departments are blaming a variety of factors for letting a record total of $38 billion in funding lapse in 2021-22, including delays and disruptions caused by the COVID-19 pandemic.

They also say much of the money remains available for future years.

The unspent funds also played a big part in the Liberal government posting a smaller-than-expected deficit in the year ending March 31, 2022.

Canada rang up a $90.2 billion deficit — $23.6 billion less than had been projected in the budget.

The unprecedented amount of lapsed funding, much of which has been returned to the federal treasury, has one observer suggesting it is a sign of long-standing challenges delivering on big federal projects for the country.

The amount of lapsed funds across government is spelled out in the most recent iteration of the public accounts, a report on federal revenues and spending by every department and agency tabled in the House of Commons every year.

The $38.2 billion that was reported as lapsed in the last fiscal year marks a new record over the previous year, which was $32.2 billion. That was a dramatic increase over the previous record of $14 billion in 2019-20.

That compares to around $10 billion about a decade ago, when Stephen Harper’s Conservative government was accused by political opponents and experts alike of using large lapses to make cuts by stealth.

Health Canada and the Public Health Agency of Canada reported the largest lapses of all departments and agencies, with nearly $11.2 billion of their combined $28.2 billion budgets going unspent.

Much of that had been set aside for COVID-19 initiatives that were not needed, said Health Canada spokeswoman Tammy Jarbeau. Those include vaccines, personal protective equipment and rapid tests.

"Both Health Canada and the Public Health Agency of Canada have rigorous internal financial management controls designed to prevent, detect and minimize errors and financial losses, and ensure the funding is spent in the best interests of Canadians," she wrote in an email.

The pandemic figured in the responses and explanations from many other departments and agencies, with many blaming COVID-19 for delays.

One of them was the Defence Department, which reported a lapse of $2.5 billion in the last fiscal year. Much of the money wasn’t spent due to delays in the delivery of new military equipment such as Arctic patrol vessels and upgrades to the Army’s armoured vehicles.

There were also delays on major infrastructure projects for the military, according to Defence Department spokeswoman Jessica Lamirande. Those include upgrading and rebuilding two jetties for the Navy in Esquimalt, B.C., and a new armoury in New Brunswick.

"The COVID-19 pandemic has had a significant impact on many of our business lines," Lamirande said.

"The impacts of the pandemic on supply chain and industry capacity are causing manufacturing backlogs and delays."

Lamirande added most of the unspent funds are expected to be available in future years through a process called reprofiling, in which schedules are revised to reflect planned spending in future years due to those delays.

Former parliamentary budget officer Kevin Page said the government’s handling of lapsed funding now is "a little more relaxed" than in previous years, when unspent funds were not reprofiled and even used to justify budget cuts in Ottawa.

But defence analyst David Perry of the Canadian Global Affairs Institute said the Defence Department’s lapse, which has been steadily growing in recent years, is a symptom of Ottawa’s continued difficulties purchasing new military equipment.

"If we're not getting those procurement projects through, we're not getting new equipment into the inventory, so we don't actually have the gear for our troops," he said, noting many of the delayed projects were launched under the Harper government.

Perry also noted the current rate of inflation, which is already naturally higher for military equipment and the defence sector than most other parts of the economy. Not spending money now means Canada will have to pay more for the same gear and services later, he said.

The Infrastructure Department, the Canadian Mortgage and Housing Corp. and the Fisheries Department, which includes the Canadian Coast Guard, also reported delays with different capital projects, including on affordable housing and broadband internet.

"Due to the unprecedented circumstances over the last few years such as the COVID-19 pandemic, disbursing funds to proponents for many projects are expected to and will take longer," CMHC spokeswoman Claudie Chabot said in an email.

Perry suggested a bigger problem.

"The government of Canada's ability to actually deliver services to the public, especially when it comes to large projects, large capital projects, be it for equipment or infrastructure or IT projects, is struggling across the board," he said.

Other federal entities with large lapses included Indigenous Services Canada, which failed to spend $3.4 billion, and Crown-Indigenous Relations and Northern Affairs Canada, which reported a lapse of $2.2 billion.

Spokesman Vincent Gauthier attributed much of the latter lapse to "the timing and progress of negotiations for specific claims and childhood litigations," adding that funds will available "in some instances" in future years.

Gauthier did not say why Indigenous Services, which is responsible for delivering federal services to First Nations, Inuit and Métis, failed to spend billions of dollars. He did say most of the money had been reprofiled "so that it will be available when recipients need it."

Veterans Affairs Canada also reported a nearly $1 billion lapse last year, which the department blamed on fewer ill and injured ex-soldiers applying for assistance than expected.

However, critics have described earlier lapsed funding as evidence of the challenges many veterans face in accessing benefits and services. In 2014, the Royal Canadian Legion demanded the Harper government explain why $1.1 billion went unspent over seven years.