The federal government implemented a new expenditure management system in 2007. Under the new system, departments are required to review programs on a four-year cycle to determine if they are aligned with federal responsibilities and priorities, if they are efficiently delivered and if they are providing value for money, or effective. Based on the results from these strategic reviews, which are expected to be supported by formal evaluations that provide the evidence base for decisions, departments are expected to identify five per cent of their direct program spending that could be reallocated to other priorities, including deficit reduction. This system has much to recommend it, but to realize the full potential of the new system two fundamental changes should be made. First, spending programs delivered through the tax system should be integrated into the expenditure management system. Integration implies that departments would be given responsibility for both tax and spending initiatives that are relevant to their mandates, and that tax-based expenditures would be subject to the government’s evaluation policy and be included in strategic reviews. Second, while departments should continue to have responsibility for evaluating program efficiency, evaluations of both tax- and spending-program effectiveness should be undertaken by an independent entity such as the Parliamentary Budget Officer. Effectiveness evaluations should be carried out using a variant of the benefit-cost framework that is now applied to government regulatory initiatives. In order for the reformed system to work, more resources will need to be allocated to developing the performance data needed to undertake effectiveness evaluations and to perform the evaluations. These changes go well beyond a recent recommendation by a House of Commons committee to include tax expenditures in departmental reports to Parliament, along with planned program spending. The government rejected the recommendation, arguing that the change would undermine the finance minister’s authority over the tax system. Reform cannot proceed unless the finance minister relinquishes his power, exercised jointly with the prime minister, to introduce, modify, or eliminate tax measures related to the mandate of a program minister without the consent of the minister.