Proceedings of the Standing Senate Committee on
National Finance
Issue 20 - Evidence
OTTAWA, Thursday, November 26, 1998
The Standing Senate Committee on National Finance met this day at 11:07 a.m. to examine the expenditures set out in the Supplementary Estimates (B) for the fiscal year ending March 31, 1999.
Senator Terry Stratton (Chairman) in the Chair.
[English]
The Chairman: I would like to congratulate and thank the witnesses. The folks that were here from Australia wanted to congratulate you on your knowledge. They were staggered at how well prepared and how open and responsive you were.
We around this table feel the same way. Please proceed.
Mr. Richard Neville, Assistant Secretary, Expenditure Analysis and Operation Sector, Treasury Board Secretariat: I would like to pass on the congratulations to my staff. They were the ones who made it happen. They prepare the briefing books and prepare me.
If you recall at our last meeting, a question was raised with respect to the Bank of Thailand, the $626-million loan that was questioned in the context of the US$500 million. I would like to clarify the particular response that I gave, and then you asked for more information on specific points, and I have that as well.
How did we arrive at a supplementary estimate of $626 million when the loan is US$500 million? The thought was that if you did the conversion from US$500 million to $626 million, it would not work out at the current exchange rate. The loan, which is planned to occur over nine disbursements, will have a total principle of US$500 million. These disbursements will occur over a period of about two years ending in June 2000. The supplementary estimate in question for $626 million is derived from US$413,850,000 at an exchange rate of 1.5125. This US$413.9 million figure is composed of the initial disbursement of US$362.1 million, and three of the eight subsequent disbursements are US$17.3 million each. If you do the calculation, that will give you your $626 million.
Senator Bolduc: There is nothing in that for Indonesia or Malaysia or other countries that are in difficulty. It is only Thailand. Will the others get some next year?
Mr. Neville: Yes. Specific questions were raised, and I would like to deal with each, one by one. If you recall, the first question raised was with respect to the Swissair investigation, the recovery of costs. On that particular point, the question was, can the Government of Canada recover costs from other governments, such as the U.S., Switzerland, or from Swissair?
In that context, we have gone back and verified what the correct protocols are in that kind of a scenario. The Government of Canada would not normally recover costs related to such investigations from other governments, such as the U.S. or Switzerland, as a result of an international convention. That international convention is The Chicago Convention of the International Civil Aviation Organization, to which Canada is a signatory. It obliges the countries in which crashes occur to undertake and pay for the investigation. In effect, the convention is that the country that unfortunately has the crash is the country that actually pays.
However, the Canadian Transportation Accident Investigation and Safety Board is attempting to recover salvage costs from Swissair and its insurance company. To date, they have been unsuccessful in having any meaningful meetings with the insurance company.
Now in the case of a Canadian plane crash, Treasury Board Secretariat (TBS) would normally split the salvage cost 50/50 with the aircraft owner's insurance company. We are trying. We have had no success to date, but there are ongoing efforts.
The other piece of information that is worth sharing with you is that with respect to the services of the USS Grapple, the Department of Foreign Affairs and Trade has informed TBS that the U.S. government is not expected to seek reimbursement of its cost. The U.S. will be picking up some cost as a result of that.
Senator Lynch-Staunton: There is a country-to-country agreement that no compensation or reimbursement --
Mr. Neville: Correct.
Senator Lynch-Staunton: Does that stop the Safety Board -- as they are doing in the case of the insurers -- from trying to make a claim there or with the manufacturer of the claim? There is no policy within the board of automatic request for reimbursement.
Mr. Neville: The default is that we pay.
Senator Lynch-Staunton: Thank you. That is the answer. I thought we should do it. I gave the arguments before. I will not repeat them.
Mr. Neville: I have given the chairperson as well as the clerk a handout. The first part of it outlines the contribution to the provinces for assistance related to natural disasters. On that, if you just want to take a quick scan of the document, it sets out the estimated payments to the end of the fiscal year 1998-99. On the left side, if you look at the column, is the province or territory where the disaster occurred. The second column deals with the disaster itself as to what the prior payments are, the 1998-99 requirements, and then the type of payment. It is important to note that the majority of these are final payments, so we will not see them again. Needless to say, with respect to the 1996 flood, there are still some payments to be made.
The Chairman: The flood was in 1997. There was a flood in 1996, as well as in 1997. The 1997 flood I am sure cost more. I remember a cheque delivered by the Foreign Minister, Lloyd Axworthy, of $25 million as an initial payment. I see only $2 million here. I am curious as to why there is this substantial discrepancy. The cost of the flood is in the range of $300 million.
Mr. Neville: Are you talking about the Manitoba flood of 1997?
The Chairman: Yes.
Mr. Neville: I will check on that and get back to you.
The Chairman: There was a flood in 1996, and the more substantial one was in 1997. Thank you.
Mr. Andrew Lieff, Director, Estimates Division, Treasury Board Secretariat: It is possible that the bills have not started coming in for that yet, but we will follow up.
The Chairman: That is what I assume. So we must wait until Supplementary (C)?
Mr. Neville: Or until the claims actually come in.
The Chairman: A year from now, we will know.
Senator Bolduc: Is it the same thing for the ice storm?
Mr. Neville: Yes. That is a separate issue. That is one piece of information you had requested and it does show it by province and territory.
The next item deals with the national hepatitis C initiative. If you recall, there was a specific question as to whether there was anything in these particular Supplementary Estimates that relates to hepatitis C?
The reason why we had a difficulty then was that you were using the term "hepatitis C," and in the broader context there are funds in here. Now whether you can directly relate it to hepatitis C is a little open to interpretation. To provide you with as much information as we have, we have broken it down into major components.
On September 18, 1998, Minister Rock announced the comprehensive proposal to provide a better hepatitis C disease prevention and treatment package, to significantly strengthen the blood safety and to help Canadians infected with hepatitis C through the blood systems prior to 1986 and after 1900.
What we see in these Supplementary Estimates (B) relates to that September announcement. Specifically, $17.5 million is being allocated to activities in Health Canada for strengthening Canada's blood safety system. The federal government approved a total -- this is probably a number you remember -- of $125 million over five years to establish strong blood regulatory and surveillance programs in response to the Krever commission.
These additional funds will reduce the risk of future blood system tragedies, bring Canadian activities up to levels comparable with other leading industrialized nations, and protect Canadians against current and emerging health threats arising from the use of blood tissues and organs.
There were other components as well in Minister Rock's September announcement that are not included in these Supplementary Estimates, but will be the subject of future Supplementary Estimates when program design details have been finalized.
These components -- which again were not included in these sups, but in future sups -- is an amount of up to $50 million over five years for new hepatitis C disease prevention, a convention, community-based support programs and research. I knew there would be some costs specific to the hepatitis C initiative, and so in the response we were looking more towards the future. This sort of bears it out.
The anticipated start date for this initiative is April 1, 1999. There is also another component, a special transfer of $300 million over 20 years to the provinces and territories to provide access to medical care not currently covered by provincial health care programs. It is estimated that the total cost of these services would be approximately $600 million. This will help ensure that Canadians who have been affected by hepatitis C through the blood system do not incur out-of-pocket expenses for medical treatment. Discussions are ongoing with the provinces and territories on this component of the national initiative.
There is also an estimated $25 to $50 million as the federal share of costs for look-back, trace-back activities to help identify people who may have been infected through the blood system or through donated infected blood. That additional information was being sought.
Senator Lynch-Staunton: There was other information being sought. What you have quoted was announced by Minister Rock in September, following meetings with health ministers. This is the federal government's direct contribution to those who contracted hepatitis C before 1986 and after July 1, 1990.
Where, if anywhere, does the federal government's commitment of $800 million to victims of hepatitis C between January 1, 1986, and July 1, 1990, appear? In that same press release, the minister reconfirmed a $1.1 billion compensation package for victims between 1986 and 1990, $800 million being the federal government's share and $300 million being the provinces' share, for all the provinces that signed on. They have divided up the package between the levels of government by eight-elevenths and three-elevenths.
Nothing has been paid out yet. I understand that negotiations between lawyers for the victims and those of the government are still proceeding, but not very fast. However, the commitment was made in March 1998 and reconfirmed in September. That is the amount I was hoping to find, at least in part, in these estimates.
Mr. Neville: I went over the news release. It is ironic that we had a briefing yesterday in another forum. That specific amount is not in the estimates per se.
Senator Lynch-Staunton: No.
Mr. Neville: There is still discussion, and it has not been finalized. What you are seeing here, in very small part, is strictly the immediate requirements for the resources for that part of the program. There is still a lot more to come.
Senator Lynch-Staunton: We are seeing that the government has complete control over, and is not subject to, any negotiation. I was hoping to see what is subject to negotiation.
Mr. Neville: The negotiations have not been finalized yet, so they are not in the position to disclose what the final details of those negotiations will be.
Senator Lynch-Staunton: The amounts are known. The $800 million figure is known. Whether one agrees with it or not is irrelevant. There seems to be no provision made in the estimates for any part of that $800 million to be remitted before the end of this fiscal year.
Mr. Neville: My understanding is that that discussion is ongoing, has not been finalized, and until it does become finalized, it will not be translated into a document such as this.
Senator Bolduc: The commitment is made by the minister, and normally, if it has been done in September or something like that, something should appear in the Supplementary Estimates.
Mr. Neville: They would not appear if arrangements had not been completely finalized. There is still Supplementary Estimates (C). It could very well be part of Supplementary Estimates (C), or it will be in the next Main Estimates because it is only effective as of April 1, 1999. These are Supplementary Estimates for the year 1998-99 that have been agreed to and finalized, and payments are ready to be made if and when Parliament agrees. If you have a scenario where it has not been finalized, there is still the Supplementary Estimates (C). If it will only start April 1, 1999, it would be in the estimates for 1999-2000. It is not in here.
Senator Bolduc: It is a little ironic that you are talking about public accounts when we are looking at estimates.
Mr. Neville: I am speaking about public accounts for last year, 1997-98.
The Chairman: You are talking pure history, I guess.
Mr. Lieff: When the program details have not been developed, the exact mechanism of the payment, that can have a bearing on how it is presented. Sometimes we wait until after the commitment is made until some of those details are worked out as to how we actually vote it, what authority it fits under, whether it is a contribution, that kind of thing. The details need to be worked out, and then it depends on when the money will actually flow.
Senator Bolduc: The style of the government is that they make the commitments, and then Parliament will follow. Parliament is a minor thing.
Mr. Neville: They make the commitment, but there still is a legal requirement to go to Parliament for the appropriate authorities before disbursements are made. There must be a mechanism put in play that allows the authorities to be granted through Supplementary Estimates if it is during the year, or estimates if it is for the next fiscal year. In this particular case, negotiations to finalize the agreement are occurring today, at which point steps will be taken to seek Parliament's approval for the funding. It is very normal. There is nothing hidden here. It is only a question of the process catching up with the announcement.
Senator Lynch-Staunton: Might we see that $800 million in the next budget, for the first time?
Mr. Neville: You might see it in Sup (C), or you might see it in the budget. If you do not see it in the budget, you might see it in the estimates themselves.
The next item dealt with Environment Canada. You mention the MMT, the methanol issue. What prompted the government to settle with the Ethyl Corporation? If you recall, that issue was discussed at a dispute resolution panel under the Agreement on Internal Trade (AIT), and it found that the restrictions imposed on the gasoline fuel additive MMT, under the Manganese-based Fuel Additives Act, were inconsistent with the federal government's obligation under AIT. In response to this recommendation, the federal government lifted its restrictions on interprovincial trade and import of MMT as of July 20, 1988.
In light of this response to the AIT panel's recommendation, the federal government also moved to resolve other challenges to the Manganese-based Fuel Additives Act launched by the Ethyl Corporation under NAFTA, and by Ethyl Canada in the Ontario court. The government agreed to pay US$13 million to Ethyl representing its reasonable cost and lost profit in Canada, and the amount to be paid was subject to independent verification. As a result of that payment, Ethyl agreed to terminate its legal action, and the government now believes that this settlement is in the best interest of Canadians because it avoids long, protracted and expensive legal proceedings.
Senator Lynch-Staunton: What exactly is AIT?
Mr. Neville: The Agreement on Internal Trade is the agreement between the federal government, provinces and territories.
Senator Lynch-Staunton: The CBC a few weeks ago had a long presentation on MMT and claimed that the government backed off because of representations being made under NAFTA. If I heard you correctly, actually the government backed off because this bill breached the Interprovincial Trade Agreement, did it not?
Mr. Neville: I made sure of that.
Senator Lynch-Staunton: Do you have the mechanics?
Mr. Neville: They are that AIT has the provision to create a dispute resolution panel, which they did.
Senator Lynch-Staunton: Do you know who actually lodged the complaint under the AIT? It must have been a province, right?
Mr. Neville: Yes, it was the Government of Alberta joined by the governments of Quebec, Saskatchewan and Nova Scotia.
Senator Lynch-Staunton: That is different than the official version being given out elsewhere. We should clarify this at the appropriate time.
The Chairman: I could not associate what interprovincial trade had to do with MMT. Now we all understand it.
Senator Lynch-Staunton: Nothing you say makes us feel better, but certainly it clarifies a lot of things that otherwise would make us feel worse.
Some of what you have read will be in the transcript, but could we have the full copy of what you had before you that you were ready to read in total? Is there anything confidential?
Mr. Neville: I do not think there is a problem with sharing this with you.
Senator Lynch-Staunton: I would appreciate it very much.
Mr. Neville: I will let you know if I censor something out.
Senator Lynch-Staunton: You have been generous with information in the past, and if there is anything there that should not be included --
Mr. Neville: It is all in the public domain, or it should be.
The Chairman: It is a payout, an out-of-court settlement. Its terminology of payment is related to the regulation of MMT under the Manganese-based Fuel Additives Act. Why is it just not called an out-of-court settlement?
Mr. Neville: We probably could have used that terminology.
Senator Lynch-Staunton: In the second-to-last clause of the bill, there is wording saying the government may remove MMT from this act.
Mr. Neville: Which it does. It is in there.
Senator Lynch-Staunton: Do you have that in your notes?
Mr. Neville: Yes. Again, you have not seen it, but it is in there.
The Chairman: I am curious as to the wording.
Senator Bolduc: Our leader is quite knowledgeable in those matters.
Mr. Lieff: We make every effort, when we come up with those little capsules of words, to try to communicate what the item is, but as you can appreciate, there are lots of items. Every once in a while we miss one. I am not saying that that is what happened here, but we make an effort to say in plain English what the item is.
The Chairman: This is like a new world.
Mr. Neville: The next item is very appropriate under the circumstances. You asked for a table prepared for the last several years of the budgetary voted and statutory amounts, and the non-budgetary voted and statutory amounts, and to have as a percentage what the Supplementary Estimates are based on the Main Estimates. That is the second part of what the handout was this morning, so I will leave that with you. You can look at it.
There is a significant fluctuation from year to year from negative to positive percentages, so it is information and it will situate where these particular Supplementary Estimates (B) are in relation to the Main Estimates for this year. However, there are wide fluctuations from year to year in terms of percentages.
I must remind everyone that some years we have had Supplementary Estimates (A), (B), (C) and (D). Most years we have had Supplementary Estimates (A) and only (B). There are variances from year to year. I will leave that with you as information.
Senator Corbin: It depends on the election year.
Mr. Neville: On the issue of the Public Complaints Commission costs as they relate to APEC hearings, it is important to note that for 1997-98 -- that is the previous fiscal year -- disbursements reached $221,000. For 1998-99, this current fiscal year, for disbursements to date it is $768,000 for a total to date of $998,000. That is what we spent so far on the APEC hearings.
We anticipate that there will be additional costs between now and the end of December, which will be in the order of about $100,000, and there may be additional costs subsequent to December 31, for example, into the new calendar year. We do not know what those costs will be based on, how long the hearings will last, and whether there will be other variables as they relate to those hearings.
The bottom line is that at this point we have spent $989,000 and we expect another $100,000 between now and the end of December. We do not know what will happen after that. Somebody asked whether we knew what the costs were. Those are the costs to date.
The next issue is Y2K. First, with respect to National Defence, the Emergency Preparedness Organization was recently announced by the Prime Minister. The second issue regards Transport Canada and their Y2K preparedness for the aircraft control system, as well as the airline industry.
National Defence Emergency Preparedness, in keeping with the announcement by the Prime Minister, is a national contingency planning group. It was formed with Mr. Paul Thibault appointed as the Federal Coordinator. Yesterday, I had the opportunity to sit with Mr. Thibault for quite some time to go over his new responsibilities. If I do not answer all the questions that you have based on this text, I certainly would be pleased to answer questions over and above that.
Due to its role in National Emergency Preparedness, DND will have the lead responsibility for implementing contingency plans. The National Contingency Planning Group representatives of various federal departments, which have interdependent civil protection and emergency planning expertise, will provide the resource base for the National Contingency Planning Group. This is a new group with a very wide range of responsibilities.
Now, contingency planning is the area of the business continuity process where an organization attempts to recognize and address as many uncertainties and risks as possible so that the organization can maintain operation of their organizations when a crisis occurs.
From a prudent planning perspective, the four primary objectives of the group are to ensure: first, that there be no loss of life; two, that basic community needs are provided for; three, that the business continues as usual or resumes quickly; and four, that the confidence in government is maintained. Those are his four major objectives for this exercise.
The overall approach to planning will involve three phases. The first is the preventive phase; the second is the preparedness phase; and the third is a response phase. The main focus to date has been on the prevention phase, ensuring that the public and private sector organizations will be compliant and ready for the year 2000.
Government and industry are identifying mission critical systems and non-compliant technologies and devising strategies to address these problems. However, it is to be noted that at the same time the planning group is collecting information that will form the basis of a risk assessment analysis in conclusions. The focus is on Canada's critical infrastructure such as utilities, transportation, safety, communications, government and services. The Y2K contingency planning activities of other countries are also being assessed.
We also met yesterday with a senior representative from the Canadian utilities industry, and assurances were provided to us from the industry through this individual that they are addressing seriously the Y2K issue and are cautiously optimistic that things will proceed well.
Preparedness activities rely heavily on the cooperation of public and private sectors to provide the information necessary for accurate risk analysis. Assessment of risk associated with the national infrastructure will serve to determine what scenarios are likely to occur and permit perceived deficiencies to be addressed in advance.
Testing of the national contingency plan will occur in the summer of 1999. DND's particular contingency planning operation -- call it ABACUS for the sake of an operational name -- is the Department of National Defence and Canadian Forces Contingency Plan for Response to the Year 2000. The plan details the preparations being made by the Canadian forces to be ready to respond to potential requests for assistance by civil authorities, and to help address possible disruptions to essential activities.
The operation of ABACUS has been the number one priority of the Canadian forces since August 1988. All planned operation activities for the coming year have been critically reviewed with a view to maximizing the capabilities available for training and support to the operation of ABACUS.
Now, the Canadian forces' priority throughout the year 2000 event will be to preserve the safety and well being of Canadians while continuing to fill their defence tasks. The key element of the Canadian forces will also be to prepare the establishment of a reliable command, control and communications structure.
Task force headquarters will be linked to the organization of provincial emergency measures during the millennium transition period in order to be aware of the situation as it develops. It is this military command structure that will likely be deployed prior to January 1, 2000, with the bulk of ABACUS personnel and equipment available if and when requested. Training exercises will be conducted throughout the spring and fall of 1999. This training will increasingly integrate civilian authorities with military personnel and will culminate with the Canadian forces-wide exercise in September 1999.
I trust that responds to the question on DND's preparedness with respect to Y2K.
The Chairman: Are you assuming civil chaos? What do you mean by training?
Mr. Neville: We are suggesting here that there will be training between the military and civilian organizations to ensure that there is close coordination and that it is not reactive as opposed to being proactive.
The Chairman: If we do that with other disasters, we will really be in good shape.
Mr. Neville: We are trying to avoid a potential scenario.
Now let's look at Transport Canada, with respect to the preparedness of the air traffic control system and the airline industry. Although NavCan is no longer in the federal fold, the Minister of Transport continues to be responsible for the oversight, including safety of air navigation services in Canada.
If you recall a few years ago, the air traffic navigation services, which was part of Transport Canada, was transferred over to NavCan, which is a private sector corporation. That function has de facto been taken by the private sector.
In this connection, Transport Canada officials are working with NavCan to ensure that air navigation services in Canada conform to national and international standards. On November 23, NavCan had a Y2K Solutions Day. At this event, NavCan committed that all of its systems would be ready by April 1999. End-to-end testing of its systems would be completed by that time. NavCan is confident that it will be business as usual when January 1, 2000, arrives.
At the same event, the airline industry representatives, as well as airport telecommunications and airline manufacturers reported good progress in their Y2K remedial work, and that they were on target with respect to current plans. All are working with industry partners to ensure that contingency plans are in place in the event of a system failure.
On September 25, 1998, the Minister of Transport convened a forum on the state of readiness of the aviation industry. In addition to raising awareness of the issue through events like the one above and through correspondence with industry participants, Transport Canada is reviewing the contingency plans of industry players.
Most recently on November 23, 1998, NavCan hosted an event for the entire industry in Toronto. I have reported on the outcomes of that particular meeting.
We are cautiously optimistic at this point. You could use other terms that are more negative or positive. It is as good as it can be. It is November 1998. We still have -- just for the record -- 399 days, 15 hours and a few minutes.
Senator Bolduc: I was looking at your Supplementary Estimates as a percentage of Main Estimates. In the past it used to be around 1 per cent or something like that. This year I notice that it is 4 per cent. It is a huge amount. The Supplementary (B) Estimates are $4,600,000,000.
Out of 23 departments, the bulk of it is for three departments. Finance I can understand because Thailand had a crash in Asia, and we had put some money into it.
I can understand that you may make a forecast, and then adjust, the social transfer. It is a huge amount this year, over $1 billion just for that. Fishery is $331 million. It is a lot of money, and we do not know exactly what problems it solves. It is not so clear in fisheries. I suppose the $300 million is for helping the fishers, but which ones? How many of them? Are they the rich ones? Are they the ones who control the distribution?
The problem is distribution in that sector. We do not know if that money is for big entrepreneurs. I do not think that this should be the case if it is. It should be for the fisher who is poor and has problems. This is not necessarily the case here.
In Human Resources there is also $300 million for employment programs that will be handed to and administered by the provinces that have agreed to do so.
Finally, Foreign Affairs has $100 million for a situation that we can understand. For example, it gives grants to international institutions and industry to help them convert to the new information systems, the new high-tech fashion. It is a lot of money. Some of it, in my opinion, should have been in the Main Estimates.
My problem is that the percentage is growing for Supplementary Estimates. Four per cent is a new high in the last five years. I am not saying that you made a poor forecast when you made the first estimates, but that is the explanation we have officially from you and the ministers.
Mr. Neville: There is $628 million for Fisheries and Oceans and Human Resource Development. To make a very macro-comment here, it is to handle the fishers on both the East and West coasts. It is basically for adjustments and restructuring measures and to bring an end to the TAGS program, and for what you would call the post-TAGS program.
There is $473 million for the carry-forward position. We are allowing departments to transfer up to 5 per cent of their lapse from one year to the next. Those are items we normally see. We normally see those in Supplementary Estimates (C), but now we are seeing it in Supplementary Estimates (B). Remember that I said you must be careful whether you look at Supplementary Estimates (B) or (C).
There is $272.4 million for the Y2K date problem. We discussed that. There is $180.5 million for compensation for collective agreements. We have not been in the collective bargaining mode for five years, so we are now seeing for the first time the cost of increased pay. There is $60 million for five organizations for Gathering Strength: Canada's Aboriginal Action Plan.
There is $236 million for National Defence for the partial payments for the provinces for assistance related to natural disasters. We talked about that this morning. There is $98 million for Human Resource Development Canada for the Canadian Opportunities Strategy Program. This was announced back in the 1998 budget.
There is another $88 million for the Canadian Broadcasting Corporation for separation payments under the early departure incentive and early retirement incentive program. There is $70 million for the Canadian Space Agency for further investments in three major space projects, which I would be pleased to share and discuss with you.
There is $63 million for the Department of Foreign Affairs and International Trade to provide certain provinces with a share of the revenues collected from the fees paid by exporters of softwood lumber. There is $58 million for Industry Canada for Schoolnet, and there is $58 million for Health Canada for priority health initiatives. Now that is one component.
Then under "Statutory", that is all part of the number. We talked about the $874 million for the Department of Finance to increase the Canada Health and Social Transfer cash entitlement. There is $605 million for Finance to increase equalization payments. There is $56 million for CIDA for accelerated cashment of promissory notes to the Asian Development Bank. There is $53 million for the Department of Finance to adjust the accounts of Canada on National Sea Products, and then there is the $626 million non-budgetary item for the loan to the Bank of Thailand.
It is a big number, but you must look at them individually and assess the impact on the various department based on the particular request that they are asking for. When you put it together, it is a significant percentage increase, but the substantiation has been provided to validate the amounts being requested.
Mr. Lieff: For the first time in a while, the budget had identified some additional funds for strategic investments, and because of the way the Main Estimates process works, where we have an obligation to table the Main Estimates on or before March 1, and because of budget secrecy, we are not able to capture the budget items that have not been identified in the Main Estimates.
We have tried to get better information to Parliament. We now have a document called the "Reports on Plans and Priorities," which are tabled the last week of March. It attempts to do that.
In this Main Estimates document, we are essentially seeking your parliamentary authority to proceed with the executives' plans as they have documented them, but we are also advising you of the additional spending that is provided for in the budget that was too late to announce. It identifies that amount, and we try to reflect that in the spending plans of those documents that move out through the year. Part of it is a process problem. When there is money in the budget, it will take Supplementary Estimates to catch up to it, to acquire the parliamentary authority to catch up to the government's plans announced in the budget.
The Chairman: Look at "Public Works and Government Services" on page 124. Through $1 vote for CMHC, we have increased from $200 billion to $250 billion the amounts of loans ensured. Is this as a result of increased housing activity in the private sector? I am well aware that CMHC insures mortgage loans on behalf of lenders. Is it just a historic update because it has not been updated for such a long time?
Mr. Neville: As you stated, it is an increased authority to ensure loans. We show that by a $1 vote. CMHC administers the Mortgage Insurance Fund (MIF), which provides lenders with insurance against default on residential mortgage loans. The Bank Act requires homebuyers to insure mortgages that exceed 75 per cent of the value of the home.
Now, Section 21 of the National Housing Act sets a limit for mortgage insurance insured by CMHC at $150 billion, plus any additional amounts authorized by Parliament under the Appropriation Act. One year ago, in Supplementary Estimates, the ceiling was increased by $50 billion to $200 billion. To answer your question, it has already been updated.
Following a year of strong real estate market, CMHC expects to reach the $200 billion limit in early 1999, and is seeking a $50 billion increase to $250 billion. CMHC further expects that another increase in the ceiling will be needed in two or three years hence. If the ceiling for insurance were reached, CMHC's new insurance business would be limited to repayments on outstanding mortgages, or about 50 per cent of current insurance volumes. This would result in greatly reduced access to mortgage financing and decreased consumer choice, as the only other insurer -- which is the Canadian General Electric Mortgage Insurance Company (GE) -- does not have the field network, nor the additional capital needed to take over half of CMHC's 90 per cent market share of mortgage insurance. Also, GE tends to cherry pick by only offering the more viable mortgage insurance products in the larger urban centres, so it would be very restrictive.
There would be serious negative impacts on the housing industry if the ceiling were not raised. CMHC operates the MIF on a commercial basis, without any government subsidy. Premiums are set so as to earn a reasonable profit over the long run. Over the next five years, CMHC is projecting a pretax profit of $320 million after paying an annual guarantee fee to the government for its financial backing at 3 per cent of capital, which is estimated to be about $185 million.
CMHC will seek TBS's authorization for an item. They have come to us and we are seeking that authority.
The Chairman: This is not perhaps answerable today. Are we the only country that does this kind of thing? The U.S. has Housing and Urban Development. Do they have a similar program? I would expect they do.
Mr. Neville: I am not sure.
The Chairman: I am curious as to why we are in the insurance business in such a large way and why the private sector is not. Is the private sector not there because CMHC is there? That is the sense you are left with. They cannot compete with CMHC, and as a result, they do not move into the market. I do not know if you can answer that.
Do we know what the failure rate is of repayment?
Mr. Neville: Do I know it this morning? No, I certainly do not.
The Chairman: Could you find that information?
Mr. Neville: I am sure they will share that with us.
The Chairman: I am especially interested because in my previous life we used to do multiple housing, and there were a lot of defaults in the late 1980s and early 1990s. I think that is changing now. Most of their bad stuff is completed and has been straightened out, but we went through a traumatic time where there were a tremendous number of defaults. If you could find that information out for us I would appreciate it.
Mr. Neville: We will do our best.
The Chairman: As there are no other questions, I would suggest that we have the researcher prepare a draft report for circulation that we would review one week today at this time for approval by you, to be presented to the Senate for approval the following week, second week of December. Would that meet with your approval? Can we proceed on that basis? Does anybody have any objections to that? Thank you very much, gentlemen.
Once again, it is like a whole new world, with the information that we are able to have now and that we were not able to have before.
Senator Bolduc: Is it possible that those gentlemen could come back once in a while? You are now publishing a new annual report: the first report is for 1997, and then there will be one for 1998. Will we have an overview with you one day about that?
Mr. Neville: I would be pleased to discuss that with the researcher and the chairman.
Senator Bolduc: We have new committee members here, and it is important that they are knowledgeable about the new way of making and reporting on budgets.
Mr. Neville: As a matter of fact, you are not aware of this, but we are about to have a discussion on that particular issue.
Senator Bolduc: Second, can we have an idea where we will issue our report on the civil service study that we have done?
The Chairman: That is being drafted now.
Senator Bolduc: Will we be able to have a look at it before Christmas?
The Chairman: We will hopefully have it by the end of next week.
Senator Bolduc: It would be fine if we could put an end to our inquiry. It would be good also for the government.
[Translation]
Senator Ferretti Barth: When referring to a page of your report, could you give us the page number of the French version?
Mr. Neville: Sure.
Senator Ferretti Barth: By the time I find where you are, I've lost all of what you are saying.
Mr. Neville: Thank you for this very good comment. From now on, I will refer to the French text if appropriate.
[English]
The Chairman: Our committee will report on this idea of the remuneration and retention of the civil service, hopefully by the time we rise at Christmas, if we can.
I have talked to you before about embarking on that study of disasters in Canada. I have just had a talk with Senator Carstairs and she is in full support of doing this study. Mind you, she is also from Manitoba. However, it does not just affect Manitoba. Quebec and other parts of the country were quite dramatically affected by the ice storm.
As Emergency Preparedness Canada is trying to develop an appropriate plan to deal with the Y2K problem, we want to see that similar plans of action are taking place with disasters. I have not seen it with the floods in Manitoba and the Saguenay and the ice storm. There was a lot of good reaction to these disasters, but you could not see where there was appropriate planning.
Mr. Neville: In context of the discussion you just had, Mr. Lieff reminded me that we did bring along with us a document that may be of assistance, Disaster Financial Assistance. It is a manual to assist in the interpretation of federal guidelines.
[Translation]
This is the disaster financial assistance interpretation manual, the federal guidelines which explain the formula that is used to establish the amounts that can be allocated in case of a disaster.
[English]
This may be of interest to the committee. We will leave that with the clerk and you, Mr. Chairman.
The Chairman: Thank you.
The committee adjourned.