Proceedings of the Standing Senate Committee on
National Finance
Issue 16 - Evidence - Meeting of November 3, 2009
OTTAWA, Tuesday, November 3, 2009
The Standing Senate Committee on National Finance met this day at 9:30 a.m. to examine the estimates laid before Parliament for the fiscal year ending March 31, 2010 (topic: economic update).
Senator Joseph A. Day (Chair) in the chair.
[English]
The Chair: Honourable senators, last week, officials from the Department of Finance met with us to discuss the present state of the economy and forecasting. We will continue that discussion this morning.
Soon we will have before us two budget implementation bills, Bill C-50 and Bill C-51, and a number of other pieces of legislation, as well as the Supplementary Estimates (B). With these sessions, we are hoping to gain a better understanding of the background in relation to the state of the economy.
[Translation]
For our first round table, we welcome officials from Infrastructure Canada.
[English]
We are pleased to have with us Mr. John Forster, Associate Deputy Minister; Taki Sarantakis, Associate Assistant Deputy Minister, Policy and Priorities Directorate; and Mr. Bryce Conrad, Assistant Deputy Minister, Program Operations Branch. Gentlemen, welcome, and thank you for being here this morning.
We normally begin with some introductory remarks. Your remarks have not been circulated. Do you have copies?
Taki Sarantakis, Associate Assistant Deputy Minister, Policy and Priorities Directorate, Infrastructure Canada: No, but we can provide those to you later.
The Chair: Mr. Forster, you have the floor.
[Translation]
John Forster, Associate Deputy Minister, Infrastructure Canada: Thank you, Mr. Chair. I am pleased to be back before this committee to provide testimony about infrastructure programs.
[English]
When the global economy took a downturn in the fall of 2008, the Minister of Transport, Infrastructure and Communities met with provinces, territories, municipalities and industry. During these discussions, we talked to them about how infrastructure could assist in getting Canada through the recession, as well as what we could do to improve our infrastructure programs to make them run better.
During these consultations we all heard, coast to coast, about the need for more infrastructure funding, not just to help improve Canadians' quality of life, but also to help stimulate the economy. We also heard about the need to streamline and improve how we managed our programs so that the provinces, territories and municipalities could start their projects sooner.
As you know, on January 27, the government announced its Economic Action Plan. In this plan, the Government of Canada put infrastructure on two important tracks. The first track was that we were asked to accelerate our existing $33 billion Building Canada Plan. This plan was launched in the 2007 budget. At that time, it was designed to provide predictable, stable, long-term funding over a seven-year period for infrastructure projects. In particular, we were asked to accelerate the $8.8 billion Building Canada Fund, which is allocated to provinces and territories for both large, strategic infrastructure projects as well as for projects in small communities with under 100,000 residents.
Therefore, the first challenge for our department was to try to accelerate what was a seven-year program to assist in providing more immediate stimulus into the economy.
The second track was that the budget announced $12 billion in new infrastructure initiatives that were to be temporary, targeted and timely, again, to help provide stimulus to the economy. Many of these initiatives announced were to be delivered over this year and next.
I did want to note that Infrastructure Canada is not the only federal department delivering infrastructure funding under the Economic Action Plan. We are managing several funds, such as the $4 billion Infrastructure Stimulus Fund; $500 million top-up to Building Canada Fund for small communities; a $25 million national recreational trails initiative; and a $1 billion Green Infrastructure Fund which, unlike all the other programs in the budget, is a five-year fund. The rest are two-year funds.
There are many other programs operated by other departments, such as RInC, the Recreational Infrastructure Canada Program, managed by regional development agencies; the Knowledge Infrastructure Program, managed for universities by Industry Canada; as well as funds for housing and federal buildings.
As you all know, infrastructure is not the only measure announced in the Economic Action Plan to help fight the recession. It also includes other measures such as tax credits, support for key industries such as forestry and automobiles, and support for training.
Again, it is a pleasure to be here. The last time we were here in the spring, we provided you with an update on where we were. I am happy to come back and give you a further update on what has happened in the last several months and over the summer and fall.
Since the budget at the end of January, in just over nine months, we have designed, approved and launched five new infrastructure programs in the budget. We made legislative, regulatory and administrative changes to our programs to accelerate approval of infrastructure projects under our funds. We accelerated funding a transfer payment that we provide to provinces and territories, originally planned at $25 million per year. We have agreement with nine jurisdictions to accelerate that funding; instead of getting it over seven years, they are willing to accelerate that over the next several years. To date, we have transferred over $500 million for that.
For the small community's component of Building Canada Fund for projects for small communities, which was originally planned to be rolled out over seven years, we have fully accelerated and approved all of that funding in 9 of 10 provinces, in addition to the $500 million the budget gave us to top that program up. We took a seven-year program, we have approved it all, projects are under way and we have added the $500 million to it. That has all been approved and done in 9 of 10 provinces.
Since January, we have announced funding for 78 large, strategic infrastructure projects under Building Canada, with $2.5 billion of federal funding. These are important, long-term projects such as the Sheppard LRT and Union Station improvements in Toronto; new drinking water facilities, like in Lévis, Quebec; and improving transit systems in Calgary and Edmonton. These are the bigger, longer-term projects.
For the Infrastructure Stimulus Fund, since January, we have signed agreements with all 13 jurisdictions who have agreed to provide new money to match ours. Also, we have committed more than $3.3 billion of the $4 billion fund and approved over 3,000 projects across the country.
Combined, in the nine months since January, we have committed more than $7.6 billion federally to over 4,700 projects across all our programs. When you combine that with the investments of provinces, municipalities and others, we have collectively committed $21 billion to infrastructure projects in Canada.
These infrastructure projects are not just important in putting people to work; they are good projects for Canada and for communities. For example, we are making improvements to the Port of Belledune in northern New Brunswick; we are fixing the central reference library in downtown Toronto; we are putting in new sewers and water pipes in communities throughout Quebec; we are supporting the TELUS World Centre of Science in Calgary, Alberta; we are twinning highway 11 in northern Saskatchewan to give people safer and better transportation; and we are constructing a new wind farm in Summerside, Prince Edward Island. These are examples of some of the projects that are being funded under our programs.
We work closely in cooperation with other orders of government, particularly provinces, territories and municipalities. It is truly a national partnership. We do not build or manage the projects; our partners do that. Our role is to review and approve the projects and give them a green light as quickly as possible.
For example, under the Infrastructure Stimulus Fund, we designed an accelerated online application process. Project managers can start building their projects and incurring costs the day their project is announced. Work is already under way on many of these projects.
In the September report tabled by the government, based on the first information provided to us by the provinces and territories, we estimated work is under way on close to 1,800 projects, worth about $6 billion in combined contributions. This includes preconstruction work, tendering, ordering supplies, contracts, design, as well as work shovels in the ground.
The economic impact of these projects begins as soon as our partners get their approval. The work does not wait until a federal cheque arrives; they have the authority to proceed. Once we do get a claim from the provinces, we review it and pay it within 30 days.
I conclude by saying that since the budget in January and since we were last here in the spring, we have come a very long way. It has been a busy year. We have an unprecedented number of infrastructure projects approved and under way, and in various stages of planning and construction. We have every confidence in our municipal, provincial and private sector partners that they will accelerate their construction as quickly as possible.
My colleagues and I will be pleased to answer any questions that you may have for us this morning.
The Chair: You talked about the Building Canada Fund, it being seven years duration, and you accelerated it and added a further $500 million. Could you give us more detail?
Mr. Forster: In Budget 2007, one of the funds announced was called the Building Canada Fund. It was over $8 billion, allocated per capita to provinces and territories.
The fund has two components. In each province, we divide it in half — not necessarily 50/50, but into two pieces — and the amount in each piece varies by province. Part of the fund goes to large, long-term, strategic projects — some of them I mentioned, like the subway in Toronto, drinking water plants and twinning highways. Part of the fund, about $1.1 billion across the country, is set aside for small communities with a population of under 100,000. They apply to the fund, to a secretariat with the province.
Originally, the intent was to manage that over two or three rounds of applications over seven years. The budget said: ``We will provide an additional $500 million for projects in any province where they commit and approve all of that money now, this year.'' Even though it was originally going to be a seven-year program, we have accelerated it. By this summer, we had approved all of that money — the $1.1 billion originally for seven years — and we have approved this top-up money in nine of the ten provinces.
Senator Di Nino: Are these matching grants? Are they purely Infrastructure Canada money or are they matched with municipalities and provinces?
Mr. Forster: Under our programs, everything is matched with the exception of the Gas Tax Fund, which is 100 per cent federal funding. For all of our other federal programs, the federal funding must be matched. For example, if it is a provincial highway, it is a 50/50 agreement between ourselves and the province. For municipal community projects, it is one third federal, one third provincial and one third municipal.
The Chair: You said nine out of the ten provinces; you did not mention the territories, so, presumably, there are three territories and one province that have not signed on. They will not be getting any of the $1.1 billion because that it already gone and has been committed. Is that the way I understand your testimony?
Mr. Forster: No, not quite. In the territories, the Building Canada Fund works a bit differently. Because it was allocated per capita, they get a very small amount in the North because they have few people. In 2007, the government provided what I call this base funding for provinces and territories of $25 million a year.
For the territories, that is a huge amount. They are getting $175 million in base funding. We just rolled the money into that program. Rather than giving them $3 million out of one, we put it all together. We do both kinds of projects in the North — obviously, small community projects and larger projects — so they benefit from it.
The Chair: What about the province that has not signed?
Mr. Forster: We still have not committed all of the funding under the communities' component in Quebec but we are very close, and then we will move on to the top-up money.
The Chair: You have not committed all of the $1.1 billion, then?
Mr. Forster: No. We are close on Quebec and then we have their share of the $500 million.
Senator Eggleton: Thank you for your work on infrastructure over the years. As you point out, it has many different programs within it, but I want to focus on the stimulus.
According to the third report of the Minister of Finance with respect to the Economic Action Plan at the end of September, 90 per cent of the funds have been committed. I would like to understand, in terms of the Infrastructure Stimulus Funding, what the word ``committed'' means. Also, how much has actually gone out to this point in cash outlay?
According to the critic for the opposition in the House of Commons, at the end of August, only 12 per cent had gone out the door. There is a big gap between 90 and 12 per cent. After all, we are in a period when we need the money being used and jobs being created, and cash outlay becomes an important part of that.
What is your role after the commitment? You will explain how you consider the word ``committed,'' and beyond that, would you explain your ongoing role and also the provincial ongoing role in administering what happens at the local level?
Mr. Forster: I will take those questions one at a time.
In the report tabled by the government in September, it talked about 90 per cent of the action plan being committed. That includes everything in the action plan — for example, tax measures, housing, training measures, money for the automobile sector — not just infrastructure.
The Infrastructure Stimulus Fund, as I mentioned in my opening remarks, is a $4 billion fund. It is over two years. We have committed over $3.3 billion of the $4 billion fund. We have some left to go.
In terms of cash spent, I would respond in a couple of ways. First, funds are flowing this year to provinces, territories and municipalities at an unprecedented rate — not just from our program, but from all of our programs and from other departments.
The timing of the funding is actually not the critical issue. Our federal infrastructure programs work such that we reimburse cost incurred as construction proceeds. If you have a $100-million project, I do not give you $100 million up front and say, ``Thank you very much. Let us know how it turns out.'' The proponent proceeds with construction, and as they incur costs, they submit claims to the province who then, under the program, will submit the claim to us.
I may not see a claim for work that is under way this summer until February or March, depending on when it comes through. What is key under the stimulus program is when they are authorized to begin work. That is when they can go ahead and get their tenders done, put out contracts, order equipment and supplies and put everybody to work.
As I mentioned in our first reports that we had in September, we estimated about 1,800 projects are under way, worth about $6 billion. We are now going through the first set of claims that we received from provinces and territories. They give it to us on a quarterly basis. Until we have reviewed the claims, I cannot give you an answer as to how much of our money has been spent by them.
On the third question on our ongoing role, our key role was to get projects green-lighted and approved, which we have done. The provinces also have a role. They have to build the projects that they have for their assets, whether it is highways or some other thing. They also, in turn, are responsible to stream the money to the municipal governments through the program. They sign their short contribution agreements with the cities, monitor and report progress to us. As I mentioned, we are just going through the first quarterly ones that were submitted. We will review and monitor those and work with the province to see that, for example, this project does not seem to be starting on schedule or this one is ahead of schedule. We have some projects coming in under tender costs, so we will review with them what to do with that money.
We have an ongoing monitoring role. The province, in our legal agreement with them, is also responsible to monitor the progress of the projects, stream the money to the municipalities and others, and oversee the construction.
The cities, the third leg in the partnership, obviously have the responsibility to manage the projects, issue the tenders, oversee construction on a day-to-day basis, pay the bills, and then they submit claims through the province to us for our share.
Senator Eggleton: You say that timing is not an issue, but there is a fine deadline here in terms of when these projects must be completed. Are you convinced that all of this $4 billion will be out the door and will have been used — perhaps not paid; you say there is a delay — by the deadline?
Mr. Forster: When people apply to the program they sign an attestation that they feel the project can be finished by March 31, 2011. We are confident in our municipal partners that they will build the projects by that time. We have put in place this quarterly reporting and monitoring. If we see, with the province, that a project that was supposed to start on October 15 has not started and it is November 30, we can ask what is going on there. The question then becomes, ``Do we need to move that money into something else, into some other project that can use it, rather than watch that project sit there and the money go unspent?'' We will be continuing that monitoring and doing everything we can to ensure that all the funds are spent.
Senator Eggleton: One of the big controversies in all of this is the distribution of the money, quite aside from who signs the ``big physical cheques.'' According again to the critic in the House of Commons, the Harper government funnelled 34 per cent more taxpayers' dollars into Conservative ridings. He also pointed out that the top 20 ridings by number of projects and by dollar amount all show a clear direction toward Conservative-held ridings.
What is your opinion about the distribution of this money? Is it not supposed to be evenly distributed?
Mr. Forster: No, the stimulus fund money is distributed to provinces on a per capita basis. Everyone is getting their per capita share. Within that, the allocation of funds is based on the applications submitted; for example, in Ontario. With the Province of Ontario, we issued a call for applications to municipal governments on May 1. We had 2,700 applications. We reviewed those and made announcements a little over a month later on 1,200 projects. Those projects are reviewed and approved. First, the projects themselves are coming from municipalities, so the city councils and the mayors there have all had to review, vet and approve those projects. I do not go to city X and say, ``You should do this street or that sewer.'' These projects come from municipal governments. When we sit down and review them. We look at key criteria such as, are they ready to go? Are there environmental assessment issues that could delay them? Is there a need to consult Aboriginal people? Is this project feasible to be built within the two years? We had an application for a $150 million water treatment project. That is a great project and it fits Building Canada, which has longer times, but it will not work under a two-year stimulus program.
Those projects are reviewed by us and by the province. In Ontario, they have an internal committee of all the departments that go through and review. These projects are all announced jointly with the provincial government. Every project we have here has a provincial, municipal and federal contribution.
Senator Eggleton: Do you have more projects than you have funds to give out?
Mr. Forster: It depends on the province. That is right.
Senator Eggleton: Who makes that decision, the minister?
Mr. Forster: The minister approves all projects, both federally and provincially, and signs the schedule that approves the projects.
You need to look at the infrastructure programs across the programs. There are 30-odd infrastructure programs going on at this time. When you look, for example, at the major infrastructure component of Building Canada, because those projects tend to be in larger urban areas, the analysis tends to show that they are going more to opposition ridings. You have to look at the projects across all of the infrastructure programs to see the distribution, rather than picking one out of 30 and doing the analysis that way.
Senator Callbeck: I want to ask about the $2 billion that is going to post-secondary education. You mentioned that Industry Canada is involved?
Mr. Forster: Industry Canada manages that program.
Senator Callbeck: Can you answer questions on that?
Mr. Forster: I probably cannot very well, no. I can answer in a general way, but not much beyond that. It is $2 billion for colleges and universities, and you really should have officials from Industry Canada here to help you with that program.
Senator Callbeck: You would not know how much is committed and the breakdown of the provinces. I would have to get those figures from Industry Canada?
Mr. Forster: Yes, you would.
Senator Callbeck: The money then flows to the provinces and then to the universities from the provinces?
Mr. Forster: Yes, I believe they are operating under a similar kind of model as the stimulus fund.
Senator Callbeck: What percentage does the province put up here?
Mr. Forster: You are asking about the KIP, the Knowledge Infrastructure Program?
Senator Callbeck: Yes, this $2 billion.
Mr. Forster: You should talk to officials from Industry Canada. I would not want to given you inaccurate information.
Senator Callbeck: It says it is for two years. Does that mean the project must be started or completed within two years?
Mr. Forster: Again, I will speak to the Infrastructure Stimulus Fund, which is similar, but it is the one we manage. Under the stimulus fund the projects must be substantially completed by March 31, 2011. If they are not, the agreement states that we can only share costs up to midnight on March 31, 2011. We will pay our one third share of any cost incurred up to that date. After that date, the municipality or the province, whoever is building it, will complete it, but on their own and with their own money.
Senator Callbeck: I have a question about small communities. I come from a small community and I am very much interested in this fund. You mentioned that all of the monies in that fund have been committed, with the exception of Quebec. I am not sure of the time frame. It was supposed to be over seven years and then it was speeded up. What is the time frame now?
Mr. Forster: For the original program, the $1.1 billion from Building Canada still can be spent over seven years. We have sped up the approval process. We were intending to have three rounds of applications, perhaps in the first year, fourth year and sixth year. We have done it all at once. They are all approved and can begin. Under the main program, they can spend that money up to year 2014.
The top-up money was an incentive to get everyone to approve that fund immediately. The $500 million is only for two-year projects. When we reviewed it, we looked at only projects that could be built. That $500 million top-up must be spent by March 31, 2011.
Senator Callbeck: Does the same proviso apply there if it is not completed?
Mr. Forster: Exactly. They will continue and finish it, but our ability to share in the costs ends March 31, 2011.
Senator Callbeck: You mentioned that when projects are approved, work can start immediately. Claims are made to the province. I thought I heard you say that those claims are paid within 30 days. Is that 30 days after you approve the invoice?
Mr. Forster: Here is what would happen: Our agreement is not with 3,000 municipalities in Canada. We have an agreement with each province because municipalities are provincial jurisdiction. I sign an agreement with the Government of P.E.I. and we agree on 30 stimulus projects that are attached to that agreement. As soon as we announce those projects, it means we have done our review and environmental assessment, so that day Charlottetown, for example, can begin work.
They then go out, hire contractors, start to build and they incur costs, which they would submit as a claim to the province. We have a $10 million project to date and we have spent $3 million. The province on a quarterly basis will provide a claim to the federal government for all of the projects in P.E.I. They collect from the municipalities and submit a claim to us. Collectively, let us say $30 million has been spent, we will pay our third of that within the 30 days that we get it from the province.
Senator Callbeck: I thought you said that you have received claims from the provinces with respect to the work that was done this summer, but that you probably would not be paying them until February?
Mr. Forster: I said it may be that scenario. Under the Infrastructure Stimulus Fund, though, and it is the only fund, we have also provided advances to provincial governments. We have given them 25 per cent of the money this year up front so that if they want to go ahead and pay the municipalities faster, they have the money. All provinces and territories have received an advance from us so they do not have to wait to submit a claim. They can issue payments to municipalities for projects immediately.
Senator Mitchell: I am interested in knowing the proportion of the stimulus package that is accounted for by your Infrastructure Stimulus Fund. We were told at a recent meeting that it was about $29 billion for the entire stimulus package delivered by the Department of Finance. You are saying you will put out $7.6 billion in infrastructure this year. Can you account for the difference of some $21 billion?
Mr. Forster: I am not sure, unless Mr. Sarantakis would know what encompasses the $29 billion.
Mr. Sarantakis: No, I am not sure.
Mr. Forster: I can tell you that in the Economic Action Plan announced in January, $12 billion was for infrastructure programs to be done largely over two years. Of that $12 billion, we are responsible for approximately $6 billion. There is the $4 billion in the stimulus fund, the top-up to the small communities, the recreational trails and the Green Infrastructure Fund. This is where it gets a bit complicated. While everything else is for two years, the spending period for the Green Infrastructure Fund is five years.
Even though we have this short-term two-year program going on, the other challenge and direction for us in the budget was to take our normal long-term seven-year program and speed it up. There are two efforts going on here; one is to speed up our existing program in order to help the economy, and the other is to get the stimulus money out the door at the same time.
Senator Mitchell: When it comes to speeding up, why have you not done as much of that with the Green Infrastructure Fund? Is that not as big a priority?
Mr. Forster: It is a priority. The Green Infrastructure Fund was a brand new fund, so we had to create it. We sent out a call for letters of interest from provinces, municipalities and private sector. We have received probably 150 of those letters from people who are interested. We have already approved about 20 per cent of the Green Infrastructure Fund to large clean hydroelectric transmission projects, one in the Yukon and one in British Columbia. We are in the process now of looking at the other proposals, and we will be trying to get that fund committed as quickly as possible. It has a little more life to it; it is a five-year program as opposed to two years.
Senator Mitchell: Will it be emphasizing climate change initiatives like those hydroelectric transmission projects?
Mr. Forster: The fund can invest in basically four categories, including green energy, such as the two projects we have already done. For example, the Mayo B line in the Yukon will help the Yukon move communities and industry off diesel and onto hydro and reduce its greenhouse gas emissions by some 40 per cent when it is built and up and running. Green energy is one category.
The fund can also invest in public infrastructure in carbon capture and storage. The two other categories that it can invest in are wastewater, such as improving sewage and water treatment across Canada, and solid waste. We are looking at a number of interesting proposals that will convert solid waste into clean energy.
Senator Mitchell: Are the CCS projects announced recently out of this fund or are they additional?
Mr. Forster: No, they were out of the Clean Energy Fund of Natural Resources Canada, which was also given $1 billion with a dedicated portion for carbon capture and storage.
Senator Mitchell: Do you know why the government has not put more money into the ecoENERGY program, which has been very successful in supporting wind energy?
Mr. Forster: I am sorry, I do not know.
Senator Mitchell: We are now hearing ominous reports of a jobless recovery. As a result are you reconsidering the kinds of projects you are doing? Or are you quite convinced that your infrastructure projects, of any project, are actually quite labour intensive? Is that a specific criterion in approving projects?
Mr. Sarantakis: There are two aspects to that question. The first is, as Mr. Forster noted, the vast majority of our funds have already been committed. To the extent we would make a C shift at this point would be for the last 5 or 6 per cent of the funding envelope.
Second, to the extent their projects were approved earlier — that is to say, that 90 per cent block — they were selected on the basis of which projects were ready to go as opposed to looking at specific jobs and arguing whether it would create 100 jobs or 110 jobs. The key metric was whether it could start a month or six months from now, and obviously a month from now was better than six.
Senator Mitchell: My final question, not to put you on the spot, but when we see these large cheques printed with the Conservative logo, was it your department that paid for that?
Mr. Forster: No.
Senator Mitchell: Do you know who paid for that?
Mr. Forster: I believe it was the local MPs, but you would have to ask. We did not produce any of them.
Senator Ringuette: I am looking at the latest report on the Economic Action Plan. Specifically, I am looking at pages 68, 69, 70 and 71. For each province, there are a few programs that have been highlighted in the report. For instance, B.C. has three highway infrastructure projects that have received 50 per cent federal funding. It is the same in Saskatchewan and Manitoba, but not in Ontario.
Ontario has received only 33 per cent for upgrading highways. The Port of Sept-Îles in Quebec has received 50 per cent funding for an upgrade, whereas the Port of Belledune in New Brunswick has received only 33 per cent. These are only a few examples.
Why is there a discrepancy in the treatment of similar programs, depending on the province?
Mr. Forster: The projects for highways or roads, for example, where you see a difference between 50/50 and a ``one- third/one-third/one-third'' will depend on who owns the road. If it is a provincial highway, like the Trans-Canada in New Brunswick, or Route 1 from Saint Stephen to St. John, et cetera, the federal government cost shares those projects only with the province. Therefore, it is done on a 50/50 basis.
When you have a local road project with a municipal government and it is owned by the city, the province puts in one-third, the federal government puts in one-third and the city one-third. The city gets two-thirds of the costs covered by the two senior levels of government, and they put in one-third.
With respect to the two port projects you raised, the Port of Belledune in New Brunswick was an important priority for the Province of New Brunswick. Therefore, they are putting in one-third of the funding, as well. It is being cost shared three ways: The port for one-third, the province for one-third and ourselves one-third.
With regard to the project in Quebec, the Quebec government, while they supported the project, did not have any funding to contribute to it. In that case we cost shared it directly with the port as a federal asset — it is an asset owned by the federal government. Therefore, the port is required to put up 50 per cent of the money, whereas in New Brunswick, they only had one-third because the province was also willing to contribute.
Senator Ringuette: Therefore there is discrepancy with regards to funding for similar projects.
Mr. Forster: Again, it will vary. Remember the stimulus is a per capita allocation, so it is not like they are getting more money to do it that way.
Senator Ringuette: I do understand the per capita principle. The more population in one province, the more you will get.
Mr. Forster: Yes.
Senator Ringuette: Therefore, it exponentially increases the discrepancy between the different populations in the different regions of this country.
Mr. Forster: With respect to the ports, though, the Port of Belledune is an easier project for them because they are only putting up one-third of the costs because the province has decided to join in for funding that. In Quebec, because the province did not have money to put into that project, the port has to put up half of the cost. The federal government never goes above 50 per cent.
Senator Ringuette: I would like to bring your attention to another issue with regard to your department: The audit of your department done by the Public Service Commission of Canada. It was selected because of the high volume of casual employment that turned out to be permanent employment, and the positions were not advertised at all.
I will read from the auditor's report:
The Deputy Head had not been performing monitoring, as required by the PSC, of certain types of appointments.
Infrastructure Canada used non-advertised appointment processes for expediency in order to address their HR needs. We found that sub-delegated managers were unable to demonstrate how the use of this type of process was linked to the department's HR plan, departmental criteria for non-advertised appointment processes or the PSEA's appointment values. In some cases, this resulted in limited access to the department's employment opportunities.
Of the 45 appointments sampled — only 45 — how many people in your department were new hires in the last three years?
Mr. Forster: I do not have a number off hand.
Senator Ringuette: Do you have an estimate?
Mr. Forster: I do not know. I can get you a number but I just do not have it.
Senator Ringuette: I would appreciate it.
The auditor goes on to say that of the 45 appointments examined, for 22 appointments merit was demonstrated, even though they were not advertised positions. None of these positions was advertised at all. This means that the assessment demonstrates that the individuals appointed met the essential criteria. In 15 cases, they found that merit was not demonstrated, as the tools and methods used to assess the candidates' qualifications did not evaluate all the position requirements.
For the other eight cases, they found merit was not met as the person appointed to the position failed to meet ``one or more essential qualifications.''
In that very minimum sample size of 45 appointments, 53.3 per cent do not qualify for the jobs they hold.
Can you comment on that, please?
Mr. Forster: The audit has been reviewed and taken extremely seriously by the deputy minister. The audit itself took place between January 1, 2006, and August 2008, so it is over a year ago. Since then, we have put in place a number of measures to ensure we are fulfilling all our obligations under the Public Services Act in terms of staffing and HR plans. We have reorganized an HR activities committee that I, as the associate, now chair. All managers receive staffing training before having their delegations to do staffing included. As the Public Service Commission requested, the committee now monitors how our staffing is being done, and we are in the process of taking the other actions that we committed to the commission as part of the audit.
In the past year and a quarter, we have taken a lot of steps to address some of the findings in the audit. In many cases where they said ``you have not been able to demonstrate merit,'' it was partly because the files were not complete. Therefore, the manager who had done the hiring had not properly documented their decision-making process.
Those are the steps we have taken to address the assessment, and we are working closely with the PSE on that.
Senator Ringuette: Explain why you have such a high number — an unreasonable number — of unadvertised appointments?
Mr. Forster: It may be that when building a team, for example, to ramp up, you find a qualified candidate working in another department. They are already at the level; they are an economist III, they have the experience needed and have been qualified at that department. Therefore, you may bring them over on a secondment because they are ready to come in and begin work immediately.
There are a number of situations where you may take this route, and the act allows for some use of non-advertised appointments. However, we have certainly gone through and corrected that. We are monitoring it very closely and reporting to the Public Service Commission. We have taken a lot of steps in the past year and a quarter to make sure we are doing it properly.
Senator Ringuette: How much bureaucratic and political patronage is involved?
Mr. Forster: In terms of hiring our staff?
Senator Ringuette: Yes.
Mr. Forster: None.
Senator Ringuette: You were just saying if you know someone in another department, is that not some sort of bureaucratic patronage?
Mr. Forster: Not at all. I do not believe so, no.
Senator Ringuette: How do you view that?
Mr. Forster: People use networks to identify qualified people to bring on to work for you. They still have to meet the criteria of the position and be able to do the job.
Senator Ringuette: That is not what the Auditor General said. She said that, of the sample, 53.3 per cent did not meet the criteria.
Mr. Forster: She found the files, in terms of hiring those people, did not have documents to demonstrate they met the competencies.
Senator Ringuette: The c.v. of the person in question should at least be on file, which would indicate whether that person met the job requirements.
Let us not fudge this issue. This is a very important issue.
Mr. Forster: Absolutely; we totally agree with you. It is a very important issue. As I said, we have put in place, with the PSC, an action plan. We are following through on all of those and have been for the past year. We have very rigorous processes in place for our staffing now that we are very confident in; we are reporting into them and we have trained all our managers. We had an action plan in response to the audit that we are absolutely implementing and fulfilling.
Senator Ringuette: How many referrals did you get for non-advertised job positions that came from political staff?
Mr. Forster: I will check for you, but none of which I am aware.
Senator Ringuette: Please do check. Will you respond to this committee on your findings?
Mr. Forster: Absolutely.
The Chair: If you will send the information to the clerk, he will distribute it to all of the members.
Senator Gerstein: In your opening remarks, you indicated that this was an unprecedented infrastructure program, and you referred to the fact that it is temporary, targeted and timely. I cannot imagine a more daunting task that you were faced with.
I suspect if you were to frame up the challenge that was before you, you had to minimize delays, ensure timely approvals, review, evaluate and monitor. On the other hand, you wanted to be sure that you were not micromanaging. I would congratulate you and your associates for all you have accomplished on behalf of Canadians throughout the country.
Could you give us some indication of the number of employees you have in your department? Also, the magnitude of what was before you was enormous; how did you get it done so quickly and effectively?
Mr. Forster: On behalf of my colleagues, thank you for your kind comments. In all seriousness, Infrastructure Canada is a very special organization. We have added approximately 60 people to manage the new programs that came in under the budget. Some of those went to our HR group so they could better monitor and deliver staffing; some went into internal audit; and some went into Mr. Conrad's area to deliver the stimulus.
We have an amazing team. These people have worked weekends and evenings for nine months — something that I have never seen in my time in government. They are committed to what they are doing and believe it is important. It is a challenging program to deliver in a short space of time. Frankly, we are trying to do something that has never been done before, and the organization is coming at it in a professional, committed and dedicated manner.
As of the end of September, we have about 270 people. Do not forget, we rely heavily on a lot of other partners. When we review and approve a project in Ontario, the provincial government is also reviewing and approving that project. That adds an extra layer of scrutiny and due diligence. Municipal partners also have a huge part to play once they have been given the approval to get shovels in the ground and get their projects built as fast as possible.
We work with other departments. We do not have regional offices, so we work closely also with the regional development agencies who help deliver some of our programs on our behalf.
Thank you again for your comments. I will take them back to our staff, who I know will appreciate them.
Senator Gerstein: Approximately 10 days ago, I was interested — and I must say, not surprised — that the deputy premier of Ontario made the comment that ``. . . I am pretty confident that there is going to be a very, very equitable regional distribution'' of the stimulus money.
I was not surprised that he used one ``very''; I was somewhat surprised that he used two — and I am quoting directly. I would be interested to know, would you concur with that statement?
The Chair: Very, very much so, I am sure.
Mr. Forster: I will leave that question for the minister to answer, if that is alright with you?
Senator Gerstein: Thank you, Mr. Forster, and I congratulate you and your associates once again.
Senator Di Nino: My colleagues may not agree with my comment either, but Senator Eggleton and Senator Gerstein both offered their congratulations to Infrastructure Canada. I think the challenge you were given goes beyond imagining. It boggles my mind when you think of the job you were asked to do on behalf of Canadians, particularly when we consider that it is probably the most serious global economic crisis that we have seen in seven decades. I would like to add my vote of thanks on behalf of all Canadians. From everything we have heard, you and your other colleagues in government and in the public service have done a commendable job. Canada seems to be coming out of this very serious recession probably better than most other countries. I think it is worthwhile reminding Canadians that there are people out there doing a great job for us.
The questions that seem to come up about these projects, as far as it relates to Infrastructure Canada, are how many have been approved, are in the works and so forth. I think you have listed them on a website, but I am not sure. Can you tell me how Canadians can find out?
Obviously, some Canadians do watch these things. It would be nice to tell them where they can find the information, if they are interested in what Infrastructure Canada has approved and what is in the works.
Mr. Forster: Sure. Again, thank you for your kind remarks.
Quite honestly, I cannot recall a single other program — and I have been involved in the public service over 25 years — that has put so much information out there publicly. We know there is a lot of interest in it. We know people want to know what is going on.
Under the previous infrastructure programs, this document on the Municipal Rural Infrastructure Fund illustrates what you got. Then if you wanted to find out what was happening, you had to search out all the individual press releases.
We knew there would be a lot of interest in the stimulus funds as to what was going on and where we are at. Therefore, on our website — creatingjobs.gc.ca — you will see the allocation for each program, how many projects have been approved and how much of the funding has been approved.
These pages represent just Ontario. There are 86 pages of every project that we have approved under all our programs. Frankly, Canadians do not care whether it was this pot or that pot. They want to be able to go to London to see what the federal government has approved. In here, on our website by province you will see for each city exactly every project that has been approved under our infrastructure funds, the name of the project, and how much money has been allotted and approved. We are committed to being as open and transparent about this as possible. We are doing our best to provide as many updates and as much information on the website as we can.
Senator Di Nino: Is that the Infrastructure Canada website?
Mr. Forster: Yes. It is called buildingCanada.gc,ca and creatingjobs.gc.ca. On the website is a button called ``Infrastructure in my Region.'' You can go to any province and you will see every project, organized by city and by municipality, we have approved regardless of which program it is coming out of. This is just for Ontario. There are 86 pages there, organized for each city. You can go there and see that in North Dundas there is the Winchester water transmission main project, $278,000 in federal contributions for that project.
Senator Di Nino: Every time we talk about this issue, there is still the question about not getting the money fast enough. That is a fair question. You said early on in your presentation this morning that you do not build and you do not manage. They may not be the exact words. To be absolutely clear, of the $4 billion program, $3.8 or $3.3 billion has actually been approved?
Mr. Forster: Has been committed, yes.
Senator Di Nino: For this money to go out, you need an invoice from the province that says, ``We have approved this amount of money spent on this project. Give us this money.'' At that time, within 30 days, you send them a cheque or make a transfer, whatever the case is?
Mr. Forster: Yes. Under the stimulus program, as I mentioned, we did advance money to all the provinces and territories upfront so that if they had bills they wanted to pay, we were not holding them back.
Senator Di Nino: That was a number of specific dollars for each one?
Mr. Forster: Yes, but under this program, as I said, as soon as we approve it, the cities and the provinces can start building. They have the capacity to do that and order the contract and sign their deals, and so on. The municipalities then submit their claims to the province, which collects them all. Ontario will collect all the bills from 400 municipalities, put them together and then file them on a website online to us. We will then review them, and that is what we use to issue payments from the federal side for our share. However, all of our infrastructure programs, as I mentioned, always reimburse costs after the fact. That is part of our risk management process.
Senator Di Nino: As far as you know, the builders or the contractors are all paid by the municipality?
Mr. Forster: They are paid by the municipality, yes.
Senator Di Nino: The provinces would then ask the federal government for your portion of it?
Mr. Forster: Yes. They do not have to wait until the project is finished to submit a claim. They can submit claims to us every quarter. If you were building an addition on your house and the foundation was poured, you could submit a bill for that part of it. The next quarter you give me a bill for the framing and construction of the roof. We pay our share as we go, within 30 days of getting a clean claim.
The Chair: Honourable senators, our next witness has not arrived. Are our witnesses able to stay for the next five minutes?
Mr. Forster: We are at your disposal.
The Chair: Thank you.
Senator Neufeld: Senator Di Nino asked my question as to where it is publicized for Canadians to access information. It was well answered.
The Chair: Next is a former chair of this committee, Senator Murray from Pakenham, Ontario, and also Cape Breton.
Senator Murray: Thank you for that biography, Mr. Chair. You did not mention that I am not a member of this committee, so I thank you for your accommodation.
Mr. Forster, we will be hearing in a few minutes from the Parliamentary Budget Officer. I note that in the economic and fiscal assessment update that he put out yesterday, there is this paragraph:
An upside risk to the fiscal outlook in the near term is the ability of the Government to fully implement its stimulus package, in particular funds set aside for multi-jurisdictional infrastructure projects. Infrastructure Canada has historically lapsed large amounts of this type of planned spending, with one in every three planned infrastructure dollars going unspent in the past two fiscal years for which data is available.
I do not think I have to elaborate. I will ask you what you have to say about that.
Mr. Forster: The most important thing about infrastructure spending is that, unlike many other government programs, and it is a recognition of the unique challenges of infrastructure projects, when the money lapses it is not lost. If we did not spend all of our budget last year under Building Canada, the Department of Finance reprofiles our money so that it is available in future years.
Senator Murray: For the same program?
Mr. Forster: Yes. If we have a project that, when approved, will spend $10 million, $50 million, $80 million, $10 million, because they tend to do this, we try to match our cash flows to the rate of construction of our partners. Again, we do not build. They may have any number of reasons why the project did not go as fast as they hoped. It could have been that they needed more time to do Aboriginal consultations; they may not have liked the prices they got on their first tenders; they may have had some environmental issues to mitigate. There are any number of issues.
Senator Di Nino: Strikes.
Mr. Forster: Yes, strikes, elections, weather — the weather in Canada is not always to our liking. There are a number of reasons why projects can be delayed. In a normal program of the government it is kind of you lapse it, you lose it. With infrastructure, however, they have always said, ``No, we will reprofile it. We understand these are big, complex projects that take time to work through.'' Mr. Conrad was going to give an example of the Spadina subway line in Toronto which is a great project and we are thrilled to be part of it.
Bryce Conrad, Assistant Deputy Minister, Program Operations Branch, Infrastructure Canada: The Spadina project, recognizing there are three senators here from Toronto, might be of interest. The Spadina project is the largest project the Government of Canada is funding. It was announced two years ago by the Government of Canada and is still very much in the design stage. It will not break ground until the end of this month, but they are still on target to go into revenue fare service in 2015. When they originally submitted their project they predicted they would spend almost $15 million last year. In fact, we only paid $1.8 million last year. That is the nature of the construction industry. The original project would have spent $28 million this year, but they will spend $38 million this year. We have the flexibility, as Mr. Forster has said, within the system, within their funding, to reprofile it, to shift it backwards and forwards, but the total amount of the money stays the same. We are not increasing or decreasing the budget; we just move it to accommodate the construction schedule itself.
Senator Murray: You do not contest, however, the statistic the Parliamentary Budget Officer offers here, that one in every three planned infrastructure dollars went unspent in the last two fiscal years? I take your point that they have been re-profiled to a large extent.
Mr. Forster: Yes.
Senator Murray: There are other implications, as you know. Perhaps at some point when the Minister of Finance and his officials are here, we can raise them with him.
The Chair: Our next witnesses are here, so I will call this portion of the meeting to a close. I had two people left on the list for round two, but we did not get there.
Mr. Sarantakis, Mr. Forster and Mr. Conrad, thank you all very much for appearing. Let me echo the comments made earlier, if you would take them back to the people in your group: We very much appreciate the hard work you are doing to help bring about a successful distribution of funds across Canada.
Honourable senators, we will have a shorter session this time around because our witness was just before the House of Commons in another committee. We are pleased to be joined by Parliamentary Budget Officer, Kevin Page, who yesterday released a new report entitled Economic and Fiscal Assessment Update.
[Translation]
Mr. Page is accompanied by Mr. Mostafa Askari, Assistant Parliamentary Budget Officer, Economic and Fiscal Analysis, by Mr. Sahir Khan, Assistant Parliamentary Budget Officer, Expenditure and Revenue Analysis, and by Mr. Chris Matier, Senior Advisor, Economic and Fiscal Analysis.
[English]
Congratulations on the work you are doing, Mr. Page, and thank you for being here.
Kevin Page, Parliamentary Budget Officer, Library of Parliament: Thank you for inviting me and my colleagues to speak to you today regarding Canada's economic and fiscal situation and our monitoring of the government's third quarter report on the implementation of Budget 2009.
I have three key messages. One, the Canadian economy appears to be emerging from a difficult recession. The average private sector outlook is stabilizing, although uncertainty remains high as the fallout from the global financial crisis continues. PBO is indicating that, based on the latest information, the emerging recovery is fragile and the short- term economic risk continues to be on the downside.
Second, the world recession has thrown Canada further off its fiscal track. While the Canadian numbers are significantly better than many other countries, even under the most optimistic private sector forecast, the federal fiscal situation is unlikely to return to balance over the medium term. A fiscal plan with targets and/or rules could help guide an exit strategy once the economic recovery has been put on a sustainable path.
Third, with the high levels of uncertainty and the loss of fiscal room, the policy challenges and trade-offs associated with both cyclical and structural issues becomes more difficult. This environment puts a premium on the need for transparent quarterly reporting on economic monitoring and budget implementation.
In this regard, the government may wish to consider the merits of including information on activities, outlays and/or expenses to date, in addition to commitments in the next quarterly budget implementation report. The government may also wish to consider providing analysis to parliamentarians on the effectiveness of stimulus spending to date on supporting Canadian output and jobs.
[Translation]
Let me first turn to the economic and fiscal situation and outlook. In July, at the request of the House Finance Committee, I released a comprehensive assessment of the economic and fiscal situation and outlook. At the time, I reported that private sector forecasters, on average, expected to see a technical recovery in the second half of this year followed by modest economic growth in 2010 and more robust growth over the medium term.
I also reported that, on the basis of this economic projection, the government would experience a cumulative budget deficit of about $156 billion over the current and the next four fiscal years.
In September and early October, the PBO updated its July projections and I would like to highlight the key conclusions of our update.
[English]
The preponderance of indicators suggests that the Canadian economy has begun to stabilize in the third quarter following three quarters of negative growth. This includes indicators on consumer and business confidence, employment, hours worked, housing activity and retail sales.
While the Canadian economy has weathered the global recession better than most economies, Canadians have been hit hard by the recent downturn. PBO estimates of the output gap — the level of real output compared to its potential — indicates that the depth of the weakness in the Canadian economy is more severe than the recession in the 1990s and similar to the recession experienced in the early 1980s.
The unemployment rate stands at 8.4 per cent in September, compared to 6.2 a year earlier. Including involuntary part-timers and discouraged workers, the unemployment rate would be about three percentage points higher. The average duration of unemployment is increasing at a significant rate. Canada has lost 395,000 full-time jobs since October 2008.
Although a general consensus has emerged that a recovery in the global economy is under way, considerable uncertainty continues to surround the outlook. While Canadian private sector forecasters indicate a modest recovery in the second half of the year, international forecasters like the IMF and the OECD are less sanguine about the pace of economic recovery and continue to emphasize the downside risks to the economic outlook.
Despite this uncertainty, the September 2009 PBO survey of private sector forecasters suggests little change in the Canadian economic outlook since July. According to the PBO survey, based on the average private sector outlook, real GDP is projected to fall 2.3 per cent in 2009 and rise 2.3 per cent in 2010. Nominal GDP, the broadest measure of the government's tax base, is projected to fall 4.6 per cent in 2009 and then rise 4 per cent in 2010. The unemployment rate is projected to average 8.4 per cent in 2009 and then rise to 8.9 per cent in 2010.
[Translation]
The updated survey implies that the Canadian economy will not return to its potential until the end of 2013. This translates into a cumulative loss of over $200 billion, or about $17,000 per Canadian household, in unrealized output.
According to the PBO view, there are downside risks to both the short term growth and the labour market forecasts in the September private sector survey. These risks include the potential for a weaker U.S. recovery, as well as the potential for negative impacts from the recent strength of the Canadian dollar.
[English]
PBO projects a cumulative budgetary deficit of $167.4 billion over the next five years. The budget deficit is projected to rise from $5.8 billion in 2008-09 to a peak of $54.2 billion this year, falling to $19 billion in 2013-14. Consequently, the federal debt is projected to rise to $631.2 billion in 2013-14, which corresponds to 33.8 per cent of GDP.
PBO has improved some of the tools that are used in doing fiscal projections, including the construction of our own measure of potential output and the government's structural balance. Based on our new estimates of potential output, PBO calculations continue to suggest that the budget is not structurally balanced over the medium term. PBO estimates that the structural balance would deteriorate from essentially a balanced position in 2007-08 to an $18.9 billion structural deficit in 2013-14.
That said, the structural deficits projected over the medium term are significantly smaller than those of the 1980s and early 1990s and are also small relative to the size of the economy. However, a more thorough assessment of the sustainability of the current fiscal structure requires a longer-term perspective, in particular, taking into account the fiscal challenges posed by population aging. PBO is undertaking such analysis and will release a comprehensive assessment of the sustainability of the government's finances in the coming months.
As noted, PBO continues to judge that there are significant risks to the economic outlook, and there is, of course, a wide range of possible outcomes. To help illustrate this point, we have simulated the fiscal implications of the range of private-sector economic forecasts in our September survey.
In 2013-14, the projected budgetary balance ranges from a deficit of $7 billion to a deficit of about $34 billion. This suggests that even under the most optimistic private-sector forecast, the budgetary deficit is unlikely to be eliminated without policy actions.
[Translation]
Further, considerable uncertainty remains with regard to future effective tax rates and revenue bases. In effect, there is a risk that effective personal income tax rates will recover at a slower pace than the PBO assumption.
In addition, corporate income tax revenues are subject to a high degree of uncertainty as a result of corporations' ability to carry losses backward or forward. An upside risk to the fiscal outlook in the near term arises from the possibility of large amounts of lapsed infrastructure funds. For example, one in every three planned infrastructure dollars went unspent in the past two fiscal years for which data is available.
Based on these considerations, we continue to judge that the balance of risks to the fiscal outlook over the medium term is tilted to the downside.
The high levels of uncertainty and risk also underscore the importance of a fiscal plan with clear targets for budget balances and debt. In the same vein, quarterly reports that highlight activities, outlays and/or expenses related to budget implementation, in addition to commitments, will help us to understand the nature and impact of budget stimulus measures on the economic recovery.
I thank you for the opportunity to speak to you today. I will be happy to answer your questions.
[English]
The Chair: Last week, we heard from witnesses from the Department of Finance Canada. They discussed assessing various projections by the private sector and bringing that information together. Senator Di Nino asked them a question about how they would look at that private sector. However, primarily they told us that the private-sector information that they bring in is the forecasting that they are using.
You indicate here that the Parliamentary Budget Officer has improved some of the tools that are used in fiscal projections. You also mentioned several times in your presentation private-sector forecasting.
Do you do your own forecasting or are you doing the same as the Department of Finance, which I just explained?
Mr. Page: We follow a similar procedure to the Department of Finance. We take averages of private-sector forecasts for key variables. Based on that, we simulate what the fiscal situation would evolve to or what the fiscal outlook would be as a result of those private-sector forecasts. We survey 12 forecasters, as opposed to the Department of Finance, which is often a bit higher, around 18.
The Chair: That ties in your presentation with what we heard last week.
Senator Mitchell: Like the chair, I would like to thank you for all the work that you do. The Parliamentary Budget Officer was just a model when we passed that bill, and it seems to me that if that office is to work at all well, it would work very much like you are making it work. It provides some balance against the Department of Finance, which is a great department with great people, but not entirely open, as it could not be, in any event. Thank you.
I would like to pursue the idea of the structural deficit and try to relate it to the deficit and the stimulus package. At least theoretically, and maybe practically, the stimulus package is a one-time new expenditure.
Of the $56 billion deficit this year, how much of that is actual stimulus package? I have been led to believe that it is about $29 billion, but that is a little fuzzy, because somehow it might involve some tax reductions that are not actually expenditure.
Mr. Page: Those are the rough numbers. We are looking at a federal stimulus package of $47 billion over two years. That means disbursements, both revenue and expenditure; revenue decreases and expenditure increases in the first year of roughly $29 billion.
Senator Mitchell: Of the remaining $27 billion of this deficit, that would not all be structural deficit, since some of that will be recovered because of growth?
Mr. Page: No. We treat the federal stimulus packages as temporary discretionary fiscal measures that are not contributing to the structural issue. For the most part, those measures terminate after a two-year period as of March 2011.
By and large, if you look at the roughly $55 billion deficit projection for 2009-10, about $29 billion are stimulus measures; the rest of it primarily relates to either lower revenues because of the weaker economy or higher expenditures because of the higher unemployment rate.
Senator Mitchell: However, from the $29 billion to the $56 billion, there is $27 billion. That is not all structural deficit?
Mr. Page: No. For the most part, the situation is cyclical in 2009-10. In our estimates of the structural budget balance, we say it will grow modestly over the medium term, rising to about $19 billion in 2013. That is roughly 1 percentage point of GDP, so a relatively small number compared to the structural deficits we had in the early 1990s and 1980s.
Senator Mitchell: You mentioned that we have an unemployment rate of 8.4 per cent. If you added in the people who have just given up, it would be 11.4 per cent. You indicated that we have averaged 8.4 per cent this year and next year it will rise to about 8.9 per cent. Is that evidence of a jobless recovery? Could you comment generally on the problem of a jobless recovery, on its depth and whether it is real?
Mr. Page: It is very real in the sense that we have seen the unemployment rate go up significantly, from 6.2 per cent a year earlier to 8 .4 per cent in September. Behind those numbers is a decline of employment, on average, of 2 per cent. That is both the goods and services sectors. If you look at the employment declines in the goods sector, it is about 8 per cent on a year-over-year basis. Therefore, the goods sector has been hit very hard.
Since March, we have seen some stability in the labour market. We continue to see private sector job losses — a little over 100,000 private sector job losses since March. However, they have been off-set, for the most part, by public sector increases and increases in self-employment.
In one of our charts, you see the net employment number flatten out. Upward drift in the unemployment rate is embedded in the private sector forecasts for 2009-10. We will see some modest increases in employment in the next quarter. It will be off-set by some labour force increases and some higher unemployment.
Implicit in the private sector forecast is very modest employment growth in 2009-10.
Senator Mitchell: The finance people did suggest that tax reductions were part of the stimulus package. They are not counting the GST reductions, are they? Could you indicate which tax reductions they are talking about?
Mr. Page: There are about close to $3 billion in a kind of personal income tax reductions in 2009. It does not include the GST. Actually, it would take me a minute or two to identify the measures. I can do that after for you.
Senator Eggleton: First, I want to congratulate you on this report and all the work you do, and I want to congratulate the government for coming up with the idea that we should have this Parliamentary Budget Office. I hope they do not starve you to death for the resources you need.
I think the check this creates in the system is extremely valuable. Governments of any political stripe can distort, exaggerate and be selective about numbers. There are a lot of numbers to be selective about. However, here we have a check on the system and I appreciate your work.
Let me get to the questions.
Mr. Page: That was the good part.
Senator Eggleton: The questions are fine, too.
I sense some optimism about where we are going in employment. You said the economy is beginning to stabilize and you used employment as one of the indicators. You talk about consumer-business confidence, perhaps, which is hours worked, et cetera, and housing. In terms of employment, I wonder. You have said that, with a lot of the jobs lost, people have gone into involuntary part time or given up. There are a lot of people, perhaps, who have gone into the public sector.
I wonder if we will not see more of a slide in this area. As the private sector reorganizes — and we are seeing a lot of that happening and I sense there is still more to come — we could have more layoffs. I am not sure about the ability of public sector to pick them up.
Do you really think we have turned the corner in terms of employment? Will the numbers start to come down from here on?
Mr. Page: I am hoping that things have stabilized. We have certainly seen the labour market stabilize since March. You have seen public sector job increases and self-employed increases off-set private sector job losses.
I do not want to sound too positive about what we have experienced in Canada today. The manufacturing sector output and job losses have been massive. To the extent those jobs will come back will come back slowly. Under all the private sector forecasts, we do not get back to the unemployment rates we saw a year ago beyond the medium term, effectively.
This is a serious recession. When you look at output relative to potential, this is just as serious as we saw in the early 1990s.
We see the risk. We are still pretty much on the downside, both in terms of output and employment. I grew up in a small town — Thunder Bay, Ontario. My dad worked in the forestry industry. You see the job losses, when they do happen, in the goods sector. Then you eventually see them in the service sector. There is a lag. We have not seen that yet. The service sector is still relatively flat in terms of job losses.
There is still some potential that these numbers could deteriorate. We need to be mindful of that and do economic monitoring on a quarter-to-quarter basis.
Senator Eggleton: This is a structural deficit as opposed to a cyclical deficit. We are getting at $54 billion or so this year but, you say by 2013-14, we will be down to 18.9, which is structural as opposed to cyclical.
When do you think it is wise for the government to start taking action with respect to reducing that particular structural deficit? There is program cutting and tax increases, but I am not sure how wise it is to leave that too much longer before addressing it.
Mr. Page: We will be happy to come back between now and the budget with our longer-term projections that will show you what the impacts of aging will be on the fiscal situation over the next 50 years,.
There is an issue whether a structural deficit — even a small one, like $19 billion or one per cent of GDP — is sustainable or not. When you look at the costs of servicing the deficit and compare it with what we saw in the 1980s and 1990s, it is much lower. In the worst period, we were paying 35 cents on every revenue dollar for dead interest charges. That was a little more than 10 years ago. Now it is down to 15 cents.
With low interest rates, a small deficit and the GDP growing again, it is still manageable. However, when you look at those longer-term demographics and know the structural deficit will get bigger because of aging, resulting in a lower layer of supplier growth which, in turn, results in higher health expenditures and Old Age Security payments, do you want to front-end load the debt payment? Do you want to back-end load it, or do you want to deficit finance it? If you deficit finance it, senator, I think you would be back to where we were in the early 1990s, with debt-to-GDP ratios in Canada, at the provincial and federal levels, closer to 100 per cent.
Senator Eggleton: That is a fair comment. I look forward to your further reports on this, particularly as it relates to the aging population and the costs involved there.
We just had Infrastructure Canada here and we noted that the third report of the government talked about 90 per cent of economic action plans have been committed. I asked them specifically about the stimulus infrastructure money and it looks to be a little less, but close to it. However, I also asked them about cash outlays and we do not have a very clear picture of that. In fact, the critic in the house says, ``Never mind the 90 per cent committed. There is only about 12 per cent that has gone out the door, at least as of the end of August.''
Do you have concerns about the fact that we are not getting the information and we need to know the impact of that money on the ground in terms of jobs being created in this recession period?
Mr. Page: We are in dialogue with the Deputy Minister of Transport and Infrastructure on the sharing of information, so that we can gain information, not only on the commitments, but, as you said, on those disbursements, outlays or expenses.
We think that is important. That is the difference between the reporting we are doing in Canada versus the reporting in the United States. They are reporting on outlays.
We are in dialogue. We hope to get that information soon. We think it would be a good idea if the government, in its next quarterly report — which is great for transparency and budget, like the PBO — gave some information on outlays so we can start to assess the impact on output and employment.
Senator Callbeck: In your report that you put out November 2 — the budgetary balance for 2013-14 — you have gone from a projection in the previous report of 16.7 to a projection of 19, within four months. What are the factors in there that have made you increase that projection?
Mr. Page: Effectively, we are saying today that, relative to the projections we put out in July versus the ones out in the November 2 report, there is not much difference at all. In terms of nominal GDP, we have an economy of $1.5 trillion, and it grows to almost $2 trillion over a five-year period. Those are microscopic changes to the budgetary balance five years out. We do not consider that to be significant in any way.
Senator Callbeck: However, those figures keep going up. I wonder if there are any particular things you can point to that have caused you to put that forecast up.
Mr. Page: There are short-term risks that impact on the long term as well. As we highlighted on the economy, there are risks related to the U.S. economy and risks related to the strength of the dollar. Additionally, in our July report, we were transparent on the recovery that we will see relative to the collections at the PIT and CIT level relative to the incomes collected, as well as corporate and personal income.
Our numbers are relatively positive. As we work through and continue to get updated information, the third quarter does not look as strong as many thought it would. It kind of rolls through. Debt interest charges are a little higher as a result of the higher projection as well.
Senator Callbeck: I do not know if it was in this report, but you talked about the efficacy of the U.S. stimulus reporting framework. What is there that Canadians are not getting?
Mr. Page: When we looked at reporting, going all the way back to the spring, we found out that as part of the Budget Implementation Act, there would be a quarterly reporting procedure. We surveyed 15 OECD countries and got 11 responses. We have been tracking ever since what has been happening not just in the U.S. but other countries. We have seen with respect to stimulus is that the OECD is probably the high water mark. We start from key principles with respect to Canada, that Canadian parliamentarians, senators and members of Parliament, should get the same reporting in other countries and that our reporting should be consistent with the policies of the Treasury Board. We should not be asking departments, such as the Department of Transport and others, to provide information they really do not have access to.
Working with that, we began to see the big difference between what parliamentarians in Canada get vis-à-vis the U.S. We started to see outlay information, either outlays in terms of cash out the door and expenditures in terms of accrual terms, and they started to report against it.
They started their budgetary exercise almost at the same time we did, and in the third quarter they got a stimulus package close to $800 billion. They are now reporting on the outlays. They are saying relative to that $800 billion, we have roughly $150 billion out the door. We do not have that information yet, but we may get that in the fourth quarter.
Senator Callbeck: The last witnesses talked about a website, www.buildingcanada.gc.ca. I am from Prince Edward Island, and from that website I could find out about every infrastructure program ongoing in P.E.I. Would you comment on that? Obviously you do not feel that website is adequate as it does not show the outlays.
Mr. Page: It is huge value-added feature. I love to bicycle ride, and I have checked out the recreational trails and transit changes in my area on that website. It is an impressive site. It provides a transparency that we did not have in years past. This is a good thing.
If we want to narrow the gap between reporting on a budgetary basis between Canada vis-à-vis the U.S. where the U.S. is the high water mark, then we need to start getting at those outlays and expenses.
Senator Ringuette: I would like to talk about the auto deal. We have been hearing that it cost $12 billion. I would like to know if that is true. Is it shared? What is in that $12 billion? Do you get a copy of that deal? We want to look at it.
Second, we have been told that there were shares involved, and I do not understand why we are writing off these shares. Can you please provide more information about all of the money involved?
Mr. Page: Yes. I will start the answer and then pass it on to Mr. Khan, who is our Assistant Parliamentary Budget Officer, Expenditure and Revenue Analysis.
We were asked earlier, I think last January, to look at Canada and U.S. term sheets for the auto loans. We received information on the details of the U.S. auto loan and looked at the Canadian auto loan at the time, and Mr. Khan can respond to that.
In the budget now, we have in total roughly $10 billion allocated to measures to support various industries, of which most of that is related to the automobile sector and the auto loans. I will ask Mr. Khan to talk briefly about what is behind it and why we have written it off.
Senator Ringuette: I know about the issue of the auto loan; we had people before us last week who talked about that matter.
I want to know about this deal with GM and Chrysler. I believe it is $12 billion. I might be wrong, but I think that figure was mentioned.
Sahir Khan, Assistant Parliamentary Budget Officer, Expenditure and Revenue Analysis, Library of Parliament: We would have to look into that matter and get back to you on the specific terms. We can do that and forward a copy of our briefing note that looks at the fiscal implications of that transaction. It does try to break down the transaction.
Senator Ringuette: Do you have the information about this loan arrangement?
Mr. Khan: Yes, about the auto bailout project.
Senator Ringuette: If you could provide it to the clerk so that all members of the committee can have the information.
We are looking at a significant deficit. What are the options for the current or future governments in regard to this deficit? It is a fire sale of Crown assets such as AECL, Canada Post and the CBC? What options do they have out there to balance this budget and start to repay the debt?
Mr. Page: I will make a few comments on the significance of the fiscal problem that we have today and maybe address your point in terms of options, what the role of the Parliamentary Budget Officer is in that context.
There is no question, after putting well over $100 billion in absolute value dollars down on the debt since 1996-97, that we are starting to generate deficits. We probably had a deficit of about $6 billion in 2008-09 and something like $55 billion in 2009-10. It is significant. It is a shock in absolute dollar terms after the amazing progress that Canada had made in terms of reducing its deficit and debt.
It is probably important to say as well that even at $56 billion, it is still a relatively modest amount of deficit in the context of the size of our economy. Compared to other countries, such as the United States, Canada is looking at a deficit of about 3.6 per cent. In the United States, they are looking at 12 to 14 per cent and the U.K. is pretty much the same. We are saying as well that it has been primarily cyclical with respect to what we have seen in the 2009-10 situation.
In terms of going forward, because of the weakness in the economy and the significant recession, we have this output gap. The level of output relative to its potential, potential being trend, we have unemployment rates more in the 6 per cent range and capital more or less fully employed. It is a significant output gap, at about 5 percentage points. It will close and get back to potential in 2013, based on the private sector forecasts. When it closes, you are left with a small deficit of about $20 billion. That is in a period of time when the economy will be about $2 trillion. You are left with a small deficit, which is structural. If you compare to those nasty experiences we had when I was at the Department of Finance in the early 1980s and the 1990s and you looked at some of the pain that it was costing around debt interest charges and the ability to service the debt, the impact it was having on the economy, we are not looking at that situation yet. Are there downside risks? Yes. That was the contextual part to your question.
What are the options? I think there is a lot of fragility around the economy now. People saw in the third quarter, I had many discussions today at the House Finance Committee as to what the third quarter will look like. Will it be positive or negative? Is there a lot of downsize risks in the United States behind some of these projections?
It is probably premature in that context. Perhaps I am going too far as Parliamentary Budget Officer. You do not want to take action too soon when the recovery is still so fragile with a downside risk to jobs. Once you get beyond the next few years and the upper gap is definitely on a path to sustainable recovery going towards trend, then you look to the longer term issues. That is why it is important we put in front of you these longer term projections. What is the impact of aging?
We are saying we will have a small structural deficit in 2014, but if you project forward, what will that look like? How much could it be? Then parliamentarians and senators could debate those tradeoffs between putting more down on debt in light of this intergenerational transfer of equity or do we need more investment in productivity? Do we need to have more help to restructure the Canadian economy? Do we need more investment to support climate change or what have you? We will put that information in front of you, and I think it will be a very rich debate. You folks get to generate that rich debate around the policy choices. I will paint a picture in terms of the economic and fiscal context.
Senator Gerstein: Last week at the Banking Committee, Mr. Rogers gave an outstanding and comprehensive presentation on the current global recession. At the conclusion of his remarks, I took the liberty to ask a rather personal question of him. I said, ``Sir, what keeps you up at night?'' His answer was that it is the aging population. That is what he sees as the big issue that we are going to face and its implications.
I notice with interest that in your report yesterday, you make reference to the fact that you will be doing a detailed report on what that trend means for Canada. Could you give this committee some indication as to what your report will focus on, what your timelines are and, in your view, is this something on which parliamentarians and committees like this should be spending more time?
Mr. Page: I will pass the question on to Mr. Askari, our assistant parliamentary budget officer for economic and fiscal issues. I will not start by saying what keeps me up at night because you would need to bring in my therapist to do that.
However, in terms of the need for doing this, we think the role of a legislative budget officer is to provide this economic and fiscal context. You cannot really look at the sustainability and structural issues — even small issues that we say exist in 2013-2014, or are likely to exist — without that longer term projection.
I just will say that we are lucky to have a team of people who have done this work in the past. Mr. Askari was the director general of research at Health Canada, and he also ran forecasting at the Department of Finance. We are well placed to look at these longer term issues.
Mostafa Askari, Assistant Parliamentary Budget Officer, Economic and Fiscal Analysis, Library of Parliament: Our plan is to look at both economic and fiscal implications of population aging. We have developed some tools to do long- term forecasting over the summer; and we will use those tools to be able to look into the future and see what will be the growth path of the economy over the next 50 years, given that the population will age and the labour force will be significantly lower because of that. Then we will use that to look at the fiscal implications of that population aging, decline in growth and decline in the measure of living standards in Canada.
On the fiscal side, there is obviously the issue of the decline in the potential revenues that the government can generate because there is lower growth. There are also drivers of government spending that are directly related to the aging — in particular, health care costs and elderly benefits like Old Age Security. These two items specifically will be affected significantly by the aging of the population.
Our plan is to look at those expenditures and see how we can project those out 50 years based on the information that exists right now. That will include all of Canada, provincial governments included. Then we will use that information to find out exactly what would be the role of the federal government, what would be the share of the federal government in those trends. Overall, that would give us a sense of the federal fiscal situation over the next 50 years.
We have not done the analysis yet. We have just started thinking about this and using the tools we have. However, it is clear from the other studies that have been done in that area, that there will be a substantial increase in the debt-to- GDP ratio over the next 50 years. What share of that will be borne by the federal government remains to be determined.
Mr. Page: I would like to say, because it was part of your question, that we are excited to be able to look at these longer term issues. We think it is the kind of space that a parliamentary budget officer can help occupy — longer term issues like the aging demographics or issues around poverty, which Senator Eggleton asked us to look at, income imbalances in Canadian society, restructuring issues, productivity issues and climate change issues. Looking at the longer term and bringing it forward — what does this mean in terms of how we balance the books or do not balance the books over the next five years — would be very helpful.
Senator Di Nino: Mr. Page, throughout your presentation, the issue of the global crisis that I believe the world is facing was never referred to by any other term than that of ``a very serious recession.'' Your opinion then is that we are probably not in a crisis; is that correct?
Mr. Page: My opinion, on a world scale, is that this is the worst recession type of experience we have had since the Great Depression.
Senator Di Nino: You agree, in effect, that we are dealing with a crisis, as the world is calling it.
Mr. Page: It is definitely a financial crisis that could be potentially morphing into a fiscal crisis.
Senator Di Nino: Thank you for that.
In your presentation, on page 3, you talked about potential risks to the financial outlook. One you give as an example is that one in every three planned infrastructure dollars went unspent over the last two fiscal years.
My colleague, Senator Murray, asked that question of the previous witnesses, and we were informed that unlike other programs, the money does not lapse in the infrastructure program. It moves on — the term they use is ``re- profiled'' — so it will still be there for expenditures in the next year or the year after that.
First, do you agree with that statement? Second, would you not agree that will continue to help stimulate and improve the economy?
Mr. Page: I think that is true for most infrastructure programs. There are terms and conditions around the IFS program, the Infrastructure Fiscal Stimulus program, where the terms and conditions are such that, at least now, if the provinces or municipalities do not spend the money by March 31, 2011, that money will end there.
I think there was concern by the government to try to make this money temporary so that it would not contribute, in the long term, to a fiscal crisis in Canada by putting upward pressure on the deficit. We are of the view, as I think you are, sir, that if we lapse money or authorities in 2009-2010 and they roll into 2010, we will still have a very weak economy in 2010; we need those infrastructure dollars to help stimulate and raise the potential growth rate in Canada.
If there was a consideration by members of this committee that should we look at the time frames and whether two years is too tight, I think that would be a good use of time as well in terms of the IFS program.
Senator Di Nino: I want to make sure that you and the previous witnesses were saying the same thing — that this money does not lapse; it does not go back into the kitty somewhere, but continues to be available for infrastructure expenditures for the next number of years, however long it takes. It is not totally lost to the infrastructure program. That is what I understood. Would you agree?
Mr. Page: I think we agree on a number of infrastructure programs. We will check on the IFS program. Our working knowledge is that this money, if it is not spent by March 31, 2011, is no longer available to municipalities.
Senator Di Nino: It would be great if you could clarify that for us.
You mentioned Ford as an example of what would happen, if I understood you correctly. We have heard some encouraging news from Ford the last couple of days. Does that tell us anything about how that sector is doing, or is it just one off?
Mr. Page: I did not mention anything about Ford. I might have used the word ``forward'' in a context, but not specifically about Ford per se.
We saw in the United States, in the third quarter, a significant rebound in the automobile sector and significant automobile purchases as well. Some of this is being attributed to a program in the United States known as Cash for Clunkers.
We saw fairly strong growth in consumer spending in the United States. We have seen similar increases, in both production and retail sales, in Canada in the third quarter, but we are monitoring that carefully. We are still talking about a number of units in terms of production that is well below what we have seen in the past 10 years.
Senator Di Nino: I am interested in your study on the aging population and the impact that would have on the economy. I marked down three points while you were talking.
First, this is probably the wealthiest group of retirees that we have seen in the history of our country. It is also probably the healthiest group that we have seen in the history of our country. That should likely mean that this current population of retirees, or those who are in the process of becoming retirees, will live longer.
Are those issues that you will take under consideration in your report?
Mr. Askari: Yes. That is one of the reasons, especially on the health side, that the cost of health care will increase significantly. When we look at the data, the cost of health care for the ages 65 and above increases significantly in relation to health care costs for a younger population, which is common sense and natural. The cost of health care in the last two years of a person's life increases significantly.
Yes, the population is aging and people are living longer and are healthier, but they also incur large costs, which is a huge burden on the health care system. That is a cost driver that we are trying to figure out in our assessment.
Senator Di Nino: Along with my colleague, we look forward to your report. It will be very informative.
Mr. Askari: We hope we can accomplish that. We have some challenges on the resource side. If we do not get the people we need over the next few months, we will not be able to complete it.
Senator Di Nino: It may be interesting for you to refer to the study that the Senate has been doing on our aging population as well.
Senator Ringuette: Will that study include the fact that, with regard to health care, the provinces are the responsible entity, and that it is one of their major expenses as opposed to the federal government?
Mr. Askari: Yes.
Senator Neufeld: I want to go back to the reporting. Earlier today, we heard testimony, in a nutshell, from a fairly high level, that the federal government, the provinces and the municipalities, in most cases, get together to decide where they will spend this stimulus money. The federal government contributes to that only once they are billed. That means something has happened; there has been an agreement signed and it is done quarterly. The municipalities will deal with the provinces, and the provinces deal directly with the federal government.
I was interested in what you said, namely, that you had contacted 15 countries — correct me if I am wrong — about how they reported, and that 11 responded, and that the U.S. was the high-water mark that we should be looking at. I am not saying that I have any problem with that.
First, is the way the U.S. is doing their stimulus, from a high level, about the same as the way Canada is doing it? Are the programs similar? If you want similar reporting, obviously you will need similar programs in place.
Second, I think I heard you say that the U.S. stimulus was about $800 billion and that as of now they have spent about $150 billion. That is about 20 per cent of what they want to spend. I also understand that Canada has expended about 20 per cent of its stimulus money.
Understanding that those are pretty high-level numbers, are they not very similar? Would you expect that next round you will get the dollar amounts exactly? As I understand, and as was said earlier, the information is on the website for people to visualize, but I would like you to answer those questions.
Mr. Page: In terms of stimulus packages, I cannot break down for you today our $47 billion package and the revenue and spending components, infrastructure versus industry support, et cetera, in comparison with the U.S. However, in terms of the type of reporting they are doing there and the relative makeup, there are similar issues of complexity. In an area like infrastructure, you are talking about multi-jurisdictions. We have not seen much multi- jurisdictional reporting in Canada that I would call transparent on a budgetary level. It is more complicated.
They are dealing with the same issue in the United States, though, with the reporting. They have states and counties. They are reporting information that speaks to activities or outlays or expenditure that goes out. You are right in terms of the infrastructure program in the way the final disbursements will be made. It could be quite a long time before a commitment is made on a specific infrastructure project and then all the tendering and construction work that goes on before the federal government actually makes it payment.
It is important, though, in the context of a fragile economic recovery, that we get a sense as to activities on the ground on a quarter-by-quarter basis. What will happen in the third quarter? What will the fourth quarter look like? How fragile will the first half of 2010 be?
That is our perspective as the Parliamentary Budget Office. We want to give you that kind of information. You have probably had previous witnesses talk about the hand-off between the public sector and the stimulus in the private sector being strengthening in terms of consumption. Those are the kind of things we are looking at, and that is why we are looking at it.
Senator Murray: I will make my points quickly, and Mr. Page and his colleagues may wish to reply or take them on board for later consideration.
First, I think there is something not quite right about the way the government and you treat the so-called Employment Insurance account. The government points out, as do you, that over a period of several years there will be an excess of payout over contributions to the account. The government, therefore, plans to make considerable increases in EI premiums.
We have to bear in mind, going well back to the days when Paul Martin was Finance Minister and quite a few years afterwards, when times were relatively good, that a surplus was built up in that account that was reaching for $60 billion. If the government is to insist on raising premiums, when, for a couple of years, there is more going out than coming into that account, then they should be lowering premiums during the years when there is more coming in than going out, that is, when there is a big surplus.
I know that the EI fund does not technically exist anymore but, still, the question of a long-term excess of contributions over payout is not irrelevant as a policy consideration. What it suggests to me is that employers and employees — that is, the contributors to the fund — are bearing a disproportionate share of the fiscal problems of the government.
Second, I share Senator Ringuette's concern about General Motors. Specifically, I am puzzled as to why the government agreed to dispose of the common shares that it had acquired over a fixed schedule at whatever market price. My simplistic assumption is that, perhaps, this was done so as not to let any asymmetry creep into an agreement involving three governments — ours, the Ontario government and the United States government. However, I would like to know about that and why the government has completely written off that investment, as I understand they have. They do not have much confidence in the value of those shares going forward.
Third, I would ask you to confirm, if you will, or deny, if you must, that your mandate gives you the right to comment on the monetary policy of the country. In particular, I am somewhat intrigued by the apparent campaign of the Bank of Canada to talk down the value of the Canadian dollar. I would like to see some other opinions as to whether the Canadian dollar is, objectively speaking, overvalued. I am aware that exporters almost always complain it is too high for their purposes, but there are other objective factors that I think must be considered, and I would like to see some work done on this.
Finally, with regard to the structural deficit coming up, I think — as I have said — it is rather unrealistic of the government and of the official opposition to rule out recourse to tax increases. I am a bit less strident about it now, having heard your relatively optimistic views on the size of the structural deficit and on the fact we will have all these options before us.
Still, at some point, I would like to see someone do some scenarios for us as to what combinations of economic growth, revenue growth, spending restraint or spending increases will get us to a balanced budget by a certain date. You talk about fiscal year 2013-14. Is it the government's goal, do you know, to reach balanced budgets by 2014, 2015 or 2016 and, if not, when?
The Chair: Mr. Page, do you feel you could comment on these questions now? You may like to take some away and provide answers later.
Mr. Page: If I could, I will be brief on the points. It is clear that we need to come back, in particular, on the auto issue.
On the EI issue, in our projections, we look at the legislation and we do not make any policy statements whatsoever. However, we built into our estimations, as per the government's fiscal stimulus package, a freeze on the rates in 2009- 10. Then, because of the deficit, although Canada's fiscal stimulus for 2009-10 will not be counted towards the balance in the deficit account, we are basically putting the plan under pressure. We are assuming a 15 cent increase in each one of those years, which amounts to about 60 cents, when you get to 2014.
That is a significant increase in the EI premiums. It is a big policy issue, and you are right to say so. We estimate roughly $700 per cost of employee when you build in those kinds of premium rate increases, both the employee and employer cost share. That is an issue. Do you want to be seen to be increasing EI premium rates in a period of time when the output gap is closing slowly, when people are concerned about closing of the unemployment rate gap relative to the weak employment recovery?
Regarding the auto sector, I think it is fair to say that we will just come back. When we come back, we will provide a fuller description of what is behind the government's plan, why it was booked the way it was booked in terms of coming out of the Canada Account, and it is better to deal with that in a substantive note.
In terms of my mandate and monetary policy, I do not think it is our mandate to talk about policy issues, per se. I am not comfortable with that anyway. By that I mean either monetary policy or providing suggestions as to whether the government should do this or that to get back to a structural balance.
I am very comfortable with providing economic and fiscal information so that you have the tools to make those trade-offs. Having said that, we think a strong Canadian dollar certainly will hurt our export sector. We have seen industrial production shrink dramatically since 2007. We know that this helps importation of machinery and equipment. We know that is good for Canada's potential growth rate. We can definitely use models, which we will need to build, to look at those tradeoffs. We are happy to provide analysis around those issues.
Regarding the structural deficit, could we look at scenarios and what they would mean in the context of longer-term projections? Yes, we think that is part of our mandate, and we would do that upon request from senators — as to revenues, expenditures and what it would amount to. We would use our models and provide the simulations.
The Chair: Senator Murray, you may wish to talk to our Steering Committee about possibly asking the Parliamentary Budget Officer to help us with some of these issues that require study.
Senator Ringuette: Regarding EI, it is one thing to say that you freeze premiums, but there are two ways to increase the EI fund. You can also raise the income threshold, and that is what has been done this year. The government announced a freeze on EI premiums, but increased the threshold for which you have to pay premiums.
Are you looking at the influence of those two angles on the EI fund?
Mr. Page: Yes. It is in our document, and we have committed to come back on a couple of more analytical reports. One is on EI and the other is on the methodology behind our calculations for potential output and structural budget balances. There will be more technical reports. We will provide that report and would be happy to do a briefing for you on that.
The Chair: This was a good session and it was very important for us to meet with the Parliamentary Budget Officer and your team, Mr. Page. Thank you for coming.
It is pretty clear that we should get together more often.
The Chair: This meeting now stands adjourned.
(The committee adjourned.)