Proceedings of the Standing Senate Committee on
National Finance
Issue 2 - Evidence - November 25, 2013 (afternoon meeting)
OTTAWA, Monday, November 25, 2013
The Standing Senate Committee on National Finance met this day at 4:38 p.m. to examine the subject matter of Bill C-4, A second Act to implement certain provisions of the budget tabled in Parliament on March 21, 2013, and other measures.
Senator Joseph A. Day (Chair) in the chair.
[English]
The Chair: Honourable senators, this afternoon we are pleased to welcome back to our committee the Honourable James Michael Flaherty, P.C., M.P., Minister of Finance.
Mr. Minister, we thank you very much for being with us today. We appreciate that you have a busy schedule, as does the team that is with you. Many of them have been with us in the last six meetings that we have had. We have already completed a considerable amount of the preliminary work and understanding of what's in the bill, so we have some understanding of what we are expected to vote on in a clause-by-clause basis in due course. We appreciate your being here to give us an overview of what you are hoping to achieve with this legislation. The floor is yours, sir.
Hon. James Michael Flaherty, P.C., M.P., Minister of Finance: Thank you, chair. I apologize to the honourable senators that I was a little bit late arriving, but I'm here now and will stay for the hour allotted.
Some of the officials are here, as the chair noted, from the Department of Finance who can be of assistance with respect to technical issues.
Let me say a bit about the context of this bill. When we were elected in January 2006, we looked at the world and said, ``What is dangerous for Canada?'' At the time, we thought the greatest danger was the United States, the size of deficits and accumulated public debt in the United States. I remember being at a meeting with Hank Paulson and others in August 2007 and we were all concerned — all the finance ministers were — about the amount of cash awash in the world back then.
Where would this exhibit itself in a negative way? I remember the Secretary of the Treasury calling me a month later at home in Whitby and saying there is good news and bad news. The good news is we know where the problem is. The bad news is it's subprime mortgages in the United States.
We've been trying ever since to dig out of the credit crisis that followed in 2007 and early 2008 and then the crisis in the real economy that followed after that. During our first two years in government, we paid down about $38 billion in public debt. I'm glad we did because it put us in a good position, when the great recession happened, to take steps to protect jobs in Canada and to protect Canada from a prolonged, deep recession. And thinking back to that time, none of us had crystal balls but we were all very worried. Things did not look good in December 2008, January 2009.
I credit the Prime Minister, of course, with agreeing that we would run a very large public debt, so we went from a balanced budget, surpluses and paying down public debt to a $58-billion deficit in one year. That money was mainly used for infrastructure and it worked. It kept Canada from having many millions of people out of work. What mattered a great deal was that the public officials who worked on it at Finance, Infrastructure and Treasury Board made sure the money got out the door. This was absolutely vital in order to combat the effects of a recession that looked very dark and deep at that time.
Canada, in fact, came out of the recession the first of all the G7 countries. We were in recession for three quarters and then out of recession in July 2009.
[Translation]
When the global recession hit, we were able to react quickly and effectively in January 2009 with Canada's economic action plan. We made a conscious decision to run a temporary deficit in order to protect our economy and our jobs. And all political parties in Parliament agreed.
[English]
It is worth noting, in both languages, that Parliament supported the emergency budget in the last week of January 2009. Obviously, I consulted with the other parties and emphasized to them how serious the situation was at the time.
In any event, it was a shot in the arm for the Canadian economy and it worked, but the plan always was to get back to balance. And to get back to balance, in the medium term, what we have been saying to other countries in the G7 and elsewhere in the G20 is that all of us need to have plans to get back to balance and start paying down public debt, so we are practising what we preach. We will be balanced again in approximately 14 months and we will be in a position to run a surplus and make the policy decisions that are made then about what to do with the surplus.
Canada has experienced one of the best economic performances among G7 countries, both during the global recession and throughout the recovery.
[Translation]
Canada has created more than a million jobs since the worst of the global recession, in July 2009.
[English]
Both the major international organizations, the IMF and the OECD, project Canada to have among the strongest growth in the G7 in the years ahead.
Canada has the lowest overall tax rate on new business investment in the G7. Our banks are the soundest in the world, rated that for six years in a row. All of the major credit rating agencies — Moody's, Fitch, Standard & Poor's — have affirmed Canada's rock-solid, triple-A credit rating, and there are only a handful of countries in the world now that have a triple-A credit rating.
Moody's said in a recent report that despite being strongly linked to the U.S. economy, mainly through the trade and financial channels, Canada was able to recover much faster than other large industrial economies.
I come to deficit reduction. We are in the best fiscal position among the major industrialized countries in the world. The deficit fell to $18.9 billion in 2012-13. That's about $7 billion less than projected. It's down more than one quarter from the deficit of $26.3 billion in 2011-12 and down by nearly two thirds from the $55.6-billion deficit recorded in 2009-10.
I take some credit for this, in this sense, compared to the previous government. There are three large areas of federal spending. One is transfers to the provinces and territories. We have not reduced them by one penny. Actually, we got rid of the penny — by one nickel.
The next big area is transfers to individuals, persons with disabilities, seniors and so on. We have not reduced those payments by one nickel. In fact, they increased. What we have done is taken care of our own homework and we have been very strict about program spending in the Government of Canada.
The result of all of that is that we have a better budget situation than we otherwise would have. Direct program expenses fell by 1.2 per cent from the prior year. Since 2010-11, direct program expenses — that's the third area I'm talking about — have gone down by 3.8 per cent.
I'm a big believer in paying down public debt. I think that if we don't pay down public debt, we are burdening the next generation with our bills. As I announced in the economic and fiscal update in Edmonton, we will balance the budget in 2015.
In fact, we're projecting a healthy surplus of nearly $4 billion in 2015-16. As the Desjardins Group's Yves St- Maurice said:
The financial projections . . . point to very tight control over program spending. The results posted for the previous fiscal year make these projections highly credible. . . . The government has therefore shown it can deliver the goods on controlling spending . . .
While Canada has performed better than most, we cannot become complacent. As you all know, there is ongoing turbulence economically, fiscally in Europe and some in the United States.
[Translation]
The 2013 economic action plan is centred on positive initiatives aimed at supporting job creation and economic growth, while returning to a balanced budget.
[English]
Let me just highlight a few points that are in Bill C-4, the budget bill that's before you. Extending and expanding the hiring credit for small business — this works. We've done it for two years now. We know it creates jobs in the small- business sector.
Second, increasing and indexing the lifetime capital gains exemption to make investing in small business more rewarding. I hear all over the country how people want to invest more in their businesses or they want to transfer their businesses, and they want the government to not be in the way.
Third, as you know, we have frozen Employment Insurance premium rates for three years, which leaves $660 million in the pockets of employers and workers in 2014 alone.
[Translation]
Using taxpayers' money cautiously, modernizing the Canada Student Loans Program by moving to electronic delivery of both services, eliminating the labour-sponsored venture capital corporations tax credit, an ineffective subsidy.
[English]
Those are some of the aspects of the bill. I am happy to discuss any of the aspects of the bill. My officials are here, if they can assist. I thank you, chair and senators, for your patience.
The Chair: Thank you very much, Mr. Minister. We will start questions.
Senator Buth: Thank you very much, minister, for being here. It's a pleasure to see you this afternoon. One of the things that we've commented on in terms of why we've been able to weather the economic recession is the banking industry in Canada. I'm wondering if you can comment on Economic Action Plan 2013 and this budget in terms of what we've done to support the banking industry in Canada and to ensure that it remains strong.
Mr. Flaherty: Well, we certainly support strong regulation of the banking industry in Canada — of financial institutions, generally.
We have about 440 federally regulated financial institutions. We have made it possible for credit unions that are provincially constituted to join with us. And we're seeing a movement in that direction, because some of the credit unions are getting quite large. But they have to play by the federal rules, which means they have to be subject to the scrutiny of the Office of the Superintendent of Financial Institutions.
Julie Dickson will retire next year, as she has told everyone, and she has been a superb Superintendent of Financial Institutions. Not an easy job. I know she does a good job because I get calls from time to time from bank CEOs telling me how difficult she is being with them, so I phone her and congratulate her.
So the main thing we do is regulate.
As you know, during the recession, we purchased residential mortgages that the Government of Canada, through CMHC, already insured. That provided some liquidity to the banks to ensure they did not have liquidity problems. The people of Canada actually made money on that because they paid the money back and we reaped a profit on that.
But we didn't have to bail out any banks or financial institutions in Canada.
To try to answer your question, it's steady as she goes. We're okay, and we will continue to work with our financial institutions.
Senator Buth: Thank you, chair, I will have another question maybe later.
The Chair: I will put you on round two.
Senator L. Smith, deputy chair of the committee.
Senator L. Smith: Thank you, chair. Sir, the assistance that was given to some of the automakers — could you comment on the results? Because we read, I guess, that GM has repaid some of the assistance that was given to them, but it appears that the automotive industry has had a major rebound. To what would you attribute their reasons for coming back? Is it solely some of the assistance they received in terms of monies?
Mr. Flaherty: Well, they survived, and back in 2008 there was a very real question about whether or not they would survive. It's not so much Chrysler and General Motors as assemblers; it's all the parts people, the contractors, the plumbers and workers who work in and who fabricate for these plants. So it was a very big decision to make. I'm proud of the Prime Minister for making the decision that was made.
Obviously, I have some interest in all of this, being the Member of Parliament for Whitby-Oshawa. But it's a big business, and we have some of the largest parts companies in the world headquartered here in Canada: Linamar Corporation, Magna International and others.
So Chrysler is done. We still own some shares in General Motors; in fact, we own a lot of shares in General Motors. There was some pressure in December last year for us to sell our interest. I didn't think the price was good enough, and the U.S. Treasury sold a lot of stock at $27.50. We hung on and we sold about $30 million worth at $37.50 a little while ago. And we have more.
I agree with you, senator. This business has come back. It's a global business, and I think we need to do two things: One is get out of the auto business; as a government, we shouldn't own shares in the auto business. But we have to get a decent price for the risk Canadians took with General Motors.
Senator L. Smith: A supplementary question: With the proposed European trade agreement and reduction of tariffs, one of the issues that were brought up was the opportunity for businesses, such as automotive. Would you see — because of some of the moves that were made to support these businesses in the interim when we were in crisis — that now there should be a bigger opportunity for those particular operations in Canada that would be selling product abroad?
Mr. Flaherty: Yes, and as I said, senator, it's a global business now. I won't name companies, because they tell me things they probably don't expect me to repeat, but we're seeing companies now design cars for the European market, including right-wheel drive, and they will export them from Canada to Europe. This is a huge development, and it puts us into the global marketplace on automobiles, which is not a bad place to be.
Senator Hervieux-Payette: Welcome, minister, and I will start in English so that everyone understands if they don't have their translation. I would like to congratulate you on closing the loopholes that I consider real budget measures, especially with regard to trusts, meaning that you will collect more money. As such, I'm very happy.
[Translation]
Could you please give us an overview of the cost-benefit analysis that your department conducted on the labour- sponsored funds for this measure to reduce the labour-sponsored funds tax credits that affect Quebec significantly. I would like to know the amounts that will ensure that you will help pay the related deficit.
In part 2 of article 160 and on, who asked you and how? Our public servants will be on the boards of directors of banks, insurance companies and trust companies, where fees of $100,000 to $185,000 a year are paid, in addition to the time these people will take, while you have retired public servants. You just mentioned someone who will retire soon. On what basis are we going to permit that, since the president who administers the federal Conflict of Interest Act told us that she does not have the power to govern these people, that it is an internal measure? So there will be no specific legislation that applies to those public servants. How can we reconcile the public service and shareholders' profits?
[English]
Mr. Flaherty: I'm going to get my officials to help with the first question.
On the second question, I think you're asking about public appointments and various government roles that people from the public sector are appointed to.
I will say two things. One, I'm all for getting the best and the brightest to serve in the federal public sector. If we can get people to volunteer and help Canada, I'm all for that. Most of them do it for next to nothing. Some do it for absolutely nothing. I can tell you that no one has ever said no to me in seven and a half years, including names that I could list of very prominent people, so I'm proud to be a Canadian. I'm proud of Canadians.
The Conflict of Interest Act applies, period. Everyone must comply with the Conflict of Interest Act when it comes to public appointments, period.
On the first question —
Senator Hervieux-Payette: Just a minute, minister. I am confused with your answer. I'm talking about the civil servant, the assistant deputy minister or director in our government serving on boards of banks. I do agree with your statement, the fact that we need the best people serving on boards of the government and that you appoint these people by order-in-council or by working with the different corporations we have. I have no problem with that.
The way I understood clause 160 and more, and this is clearly indicated in what we received, it mentions that from now on —
[Translation]
From now on, agents of the Crown and public servants will be subject to the confirmed legislation, will have the right to sit on boards of directors of banks, insurance companies and trust companies. That is how I understood it.
[English]
Where I have a problem is that I thought that public servants were serving the public interest, not the shareholders of the banks. I'm just asking you, how did it come into that bill?
Mr. Flaherty: The issue arises because of several things. One of them, for example, is our reforms at Canada Mortgage and Housing Corporation.
My deputy minister now sits on the board of CMHC. CMHC is now a large financial institution in Canada. I want my deputy minister to be on that board, because we're keeping a close eye on what they're up to.
Senator Hervieux-Payette: No. It's a Crown corporation. I agree. The federal bank of development has had people from the government sitting on the board for ages. I have no problem with that. I'm asking you, why should civil servants, people around this table at a high level who are not covered by the law of conflict of interest, as the president told us last week, sit on the board of the Royal Bank or the Toronto-Dominion Bank or the insurance company?
Mr. Flaherty: Senator, you can correct me, but I'm not aware of any public servant who is not retired who is sitting on the board of any of the banks.
Senator Hervieux-Payette: But I need information about the interpretation of your law starting at clause 160. That's what I have read, and that's what I have read in the notes that were given to us.
The Chair: Senator, this is very rapidly becoming a debate between you and the minister.
Senator Hervieux-Payette: I don't have the answer.
The Chair: You don't have the answer. You've asked the question. It's been understood, and you've got the answer you are going to get. Do you want an answer to your first question?
I'll put you on round two. I have quite a few senators who want to pose questions so I will go on, then.
[Translation]
Senator Bellemare: I will continue with the gradual phase-out of labour-sponsored venture capital corporations. You commented that it was ineffective. Senator Hervieux-Payette asked for information on the studies. What are we saying to small investors who put their savings into labour-sponsored venture capital funds, especially the smaller funds? Some are well capitalized, but smaller funds exist. Should they be concerned about the budget provisions? Are their savings at risk? What are we telling these small investors?
[English]
Mr. Flaherty: First, senator, this is not the first time this has happened in Canada. Ontario abolished this tax privilege five years ago or so. It does not accomplish the goal for which it was designed. It was designed to increase investment in business, small business, and help businesses grow. It does not.
I'll let my officials respond. I don't know which will respond.
Sean Keenan, Director, Sales Tax Division, Department of Finance Canada: Independent organizations like the OECD and independent experts have studied the LSVCC program and have concluded that the tax credit is an ineffective means to support a healthy venture capital sector and thus represents a poor use of government resources, and that the government has introduced a venture capital action plan that will provide a better means to support the venture capital sector in Canada.
[Translation]
Senator Bellemare: Is there any risk to small investors of losing their savings if the funds in question, the funds they have invested in, no longer exist? Is there a risk or was this aspect considered in the measures proposed in the budget?
[English]
Mr. Keenan: There is a gradual phase-out to the credit over a number of years, which will give the funds some time to respond to the change in the credit. Some of the funds are large and well capitalized, so certainly they're able to manage.
There was a consultation period on changes to the tax rules that would help the funds manage through the phase- out period to adjust to see what concerns would be raised. Those consultations have finished, and the analysis of the responses that we've received is ongoing.
[Translation]
Senator Bellemare: If I have understood correctly, there are no concerns. The planned transition to phasing out the credits will not be detrimental to the existence of the funds, and the savings will be protected. Is that right?
[English]
Mr. Flaherty: That's right.
Senator Callbeck: It is a pleasure to have you here, minister.
I want to ask you about Division 17 in this legislation, which pertains to public service labour relations. We had witnesses here who told us that one of the top two considerations by an arbitrator will be Canada's fiscal circumstances.
Will that arbitrator be given any guidelines by the government? Each arbitrator can think about that differently. One can say, ``Well, we're not in a surplus situation, so therefore there's not going to be any raises this year.'' Another one could say, ``Well, it's just a small deficit, so no problem, we'll give raises.''
Will the government will be giving guidelines to the arbitrators?
Mr. Flaherty: I don't anticipate there will be any specific guidelines, other than the inevitable buildup of precedent under the new legislation, assuming that it's passed in the house and in the Senate.
This concern has persisted. I was the Minister of Labour in Ontario a long time ago, and we had this issue then. Call it the ability to pay, call it a fiscal situation, but arbitrators who ignored fiscal reality — I don't know how else to put it — and just thought governments can always tax people more, so you can come up with a result that makes some people around the table happy but a whole lot of other people not happy, and takes money from health care, our armed forces and veterans, but you have got a nice, neat little decision around the table. No, we expect the labour arbitrators to read budgets; we expect them to see the fiscal plan of the government.
If I have to send them a copy of the fiscal plan, I will, about where we're going and why we're going in that direction.
Senator Callbeck: I have another question; it's on the credit unions. They're going to lose a special tax that they had — over five years — and they will be taxed the same as banks, which really doesn't seem right to me. I have a paper here that indicates that the smallest of the huge five banks that we have in Canada, BMO, is $278 billion. The credit unions are listed here as well; the largest one is Vancity, $17 billion. So they don't appear to be on a level playing field at all, and I'm concerned about that with the credit unions, because I come from Prince Edward Island, where they're very strong, and credit unions tend to go in areas where banks wouldn't go, yet this measure is going to take $75 million a year out of the credit unions, monies that they could be lending to small business.
Mr. Flaherty: I appreciate the question, senator.
This tax measure was designed for a time when credit unions were small. Now, as you've just described, we have some credit unions in Canada that are not small at all and, in fact, are very profitable. So our view, and my view, was that it was no longer necessary to extend this tax credit to them. I must say I've heard next to nothing from the credit unions, which is usually a sign that they realize that things were pretty good for a long time, but they're not that good anymore, because we're going to have to pay that share of tax.
By the way, I think the Bank of Montreal may get upset about your saying they're the smallest one. The CIBC may be. I'll leave that with you.
Senator Callbeck: Well, not according to the figures on this sheet, but you may be right.
[Translation]
Senator Dallaire: Mr. Minister, my question has two points: bridges and veterans.
You are in the process of creating a single entity for the four bridges that connect Canada and the United States. Was that decision made to provide better security on the bridges? Will these measures facilitate maintenance? Will creating this single entity result in any lost jobs? And why not include the problems with the Champlain Bridge and the Jacques-Cartier Bridge — especially the Champlain Bridge — which might benefit from this initiative, thereby improving their effectiveness?
Mr. Flaherty: Our system is going to be effective.
[English]
We have now a very strange thing in Canada where the federal government, for some reason, owns several bridges and doesn't own bridges elsewhere, which I'm sure you appreciate, senator. One of the most recent bridges built was the Pont Champlain, and it's falling down. Go figure. The Victoria Bridge, I'm told, is in relatively good shape. This is a relic of a certain time, I think, where the quality of construction may not have been as good as it was in previous times.
We're trying to create a more efficient structure for the bridges and more efficient management. Time will tell whether this step works or not.
Senator Dallaire: But you're not getting out of the business of bridges.
Mr. Flaherty: No, just the opposite, in fact. As you know, Minister Lebel has made it clear that we're going to build a new St. Lawrence bridge to replace the Champlain Bridge, and it will be tolled, just as the Champlain Bridge was tolled when it was built, which a few of us would remember.
Senator Dallaire: Coming from Montreal, I remember very clearly.
The other one is on veterans. There's a bit of logic that's not clear. The number of veterans is increasing, the demands of veterans are increasing, and we have the new generation of veterans, which has thrown Veterans Canada into a whole new spectrum with the new Veterans Charter, and an institution gains its reputation by being particularly the last body where people can go and complain and have a fair hearing.
In Division 11, clause 276, the tribunal, which should have 29 members, including the president, should be working flat out producing 100 per cent efficiency because every veteran counts. It's not like a truck where 85 per cent efficiency is good enough. I mean, you're in the business of human beings, and 100 per cent efficiency is what you have to do.
You've got an organization that's at 85 per cent. It's handling some dossiers that are held up for a year plus for a variety of reasons; and over the history, it's had less than 25 out of the 29 people appointed, and among those 25, a number are in training, some are sick, some are waiting appointments. So you usually have about 25 that are really efficiently punching out the work, and they're up to 4,900 decisions a year, which makes a significant amount of work.
How can we argue that we've got too many and that we're going to reduce it to 25 when every angle should be saying we should use the 29 and not stay at 25? I'm sorry to bring you into the weeds like that, but it has a significant impact.
Mr. Flaherty: Well, I understand, and I have great respect for your history, senator. I appreciate it.
What we need is a well-functioning board with 25 hard-working people on it. That's the goal. The estimates are that that's sufficient to handle the caseload.
We run into this same issue with the Superior Court in Quebec and the Superior Court in Ontario and in Western Canada, the various superior courts and courts of appeal: How many is enough?
The key for me, and I am a litigation lawyer for good or for ill, is to have the right people with the right work ethic who will get the job done.
Senator Dallaire: Was it a leadership problem?
Mr. Flaherty: I'm not close enough to the veterans to pass any judgment.
Senator Dallaire: I wanted to put that on the table. Thank you very much.
Senator Mockler: Minister, thank you for taking the time to come and share the direction we are going in. I remember very well the things that you're not doing now, such as cutting transfers to provinces. I remember sitting in the Legislative Assembly of New Brunswick in 1993 to 2004-05. I have a mind full of different things that were challenging our province. I can say the same thing for other provinces. There's one item that I'd like you to bring to the people listening to us, and in consideration of the leadership that you're providing in our government: the Canada Pension Plan Investment Board.
The Canada Pension Plan Investment Board has become one of the largest pension funds in the world, and that's due to leadership. Currently, only Canadian residents can serve on the 12-person board of directors. I see that in Bill C- 4 the government has proposed allowing up to three non-residents of Canada to serve on the Canada Pension Plan Investment Board.
Can you share with us and Canadians what this measure will ensure vis-à-vis the long-term prosperity of the Canada Pension Plan for Canadians?
Mr. Flaherty: Thank you, senator. The Canada Pension Plan, as you said, is one of the largest pension funds in the world with total assets currently of over $183 billion. The plan grew by 10.1 per cent in 2012. It invests a significant portion of its assets outside Canada. The board came to me some time ago and asked me whether I would consider allowing some directors to be non-Canadians. I consulted with my provincial colleagues, the ministers of finance, and there was unanimity that we should be expansive. There is a global economy, and this is a huge pension plan investing in Singapore, Australia, Europe, and all over the place. We have to have the best advice we can get around the board table, which is why this is proposed.
Senator Mockler: Did I hear you right, minister, when you said that you have consulted with our ministers of finance in the provinces?
Mr. Flaherty: Yes. I'm well known for consulting broadly. I have talked to all of them; and we're okay. We all agree. They understand the need not to be parochial when you're dealing with a fund of this size.
Senator Buth: Minister, you made some comments already about controlling government spending. I'm wondering if you could talk a bit about your expectations in terms of departmental spending and how you see that playing out in the next couple of years. We've seen quite a few reductions, but what do you expect in the next couple of years in terms of departmental spending or your instructions to departments?
Mr. Flaherty: Well, we've told the departments that their individual spending envelopes are frozen for the next two years. Now, it leaves lots of discretion with the deputy ministers and assistant and associate deputy ministers and all the officials to allocate resources as they see fit and to promote or demote or whatever they choose to do. We want to make sure that there's a balanced budget in 2015. One way of doing that is to not let the public sector spending — program spending — grow out of hand.
Senator Buth: Any new initiatives, essentially, have to come from within departments. There has to be a prioritization within departments for what's important.
Mr. Flaherty: That's right. I know that a number of the honourable senators sitting around this table have experience in government and as ministers and so on. As you know, it is necessary to have a degree of direction in order to accomplish the goal. There is a tendency to continue to spend until someone says no. It's like our children — they'll continue to spend until someone says no.
The federal public service, as I said earlier in my remarks, has been remarkably good, particularly during the great recession, and has made sure that we got done what needed to be done a timely basis. I'm not a person who goes around criticizing the federal public service; but I do think it is a time when we need to exercise some restraint so that we can accomplish the goal of a balanced budget.
Senator Buth: Just a comment: Having participated in the last two years in the budget bills, we've seen the spending reductions and position reductions, but there hasn't been a decimation of department spending in the public service. I just wanted to get your comments on where we're headed, because it's been a very measured and controlled process that we've gone through; and it sounds like that's the way it's going to continue.
Mr. Flaherty: I can give you one example in the Department of Finance. I may have the numbers wrong, and forgive me if I do, but when I started I think we had about 1,000 people working at the Department of Finance. Now, I think we have 750.
Are we doing a poorer job? Some might say so, but I don't think so. Management's very strong, the deputy minister's very strong, and the ADMs are very strong; and that matters. As you know, the people who are running government departments, who aren't the ministers as they are off doing other things, are very disciplined in their approach.
Senator Buth: Thank you, minister.
Senator Hervieux-Payette: I have been reading the notes from your department so we can understand each other and there is no confusion about what I am talking about. Clause 162 repeals section 160.1 of the Bank Act, which allows government employees to sit as directors on the board of a bank if the bank is controlled by a local cooperative credit society. It also allows agents of the Crown and federal and provincial government employees to sit as directors on the board of a bank holding company. Then, you have the same thing for insurance companies.
I was asking you, minister, how in the world this ends up in the budget and why you would have these very efficient technocrats take time from their jobs, especially when we have 250 fewer, to sit on the boards of big banks and trust and insurance companies. You're the only one capable of explaining that to me.
Mr. Flaherty: No, I'm not, actually; the assistant deputy minister is.
Senator Hervieux-Payette: Maybe you should learn about this.
Mr. Flaherty: I'll be listening intently.
Jeremy Rudin, Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance Canada: Thank you, minister.
As the minister was discussing, these measures will streamline and modernize the conflict of interest provisions about participation on the boards of federally regulated financial institutions. Some of the provisions in the existing legislation predate other initiatives that the government has taken since then, for example, the Conflict of Interest Act, which governs people who are appointed to Crown corporations, and the Public Servants Disclosure Protection Act, which gave a legislative foundation for the Values and Ethics Code for the federal public service.
So it's the government's view that, as a result of these changes, it is no longer necessary to have a blanket provision either against a member of a Crown corporation board or indeed a public servant. There is no longer a need to have a blanket prohibition against their being on the board of a federally regulated financial institution, because the system is protected from conflicts of interest both by the Conflict of Interest Act, for the one class, and the code of ethics for the other class, on top of which there is the requirement, established by the Office of the Superintendent, that the institutions themselves have a conflict of interest policy that applies to the board members.
Senator Hervieux-Payette: Give me an example. Would the Deputy Minister of Agriculture be able to sit on the Royal Bank board?
Mr. Rudin: I don't have a detailed analysis of particular hypotheticals. To give you a hypothetical, I would be conflicted, obviously.
Would, however, a provincial public servant be conflicted — say they worked in the agriculture department in a province — would they be conflicted as a board member of a federal credit union, if they had been interested in doing so? Perhaps they had been a long-standing member of the board of that credit union before it continued into the federal sphere. It's possible nonetheless that they would be conflicted. The analysis would depend on the specific case. But all that this provision would do is take away the blanket prohibition and require a case-by-case examination.
Senator Hervieux-Payette: When you talk about provincial, I suppose that their master is the provincial government and they will deal with these matters giving permission. I'm talking about just the federal corporation. I'm not talking about people from the private sector sitting on some of our boards, whether it's EDC, BDC or CHMC. I have no problem with that, that they would sit here and they would sit on the Royal Bank board.
My concern is to have a deputy minister of health sitting at the Toronto Dominion Bank. I know that they are not in the same sector, but I'm just trying to figure out how a civil servant at the top level would have the time and energy to read the documents and receive, of course, the $175,000 fees. Maybe you would deduct that from their pay. But I'm just asking you why it is there.
Mr. Rudin: This is not aimed necessarily at top public servants. You may well be right; perhaps it is impossible for a very senior federal public servant to not be in a conflict of interest position. But if that is the case, then these people will be prohibited from being on the boards, either through the Conflict of Interest Act if they're a deputy minister and a GIC appointee, or by the Code of Values and Ethics if they're a less senior but nonetheless sufficiently senior public servant, and by the conflict of interest policy of the institution itself, as mandated by the superintendent.
Senator Hervieux-Payette: But my question is where does it come from — from the bank, from the insurance company or from requests from the people working for this government?
Mr. Rudin: It comes from our review of the conflict of interest provisions that predate the Conflict of Interest Act and the disclosure act, and in looking at, for example, the prohibition on being both on a Crown corporation board and a regulated financial institution board at the same time. So then it raises the question of who else has a similar prohibition that is no longer necessary. This leads us to the provincial public servants, and then this leads us to the federal public servants.
[Translation]
Senator Bellemare: To conclude, Mr. Minister, I think you succeeded in getting Canada through the last recession. There are good employment-related measures in the budget.
However, what are the best measures in the budget to deal with the challenges that we face with respect to productivity in Canada? We know that productivity growth could be greatly improved. What measures do you think would solve that problem?
[English]
Mr. Flaherty: Thank you for the question, senator. I should note that in all these years where we've had to find some spending efficiencies, we have not reduced the funding to the three granting councils by one nickel. All the granting councils have continued to be fully funded. Why? Because we believe in R&D; we believe in innovation. We created the venture capital fund in last year's budget, $400 million. That has now grown, because it was designed to be a leveraged partnership, and some of the provinces and private corporations have become our partners. There will be more to be said about that in due course.
We have continued the post-doctoral fellowships. We have continued to try to attract international students to Canada. I'm a great believer and always have been in higher education and the community colleges. We've invested more in the community colleges because one size does not suit all. So, no, we haven't backed off on that at all.
The Chair: Minister, this committee did a study on price discrepancy on products between Canada and the U.S. We thank you very much for following one of our recommendations with respect to reducing tariffs on certain items — hockey equipment, that kind of thing.
But we suggested that a complete review of the tariff scheme would be in order. Could you tell us if that is contemplated or if it is under way?
Mr. Flaherty: Yes, chair, we are reviewing the tariff scheme, broadly defined, to have a look. As you know, we also have people in the field who are independent third parties having a look at retail prices and doing comparisons for us, and they will be reporting back to us. I met with some of the CEOs of some of the large Canadian retailers recently and expressed my concern that a couple of them had been less than cooperative in disclosing pricing information, and they have now become more cooperative. This is a good thing. So I think we'll have some accurate data on retail prices.
We're also looking more broadly at tariffs. We've been in the business of eliminating tariffs over the course of the past seven and a half years, and we intend to continue on that course.
The Chair: Thank you. I have another question before I go to Senator Dallaire. This is in relation to this particular bill that we're studying. Bill C-4 is 308 pages, 472 separate clauses amending 50 different pieces of legislation. It's made up of three different divisions.
I'm wondering: You have heard our comments in the past about omnibus financial or fiscal bills. Would you undertake to consider dividing this between fiscal matters and non-fiscal matters so that we could handle this matter maybe with more committees than one committee having to deal with an entire 308-page omnibus bill that deals with fiscal measures plus other matters?
Mr. Flaherty: I may have been misinformed, chair, but I understood that portions of the bill had been referred to other committees of the Senate.
The Chair: Just for your clarification, one committee is responsible for doing a clause-by-clause study. Even though other committees are helping with the study to try to get it done, this committee will be doing the clause-by-clause consideration of all of the clauses that are in the bill. So we have to know what's there in order to vote on each of those clauses.
Mr. Flaherty: That just shows the preeminence of the National Finance Committee.
The Chair: It would be awfully nice if you would consider us being preeminent in dealing with two separate bills rather than one. I wanted to go on the record in that regard.
I have one other point that I wanted you to have an opportunity to react to because I know a number of people are concerned about it. You led into this issue with your opening comment, where you talked about the $7-billion difference between what had been predicted for fiscal 2012-13. At budget time it was predicted to be $26 billion; in the November update it was predicted to be $26 billion; and, in fact, in the next budget, you predicted that the previous year it would be $26 billion. However, when the public accounts came out this fall, it turns out to be $7 billion less. How could it happen that you wouldn't have had more of an overview of what was going on in government so that the public could be assured that future predictions would not be that much off the amount that you had predicted — that much variation?
Mr. Flaherty: You know the size of the budget is about $275 billion. The budget allocates spending among departments and agencies. It doesn't direct spending; that's the job of Treasury Board. If a particular department wants to get something done, and get the money out of the door, they have to go to Treasury Board.
We have seen substantial lapses, as they are called, where departments have not spent — some of them haven't even applied for the money that was allocated to them in the budget. That's the answer.
The Chair: Thank you.
Senator Dallaire: Minister, you've touched on a significant point. When I look at National Defence's budget, we used to be able to move vote 5 money into vote 1 so that we could use those funds to fill the bins for the next year, even though we're allowed a carry-over. We also tried to minimize the amount of money on the capital side that was not expended by moving projects through the system. We've seen billions not being spent on the capital side, which comes to the plus side of your hitting the budget deficit reduction, but it doesn't necessarily seem fair play on the part of the department if it has money but it can't spend it. Is it because there is ineptness in the department to get the money spent, or have we put in so many rules, regulations, verifications and matrixes out there that they just can't get things through the system to get it approved in a timely fashion?
Mr. Flaherty: When it comes to the Department of National Defence, you would probably know the answer better than me.
Senator Dallaire: We're exchanging here.
Mr. Flaherty: In the fiscal framework, the money we have allocated to National Defence is there for National Defence. The department will spend it as they are authorized to do so by Treasury Board. I personally have some concerns about procurement, which seems to me to be a bit slow.
Senator Dallaire: Are you mastering the understatement here by any chance?
Mr. Flaherty: I'm not an expert on these things, but I can assure you, senator, the money is allotted; it is in the fiscal framework. When they spend the money, it's there.
Senator Dallaire: Thank you for that.
The Chair: Minister, the time that we had allocated has expired. On behalf of the preeminent Standing Senate Committee on National Finance, I want to thank you very much for taking the time to help us with some of these issues. I can tell you the team that is behind you, the public servants who have been with us for a number of days now to help us understand this bill and all 472 clauses of it, are doing an excellent job. You can be assured that when you're not here, they're still doing an excellent job.
Thank you very much for being here.
Mr. Flaherty: Thank you, chair.
The Chair: The meeting is concluded.
(The committee adjourned.)