Proceedings of the Standing Senate Committee on
National Finance
Issue 4 - Evidence - January 28, 2014
OTTAWA, Tuesday, January 28, 2014
The Standing Senate Committee on National Finance met this day at 9:30 a.m. to examine the expenditures set out in the Main Estimates for the fiscal year ending March 31, 2014.
Senator Joseph A. Day (Chair) in the chair.
[English]
The Chair: I welcome back all honourable senators to the Standing Senate Committee on National Finance after a brief break following our very busy schedule just before the Christmas and New Year's break. I also welcome back all of our staff who are behind me here and thank them for their work concluding last year's committee mandate.
[Translation]
Honourable senators, this morning we are continuing our study of the 2013-14 Main Estimates for the fiscal year ending March 31, 2014.
[English]
This morning we're very pleased to welcome the Parliamentary Budget Officer, Jean-Denis Fréchette. Mr. Fréchette was appointed to his position on September 3, 2013, and we're pleased to meet with him here this morning. Mr. Fréchette is joined by officials from his office, and I will call out their names. I think I have all of your team here: Mr. Mostafa Askari, Assistant Parliamentary Budget Officer, Economic and Fiscal Analysis; Peter Weltman, Acting Assistant Parliamentary Budget Officer, Expenditure and Revenue Analysis; Jason Jacques, Director, Economic and Fiscal Analysis; and Trevor Shaw, Analyst, Economic and Fiscal Analysis.
You can see there are two primary sections within the Parliamentary Budget Officer's structure. I'm sure Mr. Fréchette will be expanding on that for us; I hope he will.
Mr. Fréchette, I understand you have a few opening remarks, and then we will get into a discussion about the Parliamentary Budget Office. You have the floor, sir.
[Translation]
Jean-Denis Fréchette, Parliamentary Budget Officer, Library of Parliament: Mr. Chair and honourable members of the committee, I would like to thank you for inviting me to appear before your committee to discuss the Main Estimates and the Parliamentary Budget Officer's latest report entitled Expenditure Monitor: Second Quarter of 2013-14. As you mentioned, I am accompanied by the senior administrators of the Parliamentary Budget Office and by one of the authors of this most recent report.
As you know, in my previous capacity, I was very involved in providing research services to parliamentary committees for 27 years. It is always a pleasure for me to work with a parliamentary committee, be it next to you as I was when I was an analyst and research director, or to testify before you as the Parliamentary Budget Officer.
Soon after being appointed as the new Parliamentary Budget Officer, I explained that I would be very receptive to the needs of all parliamentarians, but that I had a special interest in parliamentary committees, particularly your committee and the two others mentioned in section 79.2 of the Parliament of Canada Act. Please consider this an invitation to contact my office with any research request related to our mandate.
[English]
The role of the Parliamentary Budget Officer adds another dimension to parliamentary research services. The PBO's mandate is to provide analysis on the state of the nation's finances, the government's estimates and trends in the Canadian economy. This more specialized analysis complements what you already receive from other sources.
I cannot say this too often: The PBO is committed to supporting you in your task as legislators and to holding the government to account for the good stewardship of public funds. That is why, given the difficulties in getting certain departments and agencies to provide economic data — you need to be fully informed — I'm exploring several options, including the parliamentary avenue, which I hope will contribute to making it easier to obtain information in the future. All of these options are promising.
A few words on the latest report: The Expenditure Monitor is one example of the kinds of tools developed by the PBO team to help parliamentarians assess the additional adjustments to authorities proposed by the government.
I would like to share with you some of the highlights from the report for the second quarter of 2013-14.
Overall spending increased by $2.2 billion to $124.6 billion compared to the previous period in 2012-13. That is a 1.8 per cent increase. These results are consistent with the spending growth forecast in the November 2013 update of economic and fiscal projections.
Direct program spending also increased by $500 million, a year-over-year increase of 1.2 per cent. The growth in direct program spending has slowed compared to prior years and is expected to plateau, given the government's plan to reduce annual direct spending by $9.1 billion in this fiscal year and $13.7 billion by 2017-18. If savings are fully realized in 2017-18, direct program spending as a share of total program spending would reach its lowest level since 1998 and 1999, and it would comprise the smallest share of nominal GDP since 2001-02.
The PBO has not yet received from federal departments and agencies complete service-level data that is necessary to assess the fiscal sustainability of the Budget 2012 cuts. Almost 40 per cent of the performance of programs in 2012-13 cannot be evaluated due to end-year changes to targets, incomplete data or insufficient evidence.
[Translation]
Within individual programs, the most notable increase — and one that has attracted the most public attention — pertains to Public Safety Canada's Emergency Preparedness program activity, which increased spending from $60 million to $230 million in the first six months of 2013-14. This increase reflects contributions toward the $4.1 billion federal liability associated with major flooding and rainstorm events in 2011 through 2013.
In conclusion, I would like to reiterate the commitment of the entire PBO team and our interest in any request from your committee regarding research on the nation's finances and economy.
My colleagues and I would be happy to answer your questions on the Expenditure Monitor, the Main Estimates and any other questions you may have on the work of the PBO concerning research and access to information. Thank you.
[English]
The Chair: Thank you very much for being here, Mr. Fréchette. I'm looking at the estimates for 2013-14 and under the Library of Parliament, which is at II-203. You are appearing before us as part of our mandate to follow and understand expenditures that are in the Main Estimates and the various supplementary estimates, but I don't see a breakdown here. Maybe you could direct me to the area where there is a breakdown between the Library of Parliament generally and the specific budget for the Parliamentary Budget Officer.
Mr. Fréchette: It is embedded in the Library of Parliament budget, but it is a specific box that is allowed and given to the Parliamentary Budget Officer. If your question is that you want to know the budget of the PBO, it is $2.8 million.
The Chair: Is that determined by the Library of Parliament, and the chief librarian determines your budget? How is your budget determined on an annual basis?
Mr. Fréchette: The Parliamentary Librarian reports to the two Speakers, so essentially they are like the ministers for the Library of Parliament. The Main Estimates are tabled with the two Speakers and that is where the work is done.
The Chair: I am looking for how independent the Parliamentary Budget Officer's role is within the Library of Parliament for determining budgets and the number of employees.
Mr. Fréchette: The number of employees for the Parliamentary Budget Officer?
The Chair: I will get to the number of employees, but I am looking for the independence issue. Are you told what your budget is each year and how many employees you can have? There is obviously some consultation, but who ultimately makes the decision on the amount of the Library of Parliament's budget that goes to the Parliamentary Budget Officer?
Mr. Fréchette: It was established by my predecessor in 2008 and has been stable since then. It was a consultation with the Parliamentary Librarian at that time. Every time the Library of Parliament prepares the Main Estimates, the PBO is part of the Library Executive Committee. That's where the voice is, and that's where we establish the budget.
It has been stable since 2008.
The Chair: How many employees?
Mr. Fréchette: Roughly 15, including support staff.
The Chair: They report directly through the Parliamentary Budget Officer?
Mr. Fréchette: That's right.
The Chair: That helps set the stage. I can refer honourable colleagues to the Parliament of Canada Act, which was amended by the Federal Accountability Act a few years ago and which provides the mandate of the Parliamentary Budget Officer, and particularly section 79.2. Interestingly, that particular section refers specifically to our committee as one of the committees that you have the mandate to provide research information for. Is that correct?
Mr. Fréchette: That's correct. That's what I said in my opening remarks. I am looking forward to working closely with this committee. In my consultation with parliamentarians in the past four months and also in discussions with the Honourable Noël Kinsella, Speaker of the Senate, he told me specifically to remember that the Senate Finance Committee is part of it. I said, ``Don't worry, Mr. Speaker, I remember the National Finance Committee.''
The Chair: Thank you very much for that background. I think it sets the stage for our meeting today. I will now go to honourable senators, beginning with Senator Buth from Manitoba.
Senator Buth: Thank you for being here. It is a pleasure to meet you again in your new role as Parliamentary Budget Officer. I'm wondering if you could spend a little time explaining the process that you use when you get a request, the types of requests you receive, the number of requests and how you determine how you are going to provide the information and do the analysis.
Mr. Fréchette: There are two approaches. We receive many requests — more than what we can do based on the resources that we have.
Let's start with the requests. The requests are based on two factors, and everything is public for the PBO. If you look on the Internet site, you will have the operational plan. We make an analysis. The managers and analysts look at the requests coming from the parliamentarians, individual or committees. We will look at the materiality and the impact on public finance. Materiality is the importance in terms of the fiscal impact that request can have. If it's a couple of million dollars, for example, maybe the materiality is not there. If it's $100 million then we will look carefully at the request.
That's the first approach, in a nutshell. We have our permanent products, like the Expenditure Monitor or the Economic and Fiscal Outlook, which have been developed over time by the analysts and the PBO team to help parliamentarians support their work.
Senator Buth: Other than this report that we have before us now, what other types of permanent publications do you have?
Mostafa Askari, Assistant Parliamentary Budget Officer, Economic and Fiscal Analysis, Library of Parliament: Our mandate actually has two parts. The first part of the mandate is for us to provide, proactively and independently, the analysis on the economy and the fiscal situation in Canada to Parliament based on our own judgment of what is needed and what is useful for parliamentarians.
One of the permanent products that we have is an economic and fiscal projection — a five-year projection — that we provide twice a year. Following a motion passed by the Standing Committee on Finance at the House of Commons, we are now obligated to provide that information to that committee twice a year, in October and in April.
In addition, we provide the Fiscal Sustainability Report, which essentially looks at the long-term fiscal situation in Canada, taking into account the aging of the population and other transients in costs and revenues. That is provided every year in the fall, in September or October. Then we have the Expenditure Monitor, which goes out every quarter. We have an online service that allows users to track and monitor expenditures by the government. Every quarter we receive data from the receiver general, and that becomes part of the data and provides a user-friendly fashion that can be used by parliamentarians or their staff, other analysts and Canadians.
In addition to those, we provide other analysis on some sectors. Right now we are in the process of doing an analysis on the labour market in Canada, looking to some extent at the issue of the shortage of labour and skill mismatch in certain regions. In the past, as different kinds of issues came up, we have looked at it and decided whether that would be useful for the parliamentarians and committees to have an analysis on.
The other part of the mandate is on the costing of programs and the private members' bills, which is done essentially by request from parliamentarians.
As Mr. Fréchette mentioned, the typical lens we use for that is to look at the risk and materiality of those. Then we will put them in a list of priorities, because obviously we don't have the resources to do all of them. We have to look at them and see which one is more material, and that will go to the front of the line and then the rest will go.
Sometimes these costings, even by request, may take us three, four or five months to provide because our objective has always been to do a deeper analysis and to provide a costing based on the methodology that is acceptable and peer-reviewed by other experts and to allow the parliamentarian to rely on those estimates.
Senator Buth: You commented that you do the costing on private members' bills. Is that for every private member's bill?
Peter Weltman, Acting Assistant Parliamentary Budget Officer, Expenditure and Revenue Analysis, Library of Parliament: I will give you some examples on some of the costings that we do. We put the private members' bills through the same risk and materiality framework, so if there's a chance of a reasonable or significant fiscal impact, we will have a look and assess.
We don't do all the private members' bills; we do those we think will have some sort of fiscal impact. Most of them don't.
Regarding other types of costing we have done in the past, when we first started, as an example, we looked at the cost of the war in Afghanistan, or the incremental cost that the government was spending over and above its regular baseline defence budget. One of the more popular ones, I suppose, was the fiscal impact of the potential purchase of the F-35 fighter jet.
That's an example of a complex costing project. It took many months to put together. For most of these large projects that come in, we have to assess the issue we're trying to solve from a financial point of view. Often the data is not available. Certainly, in the case of the JSF, we had to go far and wide to get data from the U.S., Australia and the U.K.
We have to look at appropriate methodologies to provide an authoritative answer to the requester, and sometimes those are not readily available. We have to go looking for those. In that case, we will ask experts in the field to peer review the work prior to release.
We were asked to look at a costing of a bill that was recently before this committee, I think, about the reporting of labour unions. I remember watching that proceeding once. That was fairly small, probably in the low tens of millions of dollars, or less, and we go up to something like an F-35 fighter jet, which is in the tens of billions of dollars, and pretty much the range in between.
Senator Buth: I have other questions, but I will come back on round two.
The Chair: I will go next to Senator LeBreton, former Leader of the Government in the Senate. We're very pleased to have you with us, senator.
Senator LeBreton: Thank you. I'm replacing Senator Eaton. I don't know if I can be compared to her in any way, but I'm happy to represent her here.
It is appropriate that I'm following up on Senator Buth because my questions were with regard to process as well, and I'm well aware, because I follow the work of the PBO.
Congratulations, by the way, Mr. Fréchette, on all the information you provide to parliamentarians. I am well aware of the permanent products.
I actually have two specific questions with regard to process. I know that the requests come to your office either from individual parliamentarians or from committees. Oftentimes, individual parliamentarians will go to the Library of Parliament for specific research material. How do you sort out the conflicts of whether it should be something that is being attended to by the Parliamentary Budget Officer, or whether it is something that should be part of the normal work of the parliamentary research division?
Obviously, you get a lot of requests. Do you ever decide within your group that questions or work that you are asked to do is inappropriate and you outright reject the requests, or what do you do?
I know you said you prioritize them, but are there occasions when, for whatever reason, you feel it is not an appropriate request, and, therefore, the Parliamentary Budget Officer just informs the individual that it is not something that you plan to pursue?
Mr. Fréchette: Thank you for the question. I will take the first one. It is an easy one. I will give the tough one, the second one, to Mr. Askari.
We have a good relationship with the Library of Parliament research service. I was there before, and it was the practice.
The PBO provides a specialized analysis. When we receive a request, and as we mentioned before, for example, the materiality is not there or is not important, we will pass the question, with the authorization of the parliamentarians or the committee, to the research service of the library so they can do the work.
We will always look at that afterwards, and say, ''Maybe we can add another angle to that request.'' Mr. Weltman is very good at that.
If we don't do the request immediately, it doesn't mean that eventually, for whatever reason, an angle is present to do a project, and we may do that.
In other contexts, it is only the library that will do the project and provide the information to parliamentarians or to committees, and that will be the end of that project for the PBO.
Mr. Askari: Sometimes a question that comes to us is a loaded question in the sense that it directs us towards certain answers. Normally in those cases we sit down with the member who made the request and try to change the way the question is framed so that we would not be in a partisan situation.
In some cases, we totally reject the request. If it is a request that looks like a party would like to provide it as part of their election platform, and it is an idea they want to cost, we have decided not to take those kinds of requests. While the mandate doesn't say specifically whether we should or should not do those kinds of things, from the organizational perspective we have decided that we cannot get involved in those kinds of issues because, first of all, they would lead us into a partisan situation, which would be quite difficult for us. Also, they would essentially consume the resources that we have in the office.
For example, somebody had an idea about a national pharmacare program and asked us whether we could cost it. We said no, we can't do that, because that's not an existing program proposed by the government. Those programs that are proposed by the government in the budget or otherwise are all legitimate requests that we can get from the parliamentarians to cost them.
With respect to developing ideas or if constituents have some ideas that they want to test, we have said we cannot handle those. Our resources do not allow us to do that.
That's the way we have done that.
Mr. Weltman: One differentiator is that when the PBO does work, everything is published. It's transparent; it's open to the public. The relationship between the peers, analysts, research staff and the members of Parliament is confidential. That's always important when requesting work from the PBO.
As Mr. Askari mentioned, we will cost bills or those things that are public against which we can put baselines and models. We can't cost ideas because we need to protect ourselves from the partisanship, and we do that by publishing all of our work. I hope that helps.
The Chair: Mr. Shaw or Mr. Jacques, any time you would like to intervene, just let us know if you want to comment on any of the questions that are being posed.
As a supplementary question to Senator LeBreton's question, how do you prioritize the various requests coming in, given your limited resources and some of the items that might be quite — I don't want to say hot, but that you may feel are deserving of a look more quickly than others? How do you determine that? What parameters do you use?
Mr. Weltman: The fiscal materiality and risk lens is the first parameter. If it is something we feel is going to have a significant fiscal impact, that is our importance, and we do define that. There are standards out there that define what ``significant'' is: It is roughly hundreds of millions of dollars. In terms of whether it is politically hot, or whatever the case may be, everything we do at some level is going to be hot, if you will.
Back to the union reporting bill, there's an example that I tried valiantly not to cost because of the size. It was fairly small, and it was also fairly politically contentious, but at that point, I think the House of Commons Finance Committee mandated us. They passed a motion requiring us to cost the bill.
We have adopted as a process internally that if one of our named committees passes a motion requiring us to cost a bill, then we cost the bill, and it goes right to the top of the list. If another committee does the same, then they would come second. That's how we would sort through the MP requests.
The other way we do it is to look at the capacity we have available within the office. We have 15 people and a budget set in 2008 that has not changed, and we are always allocating resources on our ability to be efficient with those people.
The Chair: That's interesting. You've talked about the named committees in the Parliament of Canada Act and then the other committees. Can I assume that individuals who make a request would be third in priority?
Mr. Weltman: We've rarely gotten a request from committee; it almost never happens. So it's not that we rank individuals third. Again, the fiscal risk and materiality filter is the primary filter. The way I like to look at it — maybe others in our office do as well — is that if a committee manages to sneak a request in by a motion, then we will deal with that; they jumped the queue.
The Chair: You and Mr. Fréchette mentioned that a committee of the house passed a motion that asked you to do something. I'm not aware of this committee having done that in the past, but that's an interesting bit of information for us in terms of the way you operate.
Mr. Fréchette, you mentioned one committee, the Finance Committee in the House of Commons, that had requested a report twice a year. Mr. Askari, perhaps you mentioned that. Does that become a public report? Is that available to all other committees?
Mr. Askari: Exactly. All of our reports are public. In fact, even when an individual member asks us to do something, when we sit down with them and provide the terms of reference, we let them know that one of the conditions is that the results will be published. Once the study is done and the report is ready, certainly the member will get it first, but within 24 hours normally we will publish the report on our website. Reports to the House of Commons Finance Committee are also published.
Actually, in that case we publish the report 24 hours before the committee meeting. We are scheduled to go before the committee twice a year to discuss our projections, and 24 hours before the committee meeting, we put the report on the website and allow the members and everybody else to look at it, and then we will go and discuss the report with the members.
The Chair: Very interesting. Thank you.
Senator Callbeck: Thank you all for being here this morning. I want to ask about PBO's never-ending attempt to get information from the government. I know that I have found it very frustrating in this committee that when you ask government bureaucrats and ministers information about these savings they are going to find in the budget, they say, ``Well, it's in plans and priorities.'' In your information here, you say that does not give you sufficient information to answer the question.
We all know that Kevin Page ended up in court. In the document you gave us beforehand, it says that following that, there was an information request to departments and agencies, and then access-to-information requests were filed.
It's unbelievable to me that the PBO would have to go so far as to file access-to-information requests. I take it from the next paragraph that you really didn't get a response. It says that there has been no official government response regarding why the PBO has not been provided with the economic data to fulfill its mandate. The departments and agencies have cited various reasons. Did you get answers from any of the departments or agencies?
Mr. Fréchette: Thank you for the question. That's what I mentioned in my opening remarks. I mentioned that yes, it's true that we encountered difficulties in the past months and my predecessor went to court. In Justice Harrington's judgment, he dismissed the case on a technicality, but he also said something important in his opinion. I mentioned in my opening remarks that I am following a parliamentary avenue with other options, including parliamentary options. All the managers and analysts have good relationships and good contacts with the departments. It is more when we look at the global picture. It's not always the same department; it depends on the request that sometimes we encounter these problems.
I would like to quote from Justice Harrington's judgment. He had a number of remedies, such as complaining to the chief librarian, perhaps complaining to the speakers of the joint committee — Justice Harrington was referring to the Standing Joint Committee on the Library of Parliament — and perhaps to Parliament as a whole.
When I became PBO, I looked at all of this and had discussions with legal counsel. We decided that because Justice Harrington mentioned that, we should follow this procedure. So I did exactly that. Going back to court remains an option. I'm not saying we will go, but it is an option amongst many other options, including good relationships and developing bridges and good contacts with departments.
So I took the parliamentary avenue, just as Justice Harrington said to do. I talked to the Parliamentary Librarian and we talked to the two Speakers. ``Complain'' is a big word in this context, but we explained the situation to the two Speakers and the Parliamentary Librarian, and they understand the situation and are very supportive. That process is now ongoing, in addition to contacts and building bridges with departments.
I'll give you some figures from last week's conference. In total, since 2008 the PBO has made 358 requests; 188 of them have received complete data. On the rest, 170, we have received various answers. Sometimes they were incomplete and sometimes they were withheld, with different reasons.
The main reason that comes back frequently is that it's not part of our mandate. So that is the debate right now — what is part of our mandate. You heard us talking about economic trends, fiscal situations and so on. The questions we ask are always about that, and the main issue was about Budget 2012, the cuts in spending and the level of services affected. Those are the main difficulties we are having.
That's the parliamentary process, the parliamentary avenue, I hope. As I said, it's very promising. Now it's in the hands of the Speakers. I don't know what they will do. They know exactly what Justice Harrington said, so they may push that further ahead. But I have confidence in Parliament. People say I am softer than my predecessor, but I have worked with parliamentarians all my life and I believe in Parliament. We will see. If the result is good, fine; if not, we have other options.
Senator Callbeck: I was just looking at your mandate here. It says to ``provide independent analysis to the Senate and to the House of Commons about the state of the nation's finances, the estimates of the government and trends in the national economy.''
So, really, the bottom line here is that if you can't get the information, you really can't fulfill your mandate. Is that right?
Mr. Askari: That's correct.
In one example, as mentioned in the report, when we looked at the program activities, the activities of the department, and we monitored those through the reports and plans and priorities and the departmental performance reports that are provided by the government, we tried to use the information that was there to assess the estimate of the budget cuts in 2012 on the service levels in the departments. What we found out, based on our analysis — and we looked at all 1,300 different program activities by the department and agencies — was that 40 per cent of them did not provide enough data even in the government reports that would allow anybody to assess whether these program activities were actually performing close to the target that had been identified by the government. Forty per cent didn't even have that information internally to do that kind of assessment, which would raise a question as to how you manage the programs if you cannot assess the performance of those programs. So that is a challenge.
In the specific case where we were denied information on the impact of programs, we thought we will go another route. We will look at the public information that's available and see if we can actually get that analysis done, but it is impossible to do that.
Senator Callbeck: You mentioned several options. Do you want to comment on what they might be?
Mr. Fréchette: Right now, I'm not only doing consultations with many parliamentarians, I am also in the process of contacting, and the departments also contacted me. So I am doing this visit, this tour, to discuss this.
This is promising. I have good relationships, and doors are opening. In that context, other options, you mentioned the access-to-information request. It's a tool. It is working, by the way. The only problem all the PBO managers and I are having with this is not the $5 we have to put in every time we make the request; it's really the perception. It's really just the matter of doing it. I mean, $5 — although some departments ask for more money to do that work.
In the context of the 2012 Budget, we did a total of 33 access-to-information requests. We are waiting for final responses for 11 out of the 33. Three of these we don't have the answers to, but they said they will give us answers, because they asked us for some additional funds to provide the data.
Of the other 22, we received 10. We received only limited data. Six, no relevant data. As Mr. Askari said, often this is the case. One said all data is withheld. As I said, three provided all data requested, and two gave another reason. They are covered by another department, so we have to switch and ask another department.
That's basically the picture for Budget 2012. Mr. Weltman made nine access-to-information requests for costing and other items not related to Budget 2012.
Senator Callbeck: On the budget-cuts information, when we're dealing with estimates here, it may say we're going to save $100 million through efficiencies. How do you find out what makes up that $100 million?
Mr. Askari: From my perspective, senator, when you intend to gain efficiency, you have to invest. Efficiency doesn't come just by cutting the number of people or capital budgets or other things. In fact, you need investments to gain efficiencies.
One of the things we asked in our request from the department after Budget 2012 was to provide us with information, inflows and outflows of money to different programs. The idea there was for us to assess whether in areas where there is a claim of a huge efficiency gain there has been some investment that would actually lead to efficiencies, but when we look at the overall picture and look at different program activities and the performance criteria that the government has set for those programs, we see that before or after the 2012 Budget those service-level qualities and performance targets have not changed at all. Even though there have been cuts through those programs, those service-level qualities have not been changed. They still maintain those qualities.
The question for us is how do you maintain those levels of services, the quality of services, without actually investing in those areas? That's the part of the information that is missing and that we could not get to evaluate that. It is not really clear to us exactly how you do that.
Mr. Weltman: To put a little bit of a finer point on it, in the government, 80 per cent of the operating expenses are salaries, more or less. For delivering a program, you have a certain number of people delivering that program. If you are cutting expenses to find savings, you're cutting people. That's how you find savings. Our experience has taught us that, not just at PBO but also at Treasury Board where Mr. Jacques and I were doing similar work on evaluating savings.
If you are not, as Mr. Askari mentioned, investing in capital to replace those people you're cutting, then it is pretty interesting or a little mysterious how you're going to maintain those same service levels. We're not able to get access to any of that information.
[Translation]
Senator Bellemare: My question concerns the revised projection you issued recently. I thought I saw some contradictions there, and I would like you to help me to see how to reconcile the various data that were published.
On the one hand, for 2015-16, in your revised outlook, in table 2-1 — on page 3 in the English — I see that you expect a higher budgetary balance, as you say in the summary, of $4.6 billion. However, your projections concerning the GDP and the unemployment rate are higher than those in the Department of Finance's update.
How can we reconcile those figures? How can we expect a budget surplus when a lower GDP is projected, as well as a higher unemployment rate than the Department of Finance projects? You project an unemployment rate of approximately 7 per cent in Canada, perhaps even more, whereas elsewhere we are told that it will be around 6 per cent.
How can we align these forecasts?
Mr. Fréchette: Thank you for your question; you are right to ask a question about employment. I am going to ask Mr. Askari to answer it.
Mr. Askari: The model we use for the GDP is different from the one the Department of Finance uses. Hence the figures are different, but the difference is very small. It is not a very large difference, between 4.6 for the government and 3.7. We use different models that have a different sensitivity; for revenue, for instance, the GDP gives us different figures and different budgetary balances.
Senator Bellemare: In any case, I was surprised because your growth projections are lower, your employment forecasts are weaker, and yet the budget balance is higher. This does raise some questions about the model, does is not?
Mr. Askari: And our judgment.
Senator Bellemare: Concerning your economic model, were any discussions held with the Finance Department, which has its own model, or did you simply talk amongst yourselves?
Mr. Askari: There were no discussions with the Finance Department, but the model we chose is in keeping with principles established by economists and other experts. Each model is different. The model the Bank of Canada uses, for instance, also differs from the one used by the Finance Department, and the same goes for us, but as I said, the discrepancy in the results is not very significant.
Senator Bellemare: Perhaps that is the case for the balance, but not necessarily for the other parameters, such as growth and the employment rate.
I am raising this question in light of the Speech from the Throne, which referred to balancing the budget throughout the cycle. In order to do that, the models used are very important, as well as the forecasts.
Mr. Askari: Yes.
Senator Bellemare: Do you hold any discussions with the Conference Board or the Bank of Canada so as to have as many similar models as possible?
A model is a model and everyone has their own, but if a government bases its decisions on a model, it would be good to use one that is as similar as possible to the others, to support the decisions that have to be made, especially if the decisions are made in light of the projections.
Mr. Askari: We study all of the forecasting models that exist in Canada, those of the private sector, of the Department of Finance and the Bank of Canada. Generally speaking, we are confident about our forecasts, and the agreement showed that we were right to be confident.
[English]
We have been saying since 2009 in our projection and reports that every time we compare the projection with the Department of Finance economic projection, which is based on the private sector average, the government's economic projection has the risk on the down side. This means that the growth will be lower than what they have. Every year, actually, we have seen that those projections have been revised down by the government over time and are closer to the projections that we have had.
Now, I'm not claiming that we are the best forecasters in town; that's never the case. A forecast is a forecast; nobody has a crystal ball and can predict the future. But, as I said, we use our models and our judgment, and when we start the forecast process we do not set out to be optimistic, pessimistic or move the markets or anything like that. Our objective is always to use the tools, the judgment and the experience we have in the area to come up with numbers.
As it happens, at least recently, we have been closer to the actual numbers than others, but that could change in the future.
[Translation]
Mr. Fréchette: You raise a very important point, that of the role of the Parliamentary Budget Officer, when you say that there are different models.
Before the position existed, we basically had to depend on a model. Now there is another one and so far it has been very good, relatively speaking. Let us hope that continues.
Moreover, this makes more information available to parliamentarians; there is relevant additional information on the context, which is why the position of Parliamentary Budget Officer was created. Now we have different information we can factor in rather than referring only to data from the private sector or the Department of Finance. It also makes it possible to work with parliamentarians.
Not only do we use our judgment, but also our expertise. The people who work on my team are extremely talented. They have worked in the department and in the private sector, and they know the field. This makes it possible to have another perspective.
Senator Bellemare: My question is about the unemployment rate. According to your model, the unemployment rate will be higher than that forecast by the Department of Finance. This difference is due to the model you use.
Does that model provide regional data for Canada that are broken down for the Maritimes, Western Canada, or Quebec, for instance?
Mr. Askari: No.
Senator Bellemare: Thank you.
The Chair: Can you do that?
[English]
Mr. Askari: It would be extremely time-and resource-consuming to do a regional kind of forecast. It requires, first of all, greater knowledge of the changes and dynamics in the provinces. That obviously requires more people with knowledge in those areas, which we do not have. It takes up a lot more effort and resources to do that kind of work. It's not even clear whether that is part of our mandate, actually, to do regionally or provincially based analyses.
In the past in our Fiscal Sustainability Report we have looked at all the provinces together and looked at their fiscal situation over time in the long run, but that's as far as we have gone. Doing it province by province or region by region would be extremely difficult.
[Translation]
Mr. Fréchette: At a meeting with representatives of the International Monetary Fund to discuss our report on fiscal sustainability over the long term, this matter of proceeding province by province was raised.
It is interesting to note that now Ontario has a Parliamentary Budget Officer, or the equivalent. In Quebec, less than a week ago some academics just published exactly the same kind of report as that of the Ottawa Parliamentary Budget Officer, and the information was also aggregated for all the provinces as a whole. These reports were prepared for Laval University and the University of Sherbrooke, on the same bases, following the OECD guidelines.
Senator Bellemare: And do you intend to meet with these people to discuss you hypotheses and create a decentralization model?
Mr. Fréchette: Not yet, since this is relatively new.
Senator Hervieux-Payette: Canada has over the past five years signed several trade agreements. However, Canada's import-export trade deficit has been increasing considerably.
Could we ask your office to study the factors that explain why Canada, rather than increasing its sales abroad, even though it has signed more agreements, has seen a drop in its foreign trade, which has consequently increased Canada's trade deficit?
Mr. Fréchette: If this is a formal request, as all such requests must be, we can examine that and discuss it with you. This is a topic which falls outside of our fiscal and economic mandate, but we never refuse to help parliamentarians.
Senator Hervieux-Payette: My colleagues and I from the Standing Senate Committee on Banking, Trade and Commerce did a study on money laundering and the lack of coordination among government organizations. First, it is a fact that $100 billion a year is being laundered, aside from the costs of the government agency that has to track this.
The organization must also deal with Revenue Canada, the RCMP and the Department of Finance, and as a result, the FINTRAC operating expenditures are such that they collect very little money. I wonder if it is because they don't have the necessary resources. This casts doubt on the effectiveness of the system that has been put in place, because it doesn't work, as a total of $100 million a year is not being taxed and can't be found.
If the system is faulty, as a parliamentarian, I have to ask when we will be able to correct this problem and find these investments that are really very well hidden.
Mr. Fréchette: I am going to ask Jason to please explain that to you.
[English]
Jason Jacques, Director, Economic and Fiscal Analysis, Library of Parliament: While we're not in a specific position to comment on the operational intricacies of FINTRAC and how the money is tracked, there is a piece of ongoing work within our office following up on the request from a senator last year, analyzing and looking at the tax gap. We have been in ongoing negotiations and consultations with the Canada Revenue Agency to obtain data — the $100-billion figure you identified is commonly bandied about — to actually drill down to the details and have a better sense of where that $100 billion is.
When you look at other jurisdictions, like the United States with the IRS, the U.K. with the U.K. Treasury, Sweden and other OECD governments, you see that within that global figure there's quite a bit more detail. They can pinpoint, within a value-added consumption tax, how much of that $100 million sits there; within corporate tax, how much sits there; and even within those corporations, what types of corporations and how much money potentially the government is foregoing in revenues that are actually coming in.
That is ongoing right now. Unfortunately, we're still in the preliminary stages. Again, we have ongoing discussions with CRA. We have run into some difficulties, which optimistically will be overcome in the near future, with respect to taxpayer confidentiality. CRA has indicated they're willing to share a data set with us, but they, and we — quite reasonably, I think — are concerned that once they share that data set for us to analyze, we want to make sure that we can and that there's no way in which taxpayer confidentiality is breached.
[Translation]
Senator Hervieux-Payette: We wonder if the specialized financial resources that are needed are available; both Revenue Canada and the RCMP need them. If we do not know how to look for the information, we cannot find that information. It sounds good to say that you are going to cut staff, but to me, a person who tries to find people who are not paying income tax is a person who brings money in for the government; that is not spending. Each one brings in much more than their salary. I understand that all of that $100 billion will not be found and taxed. Do you take into account the quality of the human resources assigned to this task? A brief course or even a degree from a business college is not enough; people have to have in-depth knowledge of global financial mechanisms.
[English]
Mr. Jacques: I agree with you completely. There's a great quote from President Roosevelt when they set up the Securities and Exchange Commission, which is that you have to hire a thief to actually catch a thief.
[Translation]
Senator Hervieux-Payette: That is a good idea!
[English]
Mr. Jacques: In our situation, just speaking to the narrow work we're doing with respect to the tax gap, that's the importance of working with the Canada Revenue Agency. Mr. Shaw, who is leading the work on the tax side, and I, although we're competent econometric modelers and statisticians, are certainly not experts when it comes to tax fraud per se. I will speak for myself, at least. Mr. Shaw is starting to turn a little bit red.
To that extent, it is important for us to work with the Canada Revenue Agency, because they do have that specialized expertise within the public service to determine, beyond the data, what it actually means. Specifically in this situation — and looking at the examples of other jurisdictions that do this type of work — it isn't simply analyzing the data. You do have an important behavioural component. It is one thing to ask someone on a census form or the National Household Survey form how many people are in their household. It's a very different question to ask them: How much money did you earn last year? How much money do you have in offshore accounts? Obviously, there's a clear incentive to potentially under-report the data.
Senator Hervieux-Payette: Also, we need people at Justice to prosecute, because we also have a shortage of people in jail who could help you. Actually, we don't prosecute these people. They are still free and walking the street. It's easier to catch somebody who is stealing $100 from the corner store than somebody who is putting $100 million abroad. We don't have that kind of expertise in many departments, and I hope you can look at this aspect and advise us.
[Translation]
My last question concerns food and drugs. There have recently been a lot of problems, for instance with beef out West. We are told that the inspection of imported food is by and large not adequate. Have you done any studies — I am not familiar with all of the studies you have carried out — on the need to hire competent people, but also on the need to put a system in place? Whether we are talking about apples, garlic or tilapia from China, I am told that these products are not inspected to the same degree as salmon that comes from western Canada.
Mr. Fréchette: No, the Parliamentary Budget Officer has not examined that matter. It falls somewhat outside of our mandate. This was a part of my mandate when I was director general of the research service, when parliamentary committees studied this sort of issue.
Senator Hervieux-Payette: That gives us some idea of the nature of the research you do.
Mr. Fréchette: Yes, quite so; but that concerns regulation. There is of course a budgetary impact, but this is more a question of regulation than anything else.
Senator Hervieux-Payette: But is the fact that the resources are insufficient not also relevant? For instance, the fact that the number of inspectors has been cut has to be a factor.
Mr. Fréchette: You are talking about budget cuts.
Senator Hervieux-Payette: Yes, budget cuts involving inspections. Clearly, if you do not have any inspectors, it is highly likely that even the regulations will not be enforced.
Mr. Fréchette: This brings us back somewhat to what Mostafa and Jason explained previously; the right people need to be there, but that is not something we examined specifically.
Senator Hervieux-Payette: Concerning your budget, director, since the creation of your office, have you had an increase that is at least equivalent to the cost of living increase?
Mr. Fréchette: The $2.8 million amount is stable, but it has remained the same since 2008.
The Chair: Thank you. I now give the floor to Senator Chaput from Manitoba.
Senator Chaput: Thank you, Mr. Chair. In your revised outlook, you assess the possibility of balancing the budget by 2015-16 at 65 per cent. If I understand correctly, you state that in order to attain that 65 p. 100 possibility, three very important factors have to be considered: a decrease in direct program expenditures, the sale of assets, as planned, and, if the Governor-in-Council reduces employment insurance premiums, budgetary balance might be difficult to achieve.
Aside from these factors — and I must say there is not much flexibility, as the three must occur — are there any other factors that could prevent us from balancing the budget in 2015-16?
Mr. Askari: Of course. It really depends on economic growth. If there is a change, such as another economic crisis, a financial crisis or some other external shock that affects the Canadian economy, the data will change completely. But our assessment is based on the current system and our economic forecasts, which include the various measures introduced by the government regarding employment insurance, the sale of assets and the government's direct expenses. If there is a change in those factors, yes, the budget surplus will change in 2015-16.
So there are indeed a lot of factors to be considered; however, that is a scenario we included in our forecasts.
Senator Chaput: And can you make those predictions even if you are unable to obtain all of the necessary information from departments? Is one not dependent on the other?
[English]
Mr. Askari: The information request and that issue have nothing to do with the projections that we have. That's a separate issue.
Senator Chaput: That's what I thought. Thank you.
Mr. Askari: Somehow it is related, of course. One of the things that we actually try to get a handle on is the direct program of spending by the government, which has been the focus of budget cuts over the past four years.
In all projections, we take whatever the Department of Finance projects from direct program spending. However, that item, which is 40 per cent of the total spending, is subject to certain risks and changes.
Right now we see a significant decline in the department in the direct program spending as a share of GDP. The question arises as to whether that is sustainable over time. Obviously, that will have impact on services, provision of different services and quality of services. If by any chance or for any reason the government decides in the future to change that direction, obviously that will affect the projections as well.
That item by itself is important. So the information request that we have for the government is to enable us to take a better look at that profile and see whether we can actually have a better assessment of the risks to that projection.
[Translation]
Senator Chaput: If I understand correctly, the fact that you do not obtain 100 per cent of the information you would like to have does limit you in making your forecasts.
Mr. Askari: Precisely.
[English]
The Chair: We set aside two hours for our session today and it turns out that that was a wise thing to do because I have three senators who wish to engage in a second round of questioning.
Before I go to the second round, I want to clarify the record with respect to Senator Callbeck when she referred to a document that had been produced. So the record is clear, that is the Expenditure Monitor: 2013-14 Q2. She was referring to Box 2.8, at page 5. You were probably familiar with that but, maybe for some others who are following this or who may be reading the transcript later on, hopefully that will be helpful to them.
Senator Buth: I have a more specific question on the changes that were made on the RPPs which now contain information for the three years prior and the three years going forward with explanations about the changes in planned spending.
What are your thoughts on the information that is being provided and its value and whether or not this information has been helpful?
Mr. Askari: I think that change was following a report by the Government Operations and Estimates Committee of the House of Commons. In fact before that report, we appeared before that committee and provided our input and advice on the changes that would be useful for the estimate process. We were certainly in agreement with that change and that it would be useful to have a history of the fiscal situation in the RPPs and then three years forward.
Overall, the framework for the plans and priorities document is a good framework. It would certainly help analysts and us to take a better look at what is going on and what is going to happen in the future.
I think the question arises sometimes as to the quality of the information that is in those documents, and that's the harder one to judge. The change is welcomed by us, but we have to look at it and judge the actual quality of the information.
Senator Buth: You raise an interesting point. It comes back to setting targets and measurements and the difficulty that we always seem to have in governments in measuring impact. If we're not looking at just the fiscal impact, how are we achieving what we set out to do?
Would you like to comment on whether there are any suggestions from PBO regarding how we're doing in government and how we might be able to do a better job?
Mr. Askari: The program activity architecture that determines that was created a number of years ago at the Treasury Board exactly for that purpose, namely that it would help the department internally to manage their efforts better by looking at the performance of different programs and by having specific targets and the performance criteria to follow up both the service level, the quality, and then the budget that is allocated to those programs.
The idea was that when you have that tool and you look at it after a few years and you see that one program is not performing, then we can decide to reallocate resources and provide better service to Canadians. As I said, the framework is very good. The questions are these: How do you implement that, and do you have the right tools and the right targets for those programs?
A number of program activities actually have very good targets, and they provide good data on those in terms of follow-up to see whether they meet the performance criteria or not; some don't, unfortunately. It is not always easy to establish those criteria, depending on the type of service that you provide. For example, I was on the other side of this. I know that it is very difficult for some central agencies to provide performance criteria because in many cases central agencies like the Department of Finance provide advice to the government. How do you establish performance criteria for that? It's not easy. We understand that.
Progress has been made in those areas, and the framework is good. It is just a matter of improving it and providing the information that is necessary, not only internally for the deputy ministers to manage their departments but also for people outside in Parliament, to see how those programs are performing and whether or not changes are required.
Mr. Jacques: You asked for a suggestion. I think it is notable, when you look across the RPPs, that one of the program activities that is consistent across every department and agency, internal services, which is effectively overhead costs within government departments, doesn't have concrete measures. If you're running human resources and government, it should look a heck of a lot like other governments as well as the private sector. If you're running a financial management or accounts payable system in government and cutting cheques, it should look a heck of a lot like the private sector and other levels of government.
At various points, Senator Finley pointed out that if you are managing real property, it's class B office space in downtown Ottawa. Whether it's is the federal government consuming that or the private sector consuming that, it shouldn't matter who owns the buildings. The performance metrics should be the same. When you look through the RPPs, to the best of my knowledge no government department actually implements those performance metrics, whereas in many ways, from my perspective at least in looking across other OECD jurisdictions, it should be one of the easiest things to track and manage.
The Chair: Can we expand your comments to the departmental performance reports? When you talk about performance criteria, you're talking about how that is referred to?
Mr. Askari: Exactly.
The Chair: For those watching the front end, or the plans and priorities, and then the look back to see how we have done in the departmental reports, they sort of go hand in glove.
Mr. Askari: Exactly.
Senator Callbeck: We talked earlier about your mandate and the fact that you are not able to fulfill that mandate because you can't get the information from the government.
If the government cooperated and you got the material needed, do you have enough resources? I know that your budget hasn't increased since 2008.
Mr. Fréchette: Thank you for the question. First, we don't fulfill all of the mandate sometimes because of the lack of data, but we still try to achieve a lot of the mandate.
Your question is rhetorical, I guess. Of course, if we had more resources, more budget, but the budget is frozen for the next couple of years. We follow the trend in the budget that the government is giving to all departments, so it is true for the Senate, for the Library of Parliament and for the department.
You can see that the analysts, the managers provide very good information to parliamentarians. Of course, in a perfect world, with more resources we could do more.
Mr. Askari: Our mandate is very broad. I have been with the office from the beginning, starting with Mr. Page. When we were establishing the office, we decided that we had to make the best use of the limited resources that were provided to us.
The way we managed that is by recruiting people who actually had significant experience and expertise in those areas. That's how we have managed to provide close to 200 reports over the last five years on various issues. As Mr. Fréchette said, you can always use more resources, but I think our problem right now is not necessarily resources, given the way we are operating.
We have managed to fulfill a large portion of our mandate, but, in certain areas, the lack of information has stopped us from providing the best analysis that we can to parliamentarians.
Senator Callbeck: The other question I wanted to ask is from the Expenditure Monitor: 2013-14, the second quarter. On page 6, there's reference there to the Gateways and Corridors Program and the fact that Gateways and Corridors Program spending has not surpassed 37 per cent of total authorities in any year since 2009-10.
Is that figure comparable to similar federal government programs in other departments, or is it comparable to comparable programs in other countries? It seems to me to be low.
Mr. Fréchette: Thank you for the question. We will ask Mr. Shaw to answer that question as one of the main authors of the report.
Trevor Shaw, Analyst, Economic and Fiscal Analysis, Library of Parliament: When looking at this program, it is important to assess the type of projects that the funds are being used for. The Gateways and Corridors Program is predominantly grants and contributions. However, the nature of those grants and contributions is quite different than in other government programs, which are heavily grants and contributions intensive.
The Gateways and Corridors Program is predominantly providing infrastructure and support for infrastructure in the regions. When comparing it to other program activities across the federal government that are intensive in infrastructure, we have looked at lapse figures from across government departments and seen that some of those programs are more likely to have larger lapse estimates than other, more operational program activities.
Senator Callbeck: So 37 per cent. Do you have any suggestions as to how this can be improved? That is one thing. You say 37 per cent in any year since 2009-10. What was it back in 2005, for example, a few years before that?
Mr. Jacques: In terms of going back to 2005, I know, just from being familiar with Infrastructure Canada and Transport Canada — and my colleague Mr. Shaw pointed it out — that there have been historical lapses for grants and contributions programs. This happens, and it is a regular occurrence. In the specific case of infrastructure, going back over that period of time, the lapses have been at a similar level in aggregate.
Looking at Infrastructure Canada's own quarterly reports and their own RPP documents, they have identified their forecasting of how much money they're going to spend as an issue. They have identified that they need to improve upon that.
I think that's the first opportunity. If you are consistently lapsing over half of your budget year after year after year, one or two things are happening. One, your forecasting needs to be retooled because there's a consistent error, especially over an extended period of time, that you are not picking up on. The other consideration is that, potentially, there are new areas at play and potentially, operationally, something happening within the department.
I haven't seen anything public from Infrastructure Canada and the public service on that issue, but, on the forecasting side, they seem to have recognized that there's potentially room for improvement.
Senator Callbeck: Thank you.
[Translation]
Senator Bellemare: I have two questions, one micro and one macro.
I am going to begin with the micro question. We were talking earlier about efficiency gains, and Mr. Askari said that these efficiency gains were normally linked to investment. I agree, but I think that they are also related to the organization of work.
I was wondering whether you ever work with the Office of the Auditor General when he carries out audits to determine whether program goals are being attained, in order to formulate hypotheses on the organization of work.
Mr. Weltman: We are working informally with the Office of the Auditor General. If they want to carry out an investigation, they ask us first for the information we have, and then they ask if we do something in that area. But it is really a very informal relationship. We do not work together to target someone or something and carry out an investigation. That has never happened.
It is important because we have different mandates. We provide information to parliamentarians so that they can make financial decisions. The Office of the Auditor General provides information to parliamentarians after an incident or following the delivery of a program, to inform them about the methodology, the operation or the effectiveness of program delivery. Those are really two different mandates.
Senator Bellemare: Thank you very much. My other question is on the estimated budgetary balance. Since legislation on budgetary balance may be introduced, I would like to understand where we are headed.
In table 2-3 of your revised outlook, you present the updated structural balance by dividing it into a structural balance and a cyclical balance. The structural balance, as you explained, is the balance we would have if the economy functioned at full capacity, which would mean full employment, in terms of the labour market, or fully in terms of material and physical protection capacity.
I need some explanations. In your table, for 2015-2016, there is a cyclical balance. From what I understand of the cyclical balance, since the economy is not functioning at full capacity, this could mean a $2.6 billion deficit. However, we would then have an enormous structural surplus of $7.1 billion.
Since we are going to have to examine these figures in the next budget, can you explain what they mean? I imagine that the Department of Finance also breaks down these balances into structural and cyclical ones.
[English]
Mr. Askari: The reason we do this estimate is that for policy-makers it is important to know at any time whether the budget balance that they observe is a real budget balance in the structural sense, which is how we call it — whether the economy is operating at its potential level or at its trend level, whether we observe that balance or not. If we are in a situation, for example, where the economy is operating above its trend level, which happens often and then it goes back to trend or below trend, you may see an increase in the budget balance because the GDP is much faster and the level much higher than the potential, so obviously revenues will be higher. That increase in revenues is not sustainable because the economy eventually will go back to its trend level. We cannot really count on that budget balance. For example, if you make a decision at that time to cut taxes because you have a budget balance surplus, then in a couple of years you may actually observe a deficit because the economy has gone back to below its potential. That's why we do this calculation.
The numbers that you see there show, for example, that in 2015-16 we have an actual balance of $4.6 billion, but the structural balance is actually higher than that, which is essentially saying that the economy has not really reached its potential level. Once it reaches its potential level, the balance will be higher than $4.6 billion. If it reaches the potential at that point, the balance will be higher than $4.6 billion. By the same token, these are sort of zero-sum because the difference of 2.6 is the difference between the 4.6 and 7.1. We measure these things by measuring the cyclical component of that based on the gap between the actual GDP and the potential GDP and then subtract that from the actual to get the structural.
[Translation]
Senator Bellemare: Does your explanation mean that in 2015-2016 — to go back to your image on income tax cuts — if there are permanent income tax cuts, since there is a permanent structural surplus, the government will have managed to accumulate a surplus through important structural measures?
Mr. Askari: Precisely.
Senator Hervieux-Payette: Last year, I discovered the famous rule number 5, that allowed the sale of the diplomatic residence in the U.K. for several million dollars. Nothing had been included in the previous budget on this, and we had never heard about this sale.
I was wondering where the money came from. Apparently, the expenditure was authorized without any reference to the budget that was passed in Parliament. In supplementary estimates, we approved an expenditure for which all of the authorizations had already been given without parliamentarians having a word to say about it.
Is it possible that there is an emergency fund in every budget? I would not have thought that a building worth several million dollars would be considered an emergency. We are talking about a real estate transaction. Are you aware of the sale of the MacDonald residence?
Does rule number 5 apply only to emergencies, that is to say to expenditures that cannot be planned in advance? Can we begin to pay off our debts by selling our buildings without the approval of parliamentarians for that item in a budget, without their authorizing the transaction? I am talking about general rules that apply when a budget is prepared. I was surprised, and I was not the only one.
Mr. Fréchette: May we examine your question and come back to you later with the answer? We are aware of that sale, but not of the entire process involved.
Senator Hervieux-Payette: It is the authorization process that is important and that we would like to know about, because it seems to me that normally, the sale of a building is planned and negotiated. It seems to me that brokers' services have to be retained and this provides ample time to ask for the necessary authorizations.
My last question is about the tables that concern personnel. When positions are cut, there is compensation for new hires, some people retire, and employment agencies are retained. I am trying to see in your figures whether there have been any important changes in that regard, because in the past we saw massive layoffs when the deficit was very high under the Martin administration.
Often, the same public servant who had been sent to retirement would come back through a personnel agency. In my opinion, this does not constitute very big savings, because people went out the front door and came back in through the back door. Is it the way such things are presented in budget that make them look good, or are there really fewer permanent employees?
In table 2-6, I see the word ``authorities'' on the left, ``total expenditure'' on the left and ``full-time equivalent personnel'' on the right. I must admit that I cannot visualize all of this in terms of staff, that is to say how many people will eventually be providing services, and how many will be laid off and rehired.
Mr. Fréchette: The table only shows the variation. The small triangle corresponds to the variation in the number of staff with regard to the 20,000 full-time equivalent positions that have been abolished since 2010. There is no comparison involving the number of people who will be rehired.
Senator Hervieux-Payette: How is this reported in the budget? Are these people who are rehired accounted for in the same way as permanent staff?
Mr. Weltman: This is recorded in a different place in the budget. It is an operational cost rather than a salary expenditure. Public accounts are divided into different categories. There are categories that include all of these suppliers, consultants and expenses in that area.
If someone leaves the public service and comes back as a consultant, he will be paid as a consultant. So that does not appear in the employment figures, but in the grand total of the current expenses, and the government's direct expenses are continuing to decline. So in an overall, global sense, costs are diminishing.
Senator Hervieux-Payette: But to really get a general picture, we would have to count both permanent employees and those who are rehired, and also the amount that is paid out in retirement pensions every year. Because the employee on contract is also receiving retirement benefits. I have some very specific examples.
Mr. Weltman: You are correct.
Senator Hervieux-Payette: The question I am asking myself is whether or not any money has been saved at the end of the year.
Mr. Weltman: It all depends on the budget item. For instance, full-time equivalent positions that are public servant positions are paid through a salary item, whereas consultants are paid from a goods and services item. So they are accounted for differently. You have to look at both budget items.
Senator Hervieux-Payette: We are working with this nice document where everything is aggregated. So it is difficult to determine the cost of labour, since the operational costs include more than that. So if we wanted to determine the exact cost labour costs in the federal government, we would need that report also.
Mr. Weltman: Labour costs are not broken down in the estimates, but they are in the report of the Auditor General on public accounts, which provides the total amount spent on salaries and other costs.
[English]
Mr. Jacques: I think we take the suggestion. We have the data on a quarterly basis with respect to professional services. We will incorporate it into subsequent reports, to the extent that there are any other suggestions from members of the Senate or the house with respect to what should be produced in this report and additional details, including excellent suggestions such as pointing out a limitation of some of the analysis we have done where we are only looking at one piece of the human resource pie and only looking at full-time equivalents and then leaving out spending on professional services.
That is an excellent point. It is a gap in the report, and we will incorporate it for the next time.
The Chair: Could you tell us what the process is with respect to something you see that is clearly not sufficient? I'm referring to your Expenditure Monitor: 2013-14 Q2. In it you make mention of the emergency management. That's the program where the federal government provides some assistance to provinces and territories. Our committee heard from Public Safety on this that the $100 million that is the base funding is clearly inadequate, and you make that point as well — that the expenditures will be well in excess of base and reference-level funding.
I can't read your Figure 3.1 on page 6 very clearly. It's difficult when you just have a black-and-white copy; it looks like you were in colour here. But it's pretty clear in any event that the forecasted expenditure will be much greater than the base funding — what is predicted to be the funding — that we will see in that wonderful book that we see each year coming up in a month or so in the Main Estimates.
What do we do to make sure the forecasting is realistic? You pointed out the problem. How do we make sure the Treasury Board clarifies and rectifies this?
Mr. Fréchette: I will ask Mr. Shaw to walk through the explanation.
Mr. Shaw: I will speak to the program itself. You are absolutely correct that the provision for this program was $100 million for this fiscal year. Public Safety in their most recent quarterly financial report estimated the accrued liability to the Government of Canada resulting from four recent natural disasters is being predicted as $4.1 billion. Clearly that is well in excess of the money already estimated.
Under the current rules of the program, that money is expected to be paid out over the course of the next 10 years. A large portion of that will be over the next five. It's a very easy calculation to show that that money will be in excess of the current provision.
As far as improving the estimates of the program, I won't be able to speak to that; I will only be able to speak to the program itself.
The Chair: Do you hope that Treasury Board will read your monitor and rectify things accordingly, or is there something more definite than hope involved?
Mr. Jacques: As Mr. Fréchette pointed out, we do have ongoing discussions on these reports with many government officials, including those within the Treasury Board of Canada Secretariat, the Privy Council Office, the Department of Finance and others. I can safely say that, even before we publish something, especially on this note, we have a conversation in advance. And that will occasionally move them in the right direction of trying to improve their cost estimation, just through discussion.
But based on my limited experience with the PBO, and previously with the Privy Council Office, Department of Finance and Treasury Board, unless parliamentarians, including members of the Senate, are paying attention to the issue and asking questions about it, usually there is not a sustained effort to actually rectify it.
Therefore, to the extent that members of this committee are actually asking questions, I would think that you'd see a fairly quick response from government departments and public servants in terms of improving the forecasts.
The Chair: Thank you for the suggestion.
[Translation]
Senator Hervieux-Payette: My question may sound naive, but if the $100 million is revised to a billion tomorrow morning, will this have an impact on the budget?
Mr. Fréchette: Absolutely.
Senator Hervieux-Payette: It seems to me that under an agreement with the provinces, the federal government does not necessarily have to pay during the year when the disaster occurred, and the payment may be staggered over a certain number of years, correct? Has a payment schedule been worked out?
[English]
Mr. Askari: To clarify, the $4.1 billion we mention in the report is actually already in the budget — in the estimates of government — so that has already been committed and taken into account. One issue we are raising in the report is that, based on Environment Canada projections, there will probably be more natural disasters in the future, and those have not been taken into account. The government will obviously have to take those into account and make provisions for future disasters and how they will finance them.
Senator Hervieux-Payette: The $4.5 billion — was it done after the fact or before the fact?
Mr. Askari: Once the disasters happened and the provinces asked for the extra funding, they allocated that amount of money.
Senator Hervieux-Payette: So after the fact?
Mr. Askari: Yes.
The Chair: If you start to see a lot of supplementary estimate requests for more, then we know there is probably a problem here with respect to the base funding. Regarding the Main Estimates, we were told by Public Safety just before Christmas that they would anticipate about $470 million each year instead of the $100 million, based on their projections.
Have you done any work to see what projection would be reasonable?
Mr. Weltman: We've been requested to look at that. The way the program works now as we understand it is that, as the bills come in, the government allocates money to pay for it. We also understand that there isn't a lot, we think — we do not know; we are finding out if there is any — work done in terms of trying to predict 10 or 20 years out what this funding profile could look like, based on reports out of Environment Canada on whether natural disaster frequency and severity is increasing. We are actually starting to look at that exact issue.
We are working with colleagues now in the Congressional Budget Office who did similar work several years ago, and we are trying to get our heads around what the analysis and work looks like.
The Chair: How many people are employed by the Congressional Budget Office in the U.S.?
Mr. Weltman: They have 232.
The Chair: Versus 15.
Mr. Weltman: Yes, and they have a budget of upwards of $200 million.
Senator Hervieux-Payette: We are below their average.
The Chair: Could you tell me how you are doing with your Integrated Monitoring Database? Is that a success? This is a new initiative.
Mr. Jacques: It did go well. It is not necessarily a new initiative, per se. We launched it as a pilot product several years ago now, initially only for members of the House of Commons and the Senate. Then, based upon the feedback, which was very positive, we rolled it out across the public and gave access to the public.
At any given time, on a monthly basis we will have close to 1,000 people logging in and downloading. It is still remarkable to me that they will go in and track quarterly spending around specific government programs. I thought I was the only wingnut who did things like that.
That is the biggest success, beyond the fact that it met an immediate need and request from parliamentarians. Again, how sustained interest was demonstrated from the House of Commons, the Senate and the general public was the fact that the government actually moved in that direction. And they have launched their own expenditure data library, and I have to say it looks a lot slicker than what we rolled out several years ago.
We are having a conversation within the office that the government's new expenditure data library, for the most part, does everything that the IMD does, with exception of one small, narrow aspect: It does not produce quarterly or in-year data with respect to program activities. So if you want to know how much quarterly spending is for Fisheries and Oceans vote 1 operating, it will give you that information — as will we. If you want to know how much is being spent on the Canadian Coast Guard, or how much was spent for the first three months of the year, unfortunately the only place to actually find that information is to come to the IMD right now.
Overall, the real success from our perspective was that we identified through ongoing dialogue with parliamentarians what was a major need and a data gap of how much money is being spent in-year. The government responded to that by starting to produce the quarterly reports and coming up with their own competing database.
In the longer term I anticipate more demand for these products. Mr. Fréchette can speak to some of the ideas he has going forward. It has been a major push on his side to implement more web-based tools and similar types of applications to meet parliamentarians' needs, and looking at the fact that many of you are relying on iPads as opposed to paper.
Mr. Fréchette: As you can see, the analysts not only have a lot of expertise but also are passionate. Both passion and expertise are at your service. Yes, we are looking at other services. I am doing consultations with parliamentarians, and iPads and electronic products are part of the future.
We also bought the Bloomberg database, which is a huge database that is useful for our products, and we are looking at the services we can provide with that. Senator Bellemare is certainly aware of that.
The Chair: I have an imperfect recollection that there was a private member's bill asking for quarterly departmental expenditures. I guess that was not passed or got lost along the way.
Mr. Jacques: That was Senator Segal's bill, and in that situation the government did respond to producing those reports. It took a very long time. There was a private member's bill, and having gone through the extensive Hansard, there was a lot of debate and discussion about it. In the annals of government and within the public service, the official response was that it was a good idea in theory and we are going to study it. It was studied for several years.
The timing might be coincidental, but subsequent to us starting to produce the IMD and taking the quarterly data we had access to and putting it online, the government decided approximately eight months later that they would move forward with those quarterly reports.
The Chair: I'm glad to hear it was a senator who helped nudge this along a little bit. Mr. Fréchette, we've almost concluded our time, but I have the impression from the meeting and the questions of honourable senators that we shouldn't wait so long next time to have you come in and talk to us. We tend to rely heavily on Treasury Board to help us through the Main Estimates and the various supplementary estimates and also to understand the fiscal cycle. I think you could be helpful in educating honourable senators who are interested in this to understand the difference between reporting by the accrual method and reporting by the cash method and those comparisons that confuse us all.
From time to time do you come in to committees or meet with parliamentarians to explain the resources that are available?
Mr. Fréchette: It will be our pleasures. It is not only education for parliamentarians; it is an exchange. We need your input. That is what the PBO office needs. If you want to make it a tradition, we will be happy to do it yearly or twice a year as they do in other place, the House of Commons. It would be our pleasure to appear before your committee either in public or if you want an in camera meeting to exchange.
The Chair: I am glad to hear that. I presume that your 2008 operation plan is under revision. You've had that plan quite a while. Are you still operating under that plan? If you are planning some changes, would you participate with Senate committees in talking about what changes should be made to your approach and mandate?
Mr. Fréchette: It is good timing for the question. Tomorrow all the people in the PBO have a retreat to discuss the five priorities we have established for the next five years. The 2008 operational plan is a good foundation. I'm here to continue building on that kind of foundation with a different style, different approaches, new products and services, the same passion and expertise.
The Chair: Are you still operating under that plan now?
Mr. Fréchette: We are operating. The plan is based on the OECD principles and those are guidelines, principles that are common sense and that we will continue to follow.
The Chair: The Standing Senate Committee on National Finance is very interested in working with you. A lot of us have had some history in the Federal Accountability Act and the changes that introduced the Parliamentary Budget Officer role. We were supportive of that at the time.
We thank you all for the work you are doing to help us do our work. We look forward to a continued good relationship as time progresses.
Colleagues this concludes the meeting today. We will be meeting tomorrow evening in our normal time slot with the Office of the Superintendent of Financial Institutions.
(The committee adjourned.)