Proceedings of the Standing Senate Committee on
National Finance
Issue 17 - Evidence - September 30, 2014
OTTAWA, Tuesday, September 30, 2014
The Standing Senate Committee on National Finance met this day at 9:30 a.m. to study the expenditures set out in the Main Estimates for the fiscal year ending March 31, 2015.
Senator Joseph A. Day (Chair) in the chair.
[Translation]
The Chair: Honourable senators, I now call the meeting to order. This morning, we will continue our study of the expenditures set out in the Main Estimates for the fiscal year ending March 31, 2015.
[English]
From Finance Canada, we're pleased to welcome with us this morning Mr. Randy Larkin, Assistant Deputy Minister, Corporate Services Branch. We also have a number of Finance officials in the audience who will back him up. If we get into an area of questioning that Mr. Larkin would prefer to have assistance with, we'll just bring that person or persons forward to help with that line of questioning.
From Employment and Social Development Canada, we're pleased to welcome Alain Séguin, Chief Financial Officer; and Vincent DaLuz, Chief Audit Executive.
We thank each of you for being here. I understand that each organization has brief opening remarks. We'll begin with Mr. Larkin, from Finance Canada, and then we'll go to Mr. Séguin, from Employment and Social Development Canada.
Mr. Larkin, would you like to begin?
Randy Larkin, Assistant Deputy Minister, Corporate Services Branch, Finance Canada: Thank you very much, Mr. Chair. Good morning. I'm the Assistant Deputy Minister responsible for Corporate Services and the Chief Financial Officer at the Department of Finance Canada. With me today are officials to assist in responding to your questions on the 2014-15 Main Estimates for the Department of Finance Canada.
The Department of Finance Canada's main priority is managing the return to balanced budgets in 2015. In so doing, the department will focus on four main priorities.
[Translation]
Mr. Larkin: The first priority, effective management of the fiscal framework, includes responsible management of the federal budget and the federal debt, and measures to enhance the competitiveness, efficiency, fairness and simplicity of Canada's tax system.
[English]
The second priority, sustainable economic growth, requires the development of sound macroeconomic, tax, financial and structural policies that support the drivers of productivity, growth and labour-force participation. The department will continue to play a leadership role by promoting measures that support this policy objective.
[Translation]
Mr. Larkin: The third priority, sound social policy framework, consists of managing current and emerging challenges related to social policy and major transfer payment programs to ensure that those programs are sustainable and effective for all Canadians.
[English]
The fourth priority, effective international engagement, includes active engagement with key economic partners on bilateral, regional and multilateral issues to leverage Canada's many strengths and to promote Canadian interests. This effort included promoting Canada's trade and investment interests; fostering effective and innovative aid policies aimed at reducing global poverty; and working toward a more stable and secure international economic and financial system.
In support of these priorities, these Main Estimates for 2014-15 total $87.6 billion. Over 99 per cent of the total departmental requirements, or $87.5 billion, relate to statutory items that have already been approved by Parliament through enabling legislation. The statutory items are displayed in the estimates document for information purposes and are not included in the appropriation bill.
Within the statutory forecasts, there is a net increase of $100,000 over the 2013-14 Main Estimates, with the major contributing factors being a $2.3 billion increase in transfer payments to the provinces and territories resulting from legislated funding formulae; a $1.5 billion decrease in sales tax harmonization payments as a result of the completion of scheduled payments to Quebec and Prince Edward Island under the Comprehensive Integrated Tax Coordination Agreements; a $583 million decrease in other interest costs due to a decrease in the average Government of Canada long-term bond rate, which is used to calculate interest on the public sector pension obligations pertaining to service pre-April 1, 2000; and a $254 million increase in interest on unmatured debt largely due to assets maturing under the Insured Mortgage Purchase Program in 2013-14 and a lower weighted average rate of interest on market debt.
The operating vote is $115 million and covers the day-to-day operations of the department. It includes salaries and goods and services for the department.
There is no change in voted grants and contributions from the 2013-14 Main Estimates.
[Translation]
Mr. Larkin: We would be pleased to address questions that the committee may have on the Main Estimates.
[English]
The Chair: I think we'll go to Mr. Séguin now and then we'll have an opportunity for questions and answers.
[Translation]
Alain P. Séguin, Chief Financial Officer, Employment and Social Development Canada: Thank you, ladies and gentlemen. I am pleased to appear before you in my capacity as chief financial officer for the Department of Employment and Social Development, or ESDC.
I also have with me Vincent DaLuz, as it is my understanding that you may have questions concerning internal audit activities in ESDC, including the functioning of our departmental audit committee. So Mr. DaLuz will be able to answer those types of questions.
Some of my colleagues from the department are also with me today to support me in responding to more detailed program questions. Given how many programs there are, I will need their help.
The department I represent assists Canadians at crucial stages in their lives, whether they are still in school or raising a family, looking for a job or retiring from the workforce.
[English]
Our department is also responsible for delivering high-quality services that are timely and accessible, through Service Canada. We also have a mandate to maintain strong, productive, healthy and competitive workplaces within the federal jurisdiction through the labour program.
Allow me to offer the committee an overview of ESDC's portion of the 2014-15 Main Estimates tabled on February 27, 2014.
The 2014-15 Main Estimates for ESDC amount to $51.7 billion. Of this, $49.9 billion, more than 96 per cent, will directly benefit Canadians through statutory transfer payment programs such as the Old Age Security program, the Universal Child Care Benefit, Canada Student Loans and Grants, the Canada Education Savings Program, the Canada Disability Savings Program and the Wage Earner Protection Program.
[Translation]
Mr. Séguin: Statutory items are included in the estimates for information only, as Parliament has already approved the purpose of the expenditures, and the terms and conditions under which they may be made, through other legislation.
You will note that the forecasted spending of the OAS program increases year after year resulting from the aging population and the planned increase in the average monthly benefit amount. It is estimated that, between 2009 and 2016, there will be an increase of more than 1 million beneficiaries for both the Canada Pension Plan, or CPP, and Old Age Security, or OAS.
In addition to statutory items, the 2014-15 Main Estimates include voted appropriations, which consisted of two votes for ESDC: vote 1, operating expenditures, and vote 5, grants and contributions.
[English]
In relation to vote 1, operating expenditures, the department plans to spend $571 million in 2014-15, a decrease of $56 million from the 2014 Main Estimates of $627 million, and a further decrease of $27 million when compared against a spend of $654 million in 2012-13.
The total decrease of $83 million includes a number of changes and is mainly attributable to the following decreases: A total of $55 million can be attributed to the department's savings initiatives as per the strategic review and Budget 2012. These are focused on making government operations leaner and more efficient while preserving our programs, services and transfers for Canadian individuals and families.
A further increase of $20 million in operating expenditures is related to the Homelessness Partnering Strategy. With the renewal of the program in 2014-15, the operating costs were being funded internally and therefore did not require an increase. Communities will continue to receive the same amount of funding for programs to prevent and reduce homelessness as they did previously. There are other decreases associated with reductions in temporary funding and the sunsetting of programs.
[Translation]
Mr. Séguin: As for vote 5, grants and contributions, the 2014-15 Main Estimates level is $1,228 million, a decrease of $534 million from the 2013-14 Main Estimates of $1,762 million. This decrease is mainly due to the expiry of the Labour Market Agreements, or LMAs.
As announced in Economic Action Plan 2013 and reiterated in Budget 2014, the government is renewing and transforming the labour market agreements with provinces and territories in 2014.
The LMAs are being transformed through the introduction of the Canada Job Grant to directly connect skills training with employers, helping to ensure that Canadians are developing the skills required for available jobs. A total of $500 million is available in 2014-15 and has been requested and approved through the 2014-15 Supplementary Estimates (A).
[English]
Through grants and contributions, the department provides funding to other administrations and organizations in the volunteer sector and the private sector in order to support projects that meet the needs of Canadians in the workforce and in social development. Please note that the funding of some of these programs is of limited duration, which can lead to variances in fiscal years in the case of a program that has not yet been extended.
For instance, the Economic Action Plan 2014 renewed the Targeted Initiative for Older Workers, the TIOW program, for a three-year period, representing a total investment of $75 million over three years. TIOW is a cost-shared federal-provincial-territorial initiative designed to assist unemployed older workers, normally age 55 to 64, living in small vulnerable communities affected by significant downsizing or high unemployment to enter the workforce. Funding approved in Budget 2014 for the program is being provided to ESDC through the supplementary estimates process.
[Translation]
You will note that Employment Insurance, or EI benefits, and CPP benefits are excluded from the department's Main Estimates.
The Employment Insurance operating account and the CPP account are two specified purpose accounts. The Employment Insurance operating account is included in the consolidated data of the Government of Canada. The CPP is not incorporated into the government's financial statements since it is under joint control of the federal government and the participating provinces and territories.
EI and CPP benefits are reflected in the department's Report on Plans and Priorities, or RPP, which was tabled on March 6, 2014. I hope this overview has given you a better understanding of our department's Main Estimates. My colleagues and I would be pleased to answer your questions.
The Chair: Thank you, Mr. Séguin.
[English]
Could you please clarify the supplementary estimates comment about the TIOW program? You indicated it would be funded through supplementary estimates. I didn't bring my Supplementary Estimates (A) with me. Have we seen it already in Supplementary Estimates (A) or will it be in (B) or (C)?
Mr. Séguin: It will be coming in in (B) or (C) — likely (B).
The Chair: So we haven't seen it.
Mr. Séguin: No, you haven't.
The Chair: Thank you. We will begin with questions.
Senator Wells: Thank you, gentlemen, for your presentations.
Mr. Séguin, I have a question about the Labour Market Agreement and the new Canada Job Grant. Because the Canada Job Grant agreement wasn't signed with the provinces until recently, was there an extension of the Labour Market Agreement from April 1 to the point of signing?
The follow-on question: Because there was no uptake — or I assume there was no uptake — in the Canada Job Grant up to the point of signing, is it expected there will be a surplus in this budgeted amount?
Mr. Séguin: The agreements were not extended; they were basically negotiated up until signing. So the funding was set aside and, once the agreements were signed, at that point, the monies would be transferred.
In terms of whether there might be — I'm not 100 per cent sure how the program is designed in terms of re-profiling and/or carry-forwards. I'd have to ask my colleague Catherine Demers, who can provide a little more information on the functioning of the program itself.
Senator Wells: Thanks very much. I'm interested in that question — that gap where the LMA wasn't extended beyond March 31 and the Canada Job Grant had no uptake until signing — that interim period.
The Chair: Ms. Demers, can you help us?
Catherine Demers, Executive Director, Federal, Provincial, Territorial Partnerships, Skills and Employment Branch, Employment and Social Development Canada: We have a signed agreement with all provinces and territories, and the Canada Job Grant is being launched as planned. The launch started in July in some provinces and has been ongoing throughout the summer. Additional launches are planned within the coming weeks.
So funding rolls out as planned as soon as the agreements are signed. There was the possibility of releasing the funding and all of the funding that was dedicated to these provinces and territories for this fiscal year.
Senator Wells: Thank you for that, but my question was: What about that gap period between April 1 and the signing in July? Was there no uptake of Canada Job Grant? So is there expected to be a surplus, or were there applications that will be triggered upon signing? Can you explain that to me, please?
Ms. Demers: Yes. In planning for that — of course, this is the first year of implementation. The ramp-up of the Canada Job Grant is built into the agreement, so there's only a small portion of funding that has to be dedicated toward the Canada Job Grant for this fiscal year — the equivalent of 15 per cent of the Canada Job Fund, or CJF, allocation. The provinces and territories do have the possibility to request a carry-forward into next fiscal year if they have issues with meeting their targets.
Senator Wells: Thanks very much.
The Chair: Was the funding agreed to in the Main Estimates but just not made available until the agreements with the provinces had been signed? We're looking at this issue of the period between the beginning of the fiscal year and the point at which the agreement was signed.
Mr. Séguin: It was not included in the Main Estimates simply because there was no agreement reached. It was put forward in the supplementary estimates as an item and then held until signing. So the money was available in the new fiscal year.
Normally, the funding would be allocated in the Main Estimates and agreements would have already been reached with provinces at that time. So that was not the case. We came here, I think, last May with the Supplementary Estimates (A) for the $500 million, on the indication that the agreements would be signed over the coming weeks and months.
Senator Wells: As a result of that — and not that these are summer jobs, but the gap happened in a time of year when you would expect there to be some uptake, but there was no uptake because there was no signing of the agreement or no agreement with the provinces — is there expected to be a surplus, and is there an expectation that will be rolled into the following year?
Mr. Séguin: I think, as Ms. Demers mentioned, provinces can put forward a request for carry-forward. So if they don't spend the entire amount, or sign up or get commitments on the entire amount, they can ask for a carry-forward into next fiscal year 2015-16.
Senator Wells: In addition to what they will get in the next fiscal year anyway? Yes? I'm getting a nod over there.
The Chair: I take that as a ''yes.''
Ms. Demers: That is correct.
[Translation]
Senator Bellemare: That is timely, because I wanted to discuss the labour market agreements. There are two types of agreements, those tied to the Canada Job Grant, and the more significant ones, accounting for a budget of some $2 billion, those relating to EI benefits for claimants and former claimants.
The government suggested that the agreements would be revised in 2013 and in 2014. When are the agreements expected to expire? The agreements were originally signed in 1996 and 1997, and then with each of the provinces, and they did not have a term. They would come to an end with two years' notice from either of the parties.
For some provinces, including Quebec, the agreements led to the transfer of federal employees to the provincial public service. I would like to know what the negotiation issue is. What would happen if an agreement could not be reached? And finally, under the agreements, is a budget increase expected to be negotiated? Because the Employment Insurance Act stipulates that a maximum amount of funding could be allocated for the agreements up to a limit of 0.8 per cent, or 0.5 per cent, of insurable payroll. And right now, the $2-billion agreement is well below that limit.
Can you tell us where the negotiations are, particularly with Quebec, as well as with the other provinces?
Mr. Séguin: The negotiations are under way. The minister initiated discussions with the provinces about the possibility of making future amendments to the EI program.
As we speak, the study and discussions are ongoing. In theory, the goal would be to conclude the discussions before renewal next spring, on April 1, before the new 2015-16 fiscal year.
Senator Bellemare: So, before the new year.
Mr. Séguin: That is the goal. I do not have the details as to where the negotiations are, so I could not say for sure whether we will be successful. But right now, the process is moving along.
Senator Bellemare: When negotiations get under way, there are issues. When management and unions sit down at the bargaining table, the issues could be pensions, wages and so forth. In this case, what is the issue at the outset of these negotiations? What is being negotiated?
Mr. Séguin: I am going to ask Ms. Demers to answer that.
Ms. Demers: In fact, the discussions with the provinces and territories are currently at the pre-negotiation stage. No actual negotiations are happening right now. That means that discussions are going on. It is a period to talk and look at the options for improving the program and the measures delivered under the agreements. So the discussions are at the consultation stage and involve the provincial and territorial labour market representatives, the purpose being to gain a better understanding of the issues and lessons learned since the agreements were first put in place in 1996. That was, after all, quite a few years ago. The goal is simply to gauge where things stand, find out where we are, to talk with labour market stakeholders, including provincial representatives — the consultations are happening with the provinces and territories — and finally, to identify improvement opportunities together. A wide range of potential issues are examined. And all that is happening as we speak with the provinces and territories.
Senator Bellemare: What you are telling me, then, is that the discussions are not under way to conclude the agreements, but rather to improve them. That means the issues will be the topic of discussion afterwards, and at that point, the budget could be increased and the criteria identified.
Ms. Demers: We will have to wait and see; nothing has been decided yet.
[English]
Senator Eaton: Mr. Séguin, you were talking about the forecasted spending increase in OAS, aging population. You just have to look around the table at all of us. We raised the age to 67 last year for old-age pensions. Do you foresee that we'll need to raise it again? Because people are living much longer than they used to.
We've heard statistically that when the Old Age Security was first brought in, people were living to the age of 66, i.e., they worked to 65, received pension for year and very conveniently died. Now we're living into our late 70s and 80s.
Mr. Séguin: From a program perspective, I can't anticipate.
Senator Eaton: You feel it's sustainable?
Mr. Séguin: I could ask a colleague from the program to provide information on some of the statistics, but at this point I wouldn't speculate that there would be a change in the program.
Senator Eaton: But you feel it's sustainable? All right; I'll take the politics out of it. Do you feel it will be sustainable for the next decade?
Mr. Séguin: I'm not an actuary. I couldn't even hazard a guess. I assume it is. I assume that the funding is there and calculations have been taken into account. I would suggest perhaps Mary Pichette, who is the representative of our Income Security and Social Development Branch, could provide some context.
Mary Pichette, Senior Assistant Deputy Minister, Income Security and Social Development Branch, Employment and Social Development Canada: Good morning. You're correct that the age is being increased to 67, but it will only take effect in 2023 and it will take place over a six-year period.
Senator Eaton: In 2023?
Ms. Pichette: That's correct. So there was a 10-year announcement period to allow people to prepare and it will happen gradually, up to 2030. What's been estimated in terms of overall savings? You're right that the program is growing in expenses due to the aging population. It's estimated that about $10.8 billion will be saved by this change in age and that that will accrue, of course, to the revenues of the government.
At this time, I'm not aware of any plans to revisit the current plan of increasing the age gradually beginning in 2023.
Senator Eaton: When you plan these programs, how far ahead do you actually look at the sustainability? In other words, you're saying today that it's sustainable, so you'll change your forecast every year or you'll re-examine it every year? I guess I'm trying to find out, when you do these programs, how long do you foresee the sustainability?
Ms. Pichette: My understanding is that there are actuarial figures that are available to the department for quite a number of years out. I'm not sure exactly how many. But I know that when they looked at these projections, which extend well beyond 2030, the decision that was taken by the government was to begin a very gradual increase, and only beginning in 2023. Therefore the view was that the program is sustainable at this time, until that time.
Senator Eaton: Thank you. May I ask one more question to Mr. Larkin?
Mr. Larkin, in your presentation you talked about productivity. Canada has always been criticized as not being very competitively productive. We're quite low, I think, in terms of the world, the charts they put out every year. We always lag behind the U.S. and other countries in productivity. Does that have anything to do with your department?
Mr. Larkin: From a chief financial officer perspective, I have little to do with the productivity of Canadians. Perhaps one of my colleagues is here and may be able to comment a little more on what we're doing from an economic policy perspective to maintain and to grow productivity.
Senator Eaton: All right.
The Chair: There was a reluctance to come forward on that.
Nicholas Leswick, General Director, Fiscal Policy, Economic and Fiscal Policy Branch, Finance Canada: Good morning. I'll be brief, considering the focus is on the Main Estimates and the budget approvals of the Department of Finance.
Overall, you're correct. In OECD comparison, Canada lags behind comparative countries in overall productivity. The government is looking at the reasons behind that in terms of —
Senator Eaton: Nothing to do with Canada's tax system, then?
Mr. Leswick: Indeed, the government is looking at ways to support manufacturers, in terms of embodying things like information and communication technologies, in order to augment overall business productivity. So the tax system has implemented various tax measures over the last number of years, for example, the accelerated capital cost allowance, in order to reduce overall marginal effective tax rates on businesses so they can purchase these productivity enhancing technologies.
Senator Eaton: When you enact these tax measures, do people take them up?
Mr. Leswick: We're finding that indeed they do. They avail themselves of the various credits and deductions within the tax system. We do have some concern, obviously. We want Canadian business enterprise to be leaders in terms of expenditures and research and development, so again buying capital equipment in order to foster investments in research and development.
Unfortunately, Canada lags somewhat in terms of business intensity in that particular line of expenditure. Again, we're using the tax system in order to leverage, incent business enterprises to invest more.
Senator Eaton: It seems to be working, but only to a point.
Mr. Leswick: We think it's working.
Senator Eaton: Why are we still lagging behind?
Mr. Leswick: The productivity question is ultimately the million-dollar question in terms of the drivers of productivity, when do those investments start to mature and lead to productivity improvement. So we're hopeful that business investment since or during the recovery — a lot of the tax incentives to get businesses to invest more along the same storyline that I just spoke to — will start to pay dividends, and we'll start to see Canadian labour productivity improve as a result of these technology investments.
Senator Eaton: Thank you.
Mr. Leswick: It's a long game, I should add.
Senator Eaton: A very long game.
Senator L. Smith: Perhaps I am a bit crazy here, but I was fascinated, Mr. Larkin, when I saw the list of all the folks you brought with you today. I have more of a general question that, perhaps, you can help me with. It's with regard to the interaction between your department and the other departments. Are these all the representatives? Can you give us a brief overview as to how Finance interacts with other government departments?
I do have a second question that comes from some constituents who have talked to me, but could you give me an overview of how that works? Perhaps take an example of managing the national debt. Do these folks work with other individuals? Just from a general perspective, how does it work?
Mr. Larkin: I will give you a general overview. The Department of Finance Canada is a central agency, as you're aware. In that role as a central agency, we work with other government departments. For example, for preparations for the federal budget, we are working with other departments on them providing what their ideas are, what their policy platforms are, et cetera, for the items that might be included in the federal budget.
The Department of Finance Canada then plays a role in synthesizing and analyzing those, and pulling all those things together, along with PCO, and analyzing those so that they can provide advice and recommendations to the minister.
We do things, as well, on some of the more mechanical financial management activities. Reprofiles from departments, for example, would come into Finance Canada for analysis, and we would look at those and go back to the departments and provide some support for those reprofiles.
With respect to your question on the national debt —
Senator L. Smith: Because it is a topical question. Most people in the country hear how we'll be clearing the books and coming up with a positive number. Could you give us some background: How do you manage that and manage the message? How does that work?
Mr. Larkin: Again from a Chief Financial Officer perspective, my role is more one of managing the department's finances within the operating budgets of Finance Canada. That other $87 billion that we receive that are statutory are really equalization, transfers and other debt payments for which there are complicated formulas the department follows. Some of my Finance folks make those transfers and debt payments. But those calculations and the policies behind them are approved in other legislation.
Nick might be able to comment a little more on the management of the debt.
Mr. Leswick: Maybe guide me to see if I am striking the right plans in answering the question. The Department of Finance Canada is effectively the budget office for the Government of Canada. We do forecasts for revenue and expenses, and based on the budgetary balance — that is, either a surplus or a deficit, which would be our budgetary requirements — it would stand to reason that we need to raise more or less money, based on the surplus or deficit.
Likewise, we forecast our non-budgetary requirements, such as how much cash we need to fund things like our pension liabilities and how much cash we need to provide to the Bank of Canada in the exchange reserve.
We work closely internally, but also extend out to the Receiver General of Canada, who is effectively the banker for the Government of Canada, which affects how much cash balance we hold at any one time to meet the Government of Canada's payment obligations in any day, week or month. Likewise, we work closely with the Bank of Canada in terms of the strategy to issue our debt and obviously the appropriate balances in the Exchange Fund Account to affect emergency monetary policy, as well.
We work with departments all over town to understand what their requirements are. The real nexus is between us, the Receiver General, PSWGC and the Bank of Canada to manage that public debt in any day, week or month, depending on our payment obligations.
Senator L. Smith: Is that management sort of at 36,000 feet and everyone else is underneath doing the day to day, but you have some senior managers, if you like, plotting the strategy for the debt reduction? Is that how it works?
Mr. Leswick: I would say probably quite the opposite. It is probably right at ground zero in terms of what are our payment obligations on any one day; what is the maturity of our debt; and how much money we need to raise on any day, week or month to fund the Government's obligations. It is very dynamic and we have an entire division.
Senator L. Smith: So you guys set the process in place, and the people at different levels will look at it and analyze the information you provide so they can provide messaging to that?
Mr. Leswick: Absolutely. A higher delve is articulated in our Debt Management Strategy, which is annually part of the budget. It shows what our strategy is to manage the general asset liability management of the Government of Canada and how we carry on that dialogue with the Bank of Canada and the Receiver General.
Senator L. Smith: With the aging population, as Senator Eaton raised, one of the issues is that there is a requirement, as you hit age 71, that you have to spend before you convert into RIFFs a certain percentage of your RRSPs. If people are now living into their late eighties and early nineties there is a fear — and this is based on people coming up and talking to me about the potential of the government to adjust that policy — that people will run out of money earlier than their lifespan, because there the rules say you have to take so much money out before you start your retirement. That is a big lump of money out of your RRSPs.
Within your department, has there been any push, evaluation or analysis as to that aging population in terms of the rules in place now — if they are applicable — because of the length of time people will live and the shortfall that may exist because of people having to cash out more than they have at an earlier stage of their life?
Mr. Larkin: Geoff Trueman from our Tax Policy Branch will be able to address that for you.
Senator L. Smith: I love how fast everyone gets up. You are not going to the dentist, Jeff.
Geoff Trueman, General Director, Tax Policy Branch, Finance Canada: Actually, I am later today, but being here with this committee is a more enjoyable experience.
The Chair: So far.
Mr. Trueman: With the RIFF withdrawal, essentially it's the system whereby the RRSP savings are drawn down over a number of years and there is an age at which those withdrawals must begin. Then there are minimum withdrawal amounts stipulated in the ensuing years. As you note, the idea is to provide an income stream over the lifetime of the holder of the plan.
Certainly, we are cognizant of the fact the tax system is in a dynamic environment. As some of these macroeconomic factors change, we look at them. We look at them on an ongoing basis without commenting on a specific measure, per se, but we do try to ensure there is some symmetry between the rules and the intended policy result.
Senator L. Smith: That is a great generic answer, but I just wondered: Is it a topic of analysis because of the changing demographic age that has taken place? It appears that there is concern among people that they will exhaust their savings — this has been written up in the media — before they die, and therefore the pressure will go on their children and/or relatives to have to take care of them, which will put more burden on the social system.
From a strict strategic positioning point, is that an issue that you folks are looking at actively or proactively?
Mr. Trueman: We have had representations from stakeholders and there has been commentary from various economic sources, so it is something we look at as part of our ongoing review of the tax system.
Senator L. Smith: At least I got it out there. And good luck at the dentist this afternoon.
Mr. Trueman: Thank you.
[Translation]
Senator Rivard: I have a few brief questions. The Canada Education Savings Grant payments rose by $19 million.
As I see it, it is not the grant, but rather the number of contributors accounting for the additional $19 million. The estimate went from $754 million in 2013-14 to $773 million. It is here on the second page. Are we to understand that the grant itself is not increasing, but rather, that the additional $19 million is due to the number of contributors? Is that correct?
Mr. Séguin: Yes, precisely.
Senator Rivard: I would be curious to know the number of contributors for the past three years to get a sense of the change over time, because the program is certainly very valid. It is all too easy to overlook the advantages of planning for a child's education when they are born, knowing that 18 years down the road, they will be going to university. Programs like these are extremely practical. But, all too often, people wait till the last minute, and then grants are lost.
I would like to ask you about the program to combat homelessness. We all know that Quebec is not like any other province. When you decide to invest in homelessness measures in Quebec, does Quebec have to agree with the programs being implemented?
In addition, does the province of Quebec have to assume a portion of the program costs? I am asking because, about two years ago, I was speaking with officials from the Douglas hospital in Verdun, and they were lamenting the fact that federal grants were available but because Quebec had made other choices, they were not able to take advantage of the program.
I am not asking you to comment on the Douglas hospital situation specifically, but it illustrates my question. Must you have Quebec's agreement in order for you to invest in homelessness measures?
Mr. Séguin: I am going to ask my colleague to explain the finer points of the homelessness program. As for your question on the number of contributors, I thought I had the figures with me, but I will be sure to send you the information.
Ms. Pichette: With your permission, I will answer in English.
[English]
The Homelessness Partnering Strategy funding was renewed and announced in the Budget 2013 for a five-year period. You are correct that negotiations are under way with Quebec. Transition funding for one year was provided to Quebec to ensure that there would be no break in funding to communities.
I understand that discussions are still ongoing, but there has been no break in funding to the communities.
[Translation]
Senator Rivard: When you allocate homelessness funding elsewhere in the country, do you need the agreement of the provinces? Can the federal government decide on its own to put money towards homelessness in Winnipeg or anywhere else in the country? Are there agreements with the other provinces, yes or no?
[English]
Ms. Pichette: The way the program works in all other provinces, there are programs available in the communities. The program is delivered directly through agreements with 61 communities, as well as with Aboriginal communities, and there is a component for rural and northern communities.
In each of those communities, community boards accept proposals and make decisions with respect to the funding proposals that meet the needs of the community. That way, the program funding continues to be very much based on what the local priorities and needs are.
The exception for the delivery model is in Quebec where there is an agreement between the federal and the provincial government.
[Translation]
Senator Rivard: I need your help recalling something. I believe sometime in the 1990s, the government decided to put money towards old age security. Prior to that, regardless of your income, you were entitled to a given old age security benefit. The government then decided that if you earned more than $55,000, the old age security benefit you received in one pocket came out the other. Fundamentally, I think it was a good measure, because someone with $100,000 income may not need an old age security benefit.
I would like to know whether the same yearly income threshold of $55,000 existed when the rule was made. If so, why was it not indexed? For instance, the basic personal exemption a taxpayer can deduct on their tax return is usually indexed every year. So, in the case of the old age security benefit, if the threshold was set at $55,000 in 1990, that $55,000 is not equivalent to the same amount in 2014.
[English]
Ms. Pichette: I am sorry; I don't remember the year in which the tax back measure was introduced.
My understanding — but I would prefer to get back to the committee with the specific answer — is that it has increased. I believe at this time individuals become ineligible for OAS at roughly $115,000.
[Translation]
Senator Rivard: Is the threshold indexed regularly, or is it done every 5 or 10 years? The basic exemption goes up by virtually a few hundred dollars every year. Strictly speaking, I think the measure is a good one, but what worries me is the fact that the amount has always been the same, even though $55,000 in 1990 is not the same as $55,000 today. You can provide me with an answer in writing, Ms. Pichette. Thank you.
[English]
Senator Ringuette: Could we call Mr. Leswick to the dentist chair? We'll freeze you so it won't hurt.
I think you are the appropriate person to answer this. My first question is with regard to the following: In the last five years we have seen the Bank of Canada overnight rate hovering between 0.5 and 1 per cent. I would like to understand, and for you to explain to us, the impact of that low interest rate with regard to payment on the national debt and budget surplus.
Mr. Leswick: It is quite straightforward. In terms of the character of our debt, we have unmatured debt. This is effectively the debt held in financial markets, bonds, treasury bills. We have debt accruing against our pension and benefits liabilities, which is the public sector pension plans and also future benefits such as veterans' benefits, RCMP benefits, health and dental benefits for pensioners.
Again, to be straightforward, a low interest rate environment means that the government is paying less in terms of its coupon on this market debt and is accruing less interest as the liabilities on pensions and benefits grow. How does that flow through to the budgetary balance? Frankly, it is lower public debt charges, more favourable budgetary outcome when you are paying lower coupon rates, and it achieves a more favourable budgetary balance.
Senator Ringuette: Exactly. With regard to budget deficit, what would be the impact of a 4 or 5 per cent Bank of Canada overnight rate in comparison to the current 1 per cent?
Mr. Leswick: That is not the model because that would be an extreme shock in terms of a swing in interest rates of that nature.
However, to give you an idea, we do shock our budgetary balance based on a 100-basis-point increase to public-debt charges. On that basis, expenses would increase in the order of magnitude at year five — at maturity — by about $1.5 billion per year.
Senator Ringuette: So the Bank of Canada overnight interest rate is quite an impact, and, as you said, the interest rates on the Treasury Board bonds we issue — all that — has an impact with regard to reducing the deficit.
Mr. Leswick: Higher interest rates have an impact on all debt holders. Considering the Government of Canada holds $660 billion in debt, it would have an impact on us, yes.
Senator Ringuette: Okay.
I would like to ask you something, and I don't know if you can answer. In relation to the other budget planning that we have seen in the last few years, how would it relate to operation cuts?
Mr. Leswick: I am sorry; could you please be a bit more specific so I am on the right track?
Senator Ringuette: I am trying to see what the relation is of this drastically low interest rate and its effect on reducing the budget deficit in comparison to budget planning and operation reduction that we have seen in the last few years.
Mr. Leswick: There are maybe two orders there. In terms of the lower obligation vis-à-vis our annual debt-servicing payments, that has an impact on our overall budgetary planning.
Senator Ringuette: Maybe you could indicate what would be the average amount that would entail.
Mr. Leswick: To give you a benchmark, public debt charges consume 11 per cent of total expenses. This is down from a high of over 30 per cent in the mid- to late- 1990s, but it now consumes — again, based on favourable interest rates — in the order of magnitude of 10 to 11 per cent. Obviously, that figures into our budget plan.
We assume a path for an interest rate forecast going forward over the next five years. We don't do that in isolation; we do that in concert with 15 private-sector economists, and we take a simple average. It figures into our budget planning methodology.
Senator Ringuette: Okay. So 10 per cent is a considerable amount with regard to that specific area.
Mr. Leswick: In absolute terms, yes. It's still $30 billion a year but it's the lowest it has been in 20 years.
Senator Ringuette: Exactly. I want all my colleagues to bear that in mind.
That wasn't that difficult, Mr. Leswick.
Mr. Leswick: No. Hopefully, that was informative.
[Translation]
Senator Ringuette: I have a few questions for Mr. Séguin.
In your presentation, you said that, in relation to the operating expenditures under vote 1, the department planned to spend $571 million, which represented a decrease of $56 million from last year's Main Estimates. Could you please tell us from which operating activities that $56 million will be cut? I would also like to know how that $56-million decrease will impact Service Canada and its operations, in particular, because a number of the organization's offices have closed, resulting in a scaling back of services to Canadians.
Mr. Séguin: Employment and Social Development Canada is a large department, with some 20 branches, including mine. The budget cuts were attributed to the organization that focused more on administrative services. Administrative services include, very specifically, services such as mine, finance, procurement, office management and human resources. A review was done of the spending incurred by these services owing to a rather modest investment in our finance and human resource systems, since we have just put in place a federal government-approved system. Known as the SAP system, it enables us to cut staff in certain areas of financial administration. We are also working on a project to change the human resources system, and that will affect the cost of delivering human resources services internally.
In addition, we assessed the structure of the organization and came up with measures that are in fact in effect as we speak. To a large extent they have served to either reduce or increase the number or resources for a manager. We reviewed the hierarchy, the administrative supports, and other things. This assessment focused more on the administrative functioning of the organization, and on the headquarters in the National Capital Region, basically with the aim of reviewing its internal structure.
Among other things, cuts were made to the ranks of upper management and assistant deputy ministers. So this is how we managed to reduce costs throughout the organization. Our objective was to not adversely affect our programs, nor their delivery in the regions, and also in the National Capital Region. To do so we had to review administrative supports and the hierarchical structure to ensure efficiency within the organization. Overall, in the organization as a whole, this represents a few million dollars and some hundreds of thousands here and there. That is quite a broad- brush picture, but that is how we attained our reduction objectives.
Senator Ringuette: Mr. Séguin, are you telling us, in reply to my question, that the $56 million decrease you spoke about in this morning's statement is not attributable to the closure of Service Canada offices nationally?
Mr. Séguin: I am not aware of recent closures. I know there have been some, and of course we are always reviewing our office costs. That does represent quite a considerable amount for the organization. We are always looking for more effective ways of consolidating everything, but I do not have any breakdowns to hand as to the amounts saved that would be due to office closures. Honestly, I do not.
Senator Ringuette: For the purposes of this committee's study, could you table with the clerk the list of Service Canada offices that were closed over the past three years? And could you tell us how many employees were affected by that measure, and what the impact was on the overall operational budget of Service Canada?
Mr. Séguin: Just to clarify, you are referring to Service Canada centres?
Senator Ringuette: Yes.
Mr. Séguin: Because there are offices in the regions that are tasked with the delivery of benefits.
Senator Ringuette: I will not even begin to tell you about the number of complaints we receive concerning the telephone service that is now in place. I have to admit that this is extremely frustrating. This summer, for one of my constituents, I attempted to reach a human being at the end of the line, and this turned out to be mission impossible, practically. I can imagine that for the average Canadian it is even more frustrating, because I have had 27 years of experience with the bureaucracy.
We are agreed that you will be providing that information?
Mr. Séguin: Absolutely.
Senator Ringuette: Fine, thank you. With regard to the training program that was proposed and that has been discussed at negotiations with the provinces — you know, that famous amount of $15,000 per participant, shared equally by the federal government, the provincial government and the employer — did your department, before making such a proposal, assess the capacity of employers to contribute to this system in each of the provinces?
As a citizen of New Brunswick, I can tell you that a $5,000 contribution by employers for training is an enormous amount. I would like to know, first, if an analysis was done of employers' capacity to pay in these different provinces.
Mr. Séguin: I am going to ask Catherine Demers to come to the table to help us to reply to your question.
Ms. Demers: Indeed, before the Canada Job Grant program was implemented, consultations were carried out throughout the country with employers, industry and the provinces. The issue of whether or not small and medium businesses could pay was of course raised. That is an integral part of the program's parameters. So that question was taken into consideration in the parameters of the Canada Job Grant, as it is implemented currently.
The provinces and territories are responsible for the design and implementation of that program. According to national parameters it is possible to have a program that allows small businesses with 50 employees or less to only contribute a sixth, financially. The other portion of their third — this is a bit complicated — is simply linked to their contribution to their employees' salary. That is a financial contribution that is quite reduced and this is allowed for small employers who have 50 employees or less.
Senator Ringuette: If I understand correctly, for small employers, the $5,000 financial component includes access to on-site training.
Ms. Demers: First of all, the value of the grant may vary from one employer to another. It all depends. They can submit a project for an amount that can vary according to their training needs. The government contributes to a maximum of $10,000 per person trained within the context of this subsidy. The employer may submit lesser projects. It all depends on their training needs and the number of people they wish to train, for instance, with the help of the subsidy.
Suppose we are talking about a training project that requires a $5,000 contribution from the employer. If this is a small employer with 50 employees or less, he or she may contribute $2,500 cash on this $5,000 amount.
Senator Ringuette: Cash?
Ms. Demers: They may include their employees' salaries in their contribution when their employees are being trained.
Senator Ringuette: However, this is on condition that the employer is paying a salary to the employee while he or she is being trained.
Ms. Demers: There are other options. One of them is that the contribution of small employers can be as low as 15 per cent of the total amount of the subsidy; the rest of it is paid entirely by the government.
Senator Ringuette: Who accepts the requests?
Ms. Demers: The provincial government.
Senator Ringuette: The provincial government?
Ms. Demers: Correct. The provinces have two options for small and medium businesses, according to the requests they receive. The first option allows them to take into account the salary the employer will continue to pay to that employee while he is being trained. That is one possibility. That amount counts for a third of the employer's contribution. The second option is to ask for the minimum 15 per cent financial contribution to the grant, and the rest is paid by the government.
The Chair: Would you like to come back during the second turn?
Senator Ringuette: Yes, please.
[English]
Senator Gerstein: Thank you, panel, for being before us today.
Mr. Séguin, included in your department's statutory expenditures in this year's Main Estimates is an increase of approximately $77 million for Canada Student Grants. As I understand it, this amount is calculated on a formula that the Chief Actuary provides; is that correct?
Mr. Séguin: I believe so, but I have a colleague from the Learning Branch, David Swol, who can provide more details.
Senator Gerstein: I think that's correct. I read it out of the budget.
Mr. Séguin: Yes, it is correct.
Senator Gerstein: But that's not my question.
What is the current practice or formula that you use for the writing off of Canada Student Loans? The reason for my question is this: I note that in fiscal 2013, we wrote off $227 million of loans; in 2014, we wrote off zero; and in 2015 it appears as if you're anticipating writing off zero. Do we have to play catch-up one of these days, as we did in the past?
Mr. Séguin: Your numbers are correct. We're in the process right now of working up a potential writeoff. As you know, the program has statutory limitations, so when a file for a loan is inactive for a period. And I'll ask my colleague to come forward. He can fill in some of the blanks. I'm not sure of the number of years.
Senator Gerstein: How does the formula skip 2014? How did we come to not write off anything in 2014, if I understand this correctly?
Mr. Séguin: We just didn't put the file together. So we have to put the file together. We have to go through Treasury Board approval process. Once we do that, then we come for supplementary estimates. I think the last time we came was in —
Senator Gerstein: I recall it well, 2012-13.
Mr. Séguin: That's right.
Senator Gerstein: You're saying the file hasn't been put together. We know they're writeoffs.
Mr. Séguin: That's right. It happens every year, roughly.
Senator Gerstein: Except it didn't happen last year and we're not anticipating it this year either?
Mr. Séguin: I think we're pulling that file together right now. I can't anticipate; I have to go through the process. I have to get Treasury Board approval.
Senator Gerstein: So there are two years with no writeoffs?
Mr. Séguin: If everything goes well, we will have something on the table in supplementary estimates this year — if we can pull everything together.
Senator Gerstein: Is there a formula, or is it structured each year?
Mr. Séguin: I guess there's a formula in terms of the number and how items get put on a list. In fact, we were here some months ago and described that in detail. David could probably provide some information on how we come up with that calculation.
David Swol, Director General, Canada Education Savings Program, Employment and Social Development Canada: Unfortunately, senator, I don't have the details to provide you today, but we could certainly respond to your question in terms of the formula that may be applied.
But, as Mr. Séguin has mentioned, there is a statute of limitations that is applied for the recovery of those loans. But we could provide the committee with the details of those.
Senator Gerstein: Nobody challenges the fact that there's a formula. The question is: Who decides whether there will be a writeoff in a particular year?
Mr. Swol: In terms of looking at the figures, we work with the Office of the Chief Actuary, as well as with our provincial counterparts, because the Canada Student Loans are administered across the country with provincial governments. We also work with our colleagues in CFO branch, as well as Treasury Board of Canada Secretariat in terms of developing an appropriate submission and the timing of that submission.
Senator Gerstein: Thank you.
The Chair: Senator Gerstein, any follow ups? Thank you for clarifying that.
[Translation]
Senator Mockler: Thank you very much, Mr. Chair. Briefly, I would like to raise the issue of poverty.
[English]
Mr. Chairman, if you'll permit me, I know that previous governments, regardless of colour, had talked about stamping out poverty. When I look at your different votes attributed to sharing or transferring monies to provinces and/or non-profit organizations — but I'm one of those and I want to state this for a fact — who believes that the best mechanism to stamp out or eradicate poverty and dependence on welfare is through training, education and job creation.
My question would be in the form of a little statement, and I'd like to have your comments on it: The rates of poverty we have seen for older people has fallen a bit, while poverty in young adults and families with children has risen. With the statistics you have, would you say that's true?
Mr. Séguin: I will ask Mary Pichette, with the Income Security and Social Development Branch to respond.
Senator Mockler: If this is a fact, I'd like to have it on the basis of the regions of Canada.
Ms. Pichette: Good morning again. I can't speak to the poverty rates across the country, so we will have to get back to the committee with that information. However, I can speak a little bit about the decline in poverty among seniors. I can indicate that the Old Age Security pension, combined with the Guaranteed Income Supplement, has contributed to the decline in poverty among seniors, which had been at 21.4 per cent in 1980 and was at 5.2 per cent in 2011. So you're correct that there has been a decline in that population.
We'll have to get back to the committee with information regarding low-income rates for non-seniors.
Senator Mockler: Thank you.
Next, when we look at the reorganization of your different votes in Budget 2014-15, I have seen certain programs being affected. Could you confirm if affordable housing and efficiency programs have been affected across provinces under your programs?
Mr. Séguin: Yes. There would be different components to that. Are you referring to our homelessness programming? The CMHC may have a component related to affordable housing that we would not necessarily have.
Senator Mockler: Your responsibilities, Mr. Séguin. If you can bring clarification to CMHC, please do. If not, we'll ask them the question.
Mr. Séguin: Mary Pichette can talk about the homelessness program, but it has been renewed; renewed funding has been obtained. Mary, you can elaborate on how it's being rolled out.
Ms. Pichette: I'll speak about the Homelessness Partnering Strategy. I won't be able to speak to you about the CMHC program and the affordable housing program.
The Chair: CMHC will be with us tomorrow evening.
Ms. Pichette: Good to know.
With respect to the Homelessness Partnering Strategy, the strategy was renewed for a five-year period in Budget 2013, which is the longest period of funding that has been provided to this program. The hope is that this will provide more stability in terms of communities being able to roll out longer-term plans to deal with issues in their communities.
As you may know, the program is also being reoriented to take a Housing First perspective. Housing First is built on the work that was done by the Mental Health Commission on a program At Home/Chez Soi, where they looked at chronically or episodically homeless individuals, who, while smaller in number, use a disproportionately larger number of resources. The findings for that project were very positive in five different communities across the country, where they found that providing stable housing first, followed then by a suite of services to provide individuals with various needs, was much more effective in both combatting homelessness and supporting those individuals.
So that's a direction that the program will be taking, and that was announced, as I say, in Budget 2013. Work is under way now with the various community partners to look at how this will be rolled out in communities across the country over the coming years.
Senator Mockler: I know you have provided leadership in this and I know provinces also, and that's the approach when we talk about the most vulnerable — and I don't want to say ''handicapped;'' I like to use ''special needs people,'' rather than use the word ''handicapped.'' I know we have asked the department to be innovative and find new ways to address homelessness accessibility for special needs people.
This brings me to my last question vis-à-vis your relationship with Food Bank Canada. I know they play an important role. My two little questions would be: Is there another role that they should be playing, with your experience here at this table, if we want to put it on record? Or have they been affected, and to what extent — province, region by region — on the fact of addressing the challenges we have? Looking at Budget 2014-15 and 2015-16, will there be additional impacts on Food Bank Canada to help the most vulnerable in our society? Even though I want to restate that it is true that through training, education and creating jobs you will reduce poverty.
Ms. Pichette: I'm sorry; I can't speak to the specific amounts provided through grants and contributions either through the Social Development Partnerships Program or the Homelessness Partnering Strategy to Food Bank Canada; I don't have that information with me today. I can take that question with me and provide the answer to the committee.
The Chair: That's not in your Main Estimates?
Ms. Pichette: I don't believe we have that level of precision to individual grant recipients.
The Chair: We'll look forward to receiving that.
What is the other half of your last question?
Senator Mockler: Yes. Thank you, chair.
When you do, could you also bring to the attention of the clerk for the committee what impacts it has on training, if any, especially in view of regions in Canada where we create more jobs than other parts of Canada? Do you have those statistics when it comes to training of specific needs from employers, whether it be in agriculture, forestry, mining, new technology, the auto sector, aerospace sector.
Mr. Séguin: Just so I understand the question, I guess it would be all transfer payments, grants, contributions —
Senator Mockler: Absolutely.
Mr. Séguin: — to third parties, including provinces, territories, that involves training?
Senator Mockler: The last time I was in your office you had all those big maps.
[Translation]
These were grids that indicated exactly where the money was going. We do not see them in the 2014-15 Main Estimates. So if we could obtain your grid to see exactly how that money was allocated, that would help us.
Mr. Séguin: For training?
Senator Mockler: For training.
Mr. Séguin: You are talking about transfer payments for training. We are going to try to gather up the information.
Senator Mockler: In all sectors.
Mr. Séguin: In all sectors.
[English]
The Chair: Without admitting that there's any such a chart on your wall.
Mr. Séguin: Yes. I'm not sure. I don't have a chart on my wall.
Senator Mockler: Some of your officials did.
Mr. Séguin: Probably. I don't know. I guess we'll do the best we can with what we've been asked, pull something together.
The Chair: I'm sure you will, and as promptly as you're able to do it as well. It's always helpful for us to have that so we can follow up on it. Thank you.
I have one more in round one.
[Translation]
Senator Hervieux-Payette: I have a very brief question. How are Canadian grants for full- and part-time students reported in the financial statements? Are they considered to be expenditures? I know that students borrow money from a bank and generally pay that back subsequently. Is there an interest rate involved?
We see that there is a $77 million increase. It is hard to know whether that is good or bad news. Perhaps the universities have increased their tuition fees and the students have to borrow more. Do you consider that an expenditure, since you do not provide the money to the students, or are they only loans?
Mr. Séguin: To answer that question specifically, these are loans that the students have to reimburse. And so they are not expenditures.
Senator Hervieux-Payette: In Quebec, the grants do not have to be reimbursed. That is why I am asking whether there are two programs and two amounts.
Mr. Séguin: Yes, there are several programs. If we are talking about the non-budgetary amount allocated to loans, it is clear that we are dealing with a loan. There are several programs within the learning program. You referred specifically to. . .
Senator Hervieux-Payette: Canadian study grants for full-time and part-time students under the Canada Student Financial Assistance Act.
I will go back to the text as you reported it. There appears to be a $77-million difference for 2014-15. I find this very generous, but is that sum added to the Canada student loans program?
Mr. Séguin: This is a grant for students whose families have trouble paying tuition. So we are talking about somewhat disadvantaged families. The grant can be added to the loan.
Senator Hervieux-Payette: What is the average amount per student?
Mr. Séguin: I do not have that information. I do not know if my colleague has it, but we can obtain it.
Senator Hervieux-Payette: If the increases are due in large part to the tuition fees of educational institutions, they will not be any richer. They will simply have the amount they need to register.
My next question is on the same topic, and you are going to try to enlighten me, since I am a faithful user of the program, and several of my friends are as well. Regarding the subsidies for registered education savings plans, how is it that as soon as the student begins to withdraw funds from her plan, if she has a summer job while she is in university — we begin to invest in that program when the child is small, and around 18 or 19 years of age, we begin to pay for postsecondary studies — she winds up having to pay income tax on the amounts that are withdrawn? The income tax was paid by the person who invested the money in that education savings plan, and then the withdrawn amount is taxed again, which is not proportional to the sums that you injected. If I contributed $2,000 a year for each child for several years, and if you paid your portion of $200 per thousand dollar amount, when the money is withdrawn the student is taxed. For students who study away from their city and have to pay for accommodation, I find this unfair. That you tax the $400 dollars in subsidies does not bother me, but the fact that you are taxing the $2,000 I invested does cause me a big problem. That aspect should be examined by the people who are here right now. The money we invest in that fund is being taxed twice.
Mr. Séguin: That is a very good question. I am going to invite David Swol to provide support on the details.
[English]
Mr. Swol: Thank you, chair. In response to the question, you're correct in terms of the taxation. The contributions that you make as a parent are already taxed and they go into the RESP. In terms of when the child withdraws from the RESP, it's in fact the subscriber or the parent, generally, who requests an educational assistance payment through your financial institution or whoever holds your RESP.
In requesting an education assistance payment, there are various portions, which includes government grants, perhaps provincial grants, for example, if you're in Alberta or Saskatchewan, and then there's interest on those grants.
So it is only the portion of the interest that's included in the recipient's or the student's tax portion. It is sheltered in a certain way for a particular time. When the educational assistance payments are withdrawn, the tax portion is relatively small because it's based on the interest on the grants and the interest on the contributions that are made. It's taxed in the student's hands. Generally they're at a lower tax rate than perhaps the subscriber would be, because at that time the students are working part-time or during the summer. But the portion they're taxed on is only a small portion of the total — what I would say — buckets of money within an RESP.
Senator Hervieux-Payette: That's not my experience. I have six grandchildren and all of them have a fund. I know that we have to add, so let's say they take $5,000 per semester. In a year it's $10,000 because we pay in January, we pay in September and we have to supply the evidence. So it's $10,000 to start with and then, of course, if they earned $6,000, $7,000, $8,000 during the summer. But the $10,000 seems to be tax in the hands of the students. So when they make their income tax report, they are taxed on $18,000 rather than, as you say, $8,000 they have earned themselves as a salary, plus the interest rate and the amount that we have withdrawn from the funds. I would like to have some clarification on that. I hope the people at Revenue Canada understand the program as well as you. I would not oppose that plus value — that is, any investment we make is taxable — but what parents are contributing, and in my case the grandparent, should not be taxed because I have already paid taxes.
Mr. Swol: Exactly.
Senator Hervieux-Payette: What I have seen for a number of years, because I now have three university graduates for the first level, is that they were taxed on the amount of money withdrawn. Now we take that into consideration when they withdraw money from the fund. We withdraw less money so that the tax system will not take part of what we have saved for them.
The Chair: Senator Hervieux-Payette, you are giving evidence that is contrary to the evidence that Mr. Swol has given us.
Senator Hervieux-Payette: Yes.
The Chair: We don't want to get you in a position of giving evidence here, so I think I will take that as a question to clarify what is taxable. You said interest. Is it a capital gain as well on that portion? Maybe you could help us out with that, Mr. Swol. You have made your statement; it is on the record. However, I don't think we will get any further by the senator recalling her recollections versus those of Mr. Swol.
Senator Hervieux-Payette: Just clarify in writing what is taxable. Is it the $200 that you give; the interest rates?
Mr. Swol: We would be happy to do that.
The Chair: Thank you.
That concludes round one. Before we go into round two, I have a couple of points of clarification, Mr. Larkin, from the statement that you gave us this morning.
For your first priority, you indicate that your department's role is in managing the return to a balanced budget. We congratulate you on that management. You then said you have four priorities. One of them is to deal and manage the federal debt. We had a discussion with Mr. Leswick about the total amount of the accumulated debt that we now have, which is $660 billion, and the fact that 11 per cent of our budget goes toward servicing that.
Can you confirm for us that that doesn't include any potential liabilities with respect to pensions and the interest that may be calculated in relation thereto and that it is just over expenditures on a year-to-year basis, accumulated to $660 billion?
Mr. Larkin: I have to bring Mr. Leswick back to address that detail on the federal debt.
Mr. Leswick: Thank you for the question, chair. Total liabilities of the Government of Canada, federal liabilities, are in the order of magnitude of $1 trillion. Of that $1 trillion, you can decompose that into the $660 billion of market debt — this is the debt held in bonds, T-bills and other retail debt — an additional roughly $150 billion in public service pension plan-related liability obligations; and the remaining components that are in the magnitude of $75 million, which is the employee benefits. That is, VAC programs, other RCMP member programs, and health and dental liabilities for pensioners.
The Chair: Are you anticipating that there would be that much due and owing in a year? It is the pension liability which is a potential liability as opposed to market debt; that is, an amount that has been borrowed and we have to pay it back.
Mr. Leswick: The $1 trillion that I quoted is our balance sheet liability. It is the current value of accrued obligations that the federal government holds right now on its balance sheet.
The Chair: For this year, for the coming year?
Mr. Leswick: Well, it's more of a stock. Going forward on an annual basis, it might have to meet cash requirements to dispose of those liabilities, but certainly not $1 trillion in any one year. It might have pension obligations to pay out and coupon payments to service that debt. That is more of the flow on an annual basis, but currently the stock liability is $1 trillion divided between those three elements that I have identified.
The Chair: You can stay there, if you would. Regarding Mr. Larkin's statement on the second page, there were a couple of points that I didn't understand that relate to this potential liability with respect to pensions, namely, the $0.583 billion decrease in other interest costs — the word ''other'' is there — due to decrease in the long-term bond rate; interest on public sector pension obligations. Can you expand on that? You might have been doing that with your last answer, but could you expand on that so we can understand it?
Mr. Leswick: Absolutely, chair. I will try to bridge the two answers. The government currently holds about $100 billion in future benefit obligations related to public sector pension plans. Those future benefits are paid over a long horizon. Each stream of payments is discounted to their current present value and that present value is what equals the $150 billion. As that present value increases annually to ultimately reach its terminal value — that is, its future year value — it increases at a rate of interest, effectively a rate matching the discount rate that we discounted the future value of these obligations.
Every year, as the obligation arose, that increment is what we charged to other interest costs. It is the interest costs associated with those public sector pension plans.
The Chair: You are predicting interest in the future. Do you have actuarial considerations going in here from a pension point of view; that is, how long someone is likely to live?
Mr. Leswick: Absolutely. We work directly with the Office of the Chief Actuary to do this present value calculation of our future year benefit obligations. That is the number that we put into the Public Accounts verified by the Chief Actuary. That is the $150 billion. Obviously that number is calculated based on life expectancy and on inflation, as these pensions are indexed, but then it grows. Just like we discounted the future value to the present value, that discounted rate presently matches the interest rate. As the interest rate goes down, our expense charges on an annual basis go down as well, which is why there is a decrease in the interest rate.
The Chair: Do we have to go through this kind of exercise for accounting purposes because we haven't capitalized and we don't have a support other than general revenue for all these pension programs?
Mr. Leswick: You are correct. For these particular obligations, this is roughly $150 billion related to our pre-2000 public sector pension obligations. As of the year 2000, on a go-forward basis, the government created an asset pool and funded these plans. They still accrue interest, but those are offset by the proceeds or returns on market returns on the asset pool. Those effective interest rates are effectively zero, but we accrue interest on this $150 billion in pre-2000 obligations.
The Chair: That is helpful. I will take the opportunity to read the transcript a few times.
Mr. Leswick: Absolutely. I rehearse this in the mirror every once in a while just to make sure I understand what I am saying to myself.
The Chair: The second decrease was $0.254 billion — and, Mr. Larkin, I am going to your statement again — in interest on unmatured debt largely due to assets maturing under the Insured Mortgage Purchase Program. Is this a CMHC-type issue that I should be asking them about tomorrow?
Mr. Larkin: The way I understand it is the department provided funding to CMHC, who then supported mortgages through banks. Those mortgages are now coming due. That is why we are seeing a decrease which is being returned back to the department.
Mr. Leswick: Effectively, this was in response to the global financial crisis where we were effectively buying insured mortgages off the balance sheets of banks to provide them with more liquidity so they could lend to Canadian individuals and enterprises. We had to buy those assets, but we had to raise debt to buy them. So we raised our debt and we bought the assets. We still hold the assets, so it wasn't like we lost money; we didn't expense them. However, we did have to go and raise debt in order to purchase them.
As these assets are now being sold back and are maturing, we are realizing the proceeds on the assets. Thus, we don't have to borrow as much cash because we're receiving cash revenues from the proceeds on these insured mortgage pools.
The Chair: Regarding that debt to finance, that extraordinary investment, at the time we were buying up all those good assets from the banks which were guaranteed by us. At that time, was there a separate pot of money that we borrowed which is accounted for separate from the overall debt of $1 trillion?
Mr. Leswick: No, sir. Effectively, we had to borrow on capital markets to fund the purchase of these assets. We know exactly how much we borrowed — over $30 billion — but it was held as ''unmatured debt.''
The Chair: It is kept separate and accounted for separately, $30 billion. As the bonds, the loans and the mortgages come due and you get some money out of this, then that goes to the $30 billion and reduces that separate from the $660 billion that we are trying to take down?
Mr. Leswick: I guess asset liability management, in terms of our overall Debt Management Strategy, is probably a bit higher level than that. We don't exactly match one for one. If we are buying a mortgage with a maturity of five years, we are not raising debt to exactly match that. It is done more on an enterprise-wide basis. However, we do know exactly how much we borrowed to fund this program; we know when these assets are maturing; and we know the cash proceeds that we will avail of when they do mature.
The Chair: That is helpful. Is there anything flowing from that line of questioning?
Senator Hervieux-Payette: Percentage wise, what is left from the debt, that $30 billion as you have said but we have heard about other figures. Is it separated from the regular mortgage role of CMHC? The 2008 crisis is a special item and then there is the regular operation of CMHC. Are they two separate accounts in the federal government? I want to know the exact percentage that is left which we have to continue to get rid of.
Mr. Leswick: Absolutely it's separated from the regular operations of CMHC. There is no question there. Because of your requirement for an exact number, I don't know off the top of my head; I know in the order of magnitude. The program is maturing and it is in the area of $12 billion that is still outstanding, but I will get you the exact number.
Senator Hervieux-Payette: And the time frame, whenever we will have completed it.
Mr. Leswick: Okay.
[Translation]
Senator Bellemare: I have a few questions concerning the debt as a whole. This question is not related to what we were talking about before. You say that the public debt is around $600 billion. I would like you to give me the difference, in percentage terms, between the external debt and the internal debt. What is the percentage of the debt? Is the proportion on the increase, if we consider the foreign debt as compared to the domestic debt?
Does the Bank of Canada hold a percentage of the debt? Is it held by individuals, or are parts of the debt held by the Bank of Canada?
[English]
Mr. Leswick: If I could answer in English, it is 26 per cent. Of the $660 billion, $175 billion is held by foreign ownership, so not domestically held; and growing because of the attractiveness of the Government of Canada security and because of our credit quality. We are one of only a handful of countries with a Triple-A stable rating across all the major credit rating agencies. The Government of Canada securities are obviously in demand. That is why you see that foreign ownership of Canadian paper growing and currently at 26 per cent.
[Translation]
Senator Bellemare: Does the Bank of Canada hold a percentage of the domestic debt? From the perspective of managing the debt, do individuals hold it, or is there a part that is held by the Bank of Canada?
[English]
Mr. Leswick: The $660 billion that I quoted would not be held by the Bank of Canada, so it would not be consolidated in any Government of Canada holding. I am sure the Bank of Canada holds different asset classes including Government of Canada securities, but I don't believe that that $660 billion is held by the bank.
[Translation]
Senator Bellemare: In the United States there is a link between monetary policy and financial policy in that regard. For instance, the Federal Reserve makes deposits in the government bank.
[English]
Mr. Leswick: To be clear on my first answer, indeed the Bank of Canada would hold Government of Canada securities. It holds them in both short-term and long-term maturities in order to buy and sell those to affect monetary policy. Clearly, they would hold it. The size of the balance sheet is incomparable to what you would see in the United States vis-à-vis their quantitative using program.
Is there a link between fiscal and monetary policy? Indeed there is. What the bank does to ensure stable inflation and reasonable and sustainable economic growth has a direct impact on fiscal revenues and the overall health of the Canadian economy, but it is probably more complicated than that. Obviously, we work closely with the Bank of Canada as it affects monetary policy.
[Translation]
Senator Bellemare: So, in summary, the figures you have given us on the debt do not include any amount of that debt held by the Bank of Canada. Other types of operations apply?
[English]
Mr. Leswick: I will go back to my first answer: The Bank of Canada would hold Government of Canada securities to affect its monetary policy so that it can control money supply held by the commercial banks. However, again, they are not engaged in any sort of large-scale program.
[Translation]
Senator Bellemare: May I ask another question?
The Chair: Go ahead, but there are only 10 minutes left and I have four people on my list.
Senator Bellemare: My last question is about the priority set by the Department of Finance with regard to employment and prosperity. The Department of Finance, although one associates it with the budget, remains a department that is a bit obscure for ordinary mortals. When we know its priorities, we want to know how they actually materialize in reality. The first priority concerns the balanced budget, and the budget testifies to that. The second priority is growth and prosperity. How do you measure whether or not that prosperity has been attained? Can you say, consequently, whether you have an expansionist, neutral or deflationist fiscal policy? Are there components or indicators linked to your second broad priority?
[English]
Mr. Leswick: I am at a difficulty to answer because it is such a broad range of questioning.
The government's and everyone's objective is to return to balanced budgets, ensure a sustainable tax system, low- cost funding and low interest rates, but in terms of how it measures that, the larger overall jobs and growth and the economic agenda, we do so with our growth indicators, both in real and in nominal terms; employment growth. We often tout our employment growth over the recovery, effectively since the trial in 2009 and the job creation record, and in equitable growth. That is how the government is performing in terms of its income distribution, GDP per capita, across the income quartiles. It also extends beyond that to productivity growth and our fiscal forecast of how we are going to manage an aging population going forward. I can only say it is a broad range, a dashboard of indicators which we are reviewing on a daily basis.
Senator Wells: I want to go back to a question for Mr. Séguin which a follow up on Senator Ringuette's line of questions in the first round with respect to personnel in the Service Canada offices.
From what I understand, there is a new model of service delivery from utilizing the Service Canada offices. They are designed to deliver service, not employees, but I understand that in Veterans Affairs some people are being housed within that model now. First, is that so? Second, are those costs associated with Service Canada or are they associated with Veterans Affairs Canada?
Mr. Séguin: The programs change so often, but I believe so. I believe that is the case. I will ask one of my Service Canada colleagues, Ron Meighan, to come up and talk about that. We do provide services already for veterans. There has been a shift in that and I want to make sure I get it right.
Ron Meighan, Director General, Benefits Processing, Service Canada, Employment and Social Development Canada: I do not have specific data around Veterans Affairs and their services here, but we do know that part of Service Canada's mandate is to look at providing a service delivery network on behalf of all departments, being able to provide information and have that front line network available to citizens at all points in the country.
So in terms of providing informational or tier one-type services for Veterans Affairs, yes, they are integrated into our network. But as for whether Veterans Affairs employees are housed in our network, I don't have that information.
Senator Wells: Thank you. Specifically, my question was if the costs of that service provision would be assigned — because it is a budget question — to Veterans Affairs or to Service Canada.
Mr. Meighan: Again, that is something I am not familiar with. We would have to follow up and get back to you with the answer.
Mr. Séguin: If the design is within Service Canada, it would be Service Canada. The question would be whether we received funding to provide those increases in services. We have arrangements with departments where we cost recover a portion. We did have that with Veterans Affairs. I will check the information and we can get back to you with what that involves. I am fairly certain we have that arrangement currently.
Senator Wells: Thank you.
[Translation]
Senator Rivard: My question is on the same topic as that of Senator Hervieux-Payette, that is to say the taxation of student grants or loans. Even if ideally these should not be taxable, a university student receives around $5,000 for his or her four years of study. If he works part-time he has an income of about $10,000. All in all, the student must declare a $15,000 income for tax purposes. If we take the basic personal exemption into account, in Quebec and federally, this represents about $10,000. Also, given the decrease in the cost of tuition, it must be acknowledged that the tax is very minimal. But I also agree that that amount should not be taxable. This is a good program, one that allows students to borrow with peace of mind while they are studying.
The Chair: Did you want to make a comment?
Mr. Séguin: We are going to provide all of the information David Swol referred to with regard to taxation. We are going to give you some further details on that.
The Chair: Senator Ringuette from New Brunswick.
Senator Ringuette: First, I would like to make a comment regarding Service Canada and the frontline information provided to veterans. Today, there are 27 executives present here. On the face of it, at least 30 to 40 per cent of our questions have not been answered. You were not able to provide us with direct and accurate information. In fact, you are going to have to come back with the answers.
How can a simple Service Canada employee inform and direct Canadian citizens on employment insurance, the pension fund, disability benefits and veterans' issues? These public servants are not frontline employees and you are asking them to do the impossible. Indirectly, this lack of information has repercussions on the whole of the Canadian population. This is mission impossible from the perspective of human resources.
I have another question about human resources. The appeals tribunal that deals with cases involving programs such as employment insurance, the Canada Pension Plan and disability benefits has had an 80 per cent rejection rate since the new system was put in place. I have never seen such a high level of rejections. How can you justify such a radical change in the disallowance statistics?
The Chair: Mr. Séguin, could you send us a written explanation?
Mr. Séguin: I cannot answer the first question, as it was a statement. Regarding the appeals tribunal, we can provide you with statistics on submissions that were accepted or rejected.
Senator Ringuette: I have the statistics in hand. How can you justify such a draconian change?
Mr. Séguin: You mean how can we explain the difference?
[English]
The Chair: We look forward to receiving all of your undertakings and on behalf of the Standing Senate Committee on National Finance, we would like to thank you very much for being here and to all members of your support team that have come along as well.
Colleagues, we will be meeting at our usual time tomorrow with CMHC.
(The committee adjourned.)