Proceedings of the Standing Senate Committee on
National Finance
Issue 30 - Evidence - April 21, 2015
OTTAWA, Tuesday, April 21, 2015
The Standing Senate Committee on National Finance met this day, at 9:30 a.m., to consider the expenditures set out in the main estimates for the fiscal year ending March 31, 2016.
Senator Joseph A. Day (Chair) in the chair.
[Translation]
The Chair: Honourable senators, this morning, we are continuing our study of the 2015-16 Main Estimates.
[English]
From Employment and Social Development Canada we welcome Alain Séguin, who is the Chief Financial Officer; and Michel Racine, who is the Senior Director, Planning and Expenditure Management.
We also have other ESDC officials here in the audience who will be called to the table if a question prompts their expertise to come forward. They will be introduced at that time. Thank you all for being here.
From National Defence, we welcome Claude Rochette, Assistant Deputy Minister and Chief Financial Officer, Finance and Corporate Services; Patrick Finn, Assistant Deputy Minister, Materiel Group, who is sometimes here in uniform but not today; Major-General John Madower, Chief of Program; and Jaime Pitfield, Assistant Deputy Minister, Infrastructure and Environment.
I understand that each department has, as usual, some brief introductory remarks. We have our estimates in front of us to go into detail if we wish, and you have the right people here to go into that detail. I would propose that we start with ESDC and then move to National Defence. Then we'll proceed with question and answer.
Alain P. Séguin, Chief Financial Officer, Employment and Social Development Canada: Thank you, Mr. Chair and members of the committee. I am pleased to appear before you in my capacity as the Chief Financial Officer for the Department of Employment and Social Development.
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. Our department is responsible for delivering high-quality services that are timely and accessible, through Service Canada.
[Translation]
We also have the 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 Employment and Social Development Canada's portion of the 2015-16 Main Estimates tabled on February 24, 2015.
[English]
The 2015-16 Main Estimates for ESDC amount to $54.3 billion. Of this, $51.6 billion, or more than 95 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]
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 Old Age Security 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 2010 and 2017, there will be an increase of more than one million beneficiaries for both the Canada Pension Plan and the Old Age Security Program.
[English]
In addition to statutory items, the 2015-16 Main Estimates includes voted appropriations, which consist of two votes for ESDC: Vote 1, the operating expenditures, and vote 5, grants and contributions.
In relation to vote 1, operating expenditures, the department plans to spend $561 million in 2015-16, a decrease of $10 million from the 2014-15 Main Estimates of $571 million.
[Translation]
The decrease of $10 million includes a number of changes, and is mainly attributable to the following decreases: the planned sunsetting of programs; and transfers to other government departments.
[English]
As for vote 5, grants and contributions, the 2015-16 Main Estimates level is $1.713 billion, an increase of $485 million from the 2014-15 Main Estimates of $1.228 billion. This increase is mainly due to the inclusion of funding for the Canada Job Fund agreements. In 2014-15, this funding was included in Supplementary Estimates (A) and (B). The total amount of $500 million for the Canada Job Fund agreements is included in the 2015-16 Main Estimates.
[Translation]
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.
[English]
You will also note that Employment Insurance benefits and Canada Pension Plan benefits are excluded from the department's Main Estimates. The Employment Insurance Operating Account and the Canada Pension Plan Account are two specified purpose accounts. The Employment Insurance Operating Account is included in the consolidated data of the Government of Canada. The Canada Pension Plan 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, the RPP, which was tabled on March 31, 2015.
[Translation]
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. Mr. Rochette, go ahead.
[English]
Claude Rochette, Assistant Deputy Minister and Chief Financial Officer, Finance and Corporate Services, National Defence: Thank you very much, Mr. Chair and senators, for the invitation to present the Department of National Defence's Main Estimates for the fiscal year 2015-16.
Today I am pleased to be joined by my colleagues who will assist me in answering any questions you may have.
[Translation]
I would like to highlight some key points for the committee regarding the main estimates before you.
The National Defence 2015-16 Main Estimates are $18.9 billion, an increase in net authorities of $280.5 million or approximately a 1.5 per cent increase over the 2014-15 Main Estimates.
[English]
Of this, as highlighted in the estimates documents, the increase is primarily due to a $500 million increase in funding for the sustainment and operational readiness of the Canadian Armed Forces in support of the ongoing implementation of the Canada First Defence Strategy; a $354 million increase associated with the annual escalator on defence spending, as announced in Budget 2008, which provides long-term and predictable funding; and finally, a $61 million increase related to the ongoing efforts for the Federal Contaminated Sites Action Plan.
[Translation]
These increases are partially offset by decreased capital funding for major capital equipment and infrastructure projects in the amount of $709.2 million, with the largest decreases being related to the family of land combat vehicles and the medium-heavy lift helicopter projects. This decrease will better align financial resources with current project acquisition timelines. This means funding is being pushed forward into future years to pay for deliverables when they will be received.
The remaining $74.7-million increase is related to minor changes in the funding of multiple ongoing programs.
[English]
Turning to operations, Mr. Chair, the Canadian Armed Forces are involved in international coalition efforts overseas to address sources of instability and threats to international security. More specifically, in Iraq, Canada is contributing to the coalition fight against the Islamic State of Iraq and Syria. As you know, the House of Commons has approved the government's plan for the department and the Canadian Armed Forces to extend this mission by 12 months and expand its scope to include air strike targets located in Syria.
It is important to note that these estimates before you do not include incremental funding for this operation. But, as expenditures occur, the department will seek further funds via the supplementary estimates process later this year.
[Translation]
Mr. Chair, the Department of National Defence and the Canadian Armed Forces continue to maintain strong fiscal responsibility and careful stewardship of resources in respect of the fiscal environment in which we are operating.
[English]
As we begin the new fiscal year, the department will continue to monitor our fiscal requirements to ensure value for taxpayers' money.
Thank you, Mr. Chair and senators. We are pleased to hear the committee's thoughts and to answer any questions you may have.
The Chair: Thank you, Mr. Rochette. Before I go to honourable senators on my list, you mentioned the increase associated with the annual escalator. Can you refresh our memories? What is the percentage annual escalator that was approved in the 2008 budget and continues each year?
Mr. Rochette: Prior to 2008, we had an escalator of 1.5 per cent. In 2008, it was increased to 2 per cent. This year, it's roughly $354 million.
The Chair: And that's 2 per cent of operating?
Mr. Rochette: It's 2 per cent of the expenses in 2008 for voted funds.
The Chair: All voted funds.
Mr. Rochette: All voted funds, yes, sir.
The Chair: Including supplementary?
Mr. Rochette: Yes, sir.
[Translation]
Senator Bellemare: My questions are for Mr. Séguin from Employment and Social Development Canada. We see that $2.4 billion is set aside for the learning program in 2015-16. We can be happy about that because it is a good way to provide training tailored to labour market needs.
I would like to get a breakdown by province. Does Quebec use the program? If so, to what extent?
Mr. Séguin: I do not have a breakdown by province, but we can certainly get that for you. The amount includes student loans, contributions, student grants, and so on. All that is included in the program. So we could provide you with more details.
Senator Bellemare: What proportion is set aside for learning in a company setting as opposed to institutional learning? I know that apprentices receive grants, but what about institutional training?
My other question is about the state of labour market agreements — namely the $500-million agreement concluded recently. That agreement is not included in grants or contributions, but it is included in other transfers.
Some agreements in recent years were concluded for the first time in 2007 or 2008, I think. Why does that amount appear under the other transfer payments heading?
Mr. Séguin: That's where it has always appeared.
Senator Bellemare: It is a funding agreement that has to do with public funds and not employment insurance. That is why the amount appears here, while all other labour market agreements funded through employment insurance do not appear here, the ones in the $2-billion envelope.
So the amount has always been presented this way?
Mr. Séguin: Those are not really grants or contributions. They are rather transfers to the provinces. So they appear under the "other transfer payments" heading.
Senator Bellemare: Was there no reason to put them under statutory expenditures?
Mr. Séguin: Do you mean legislative statutory amounts?
Senator Bellemare: I was surprised to see that the amount did not appear under transfer programs.
Mr. Séguin: Those are negotiated agreements.
Michel Racine, Senior Director, Planning and Expenditure Management, Employment and Social Development Canada: It is not statutory.
Mr. Séguin: It is not a statutory calculation.
Senator Bellemare: Thank you very much. I was wondering whether Bill C-51 had an impact on your operations.
Major-General John Madower, Chief of Program, National Defence: I did not understand the question, Senator Bellemare.
Senator Bellemare: I was wondering whether Bill C-51 had an impact on your department? Not to your knowledge?
Maj.-Gen. Madower: No.
[English]
The Chair: Bill C-51 hasn't been passed yet, but that question was in anticipation. I anticipate that you will, sometime along the way, determine likely impact costs of the new provisions in that particular piece of legislation. Perhaps if you do go through that exercise, it could be helpful to the committee if you could provide us with a copy of any analysis done.
[Translation]
Maj.-Gen. Madower: Certainly, Mr. Chair.
Senator Chaput: Thank you, Mr. Chair. My question is for Mr. Séguin, and it's about one of your programs listed under the grants heading — the literacy program. On page 108 of your document, under grants to not-for-profit organizations — one of which is allocated to the literacy program — we see that the amount of actual expenditures in 2013-14 is minimal compared with the 2014-15 Main Estimates. Can you tell me what was planned in the 2013-14 Main Estimates compared with what was actually spent? Can you also tell me, based on the main estimates, what amount will have been spent in 2014-15 on literacy programs?
Mr. Séguin: I do not yet have the data for 2014-15. We are currently closing the books. We just finished up about two or three weeks ago.
In 2013-14, we spent $14.9 million out of $21.5 million. So $6.6 million in funding was lost. I think that the appropriations simply lapsed in 2013-14.
Senator Chaput: If I understand correctly, you spent less than what was planned?
Mr. Séguin: Exactly.
Senator Chaput: Why is that happening? Some groups are saying that, at the beginning of the fiscal year, when new forms are ready, and they have access to them and complete their request, it is practically too late. They do not receive the funding they should because they cannot submit their request at the beginning of the fiscal year. Is that right?
Mr. Séguin: I do not have the program details for 2013-14, but some changes have been made to the way requests are submitted.
Senator Chaput: Are we still talking about literacy?
Mr. Séguin: Yes. As far as I can see, there was a drop in the number of proposals because a change was made to the way requests are submitted. However, the program as such — I am accompanied by Paul Thompson, who may be able to shed some light on the issue.
Senator Chaput: Regarding the funding that was allocated and the funding that was not allocated for lack of time?
Mr. Séguin: Regarding the changes in the method.
Paul Thompson, Senior Assistant Deputy Minister, Skills and Employment Branch, Employment and Social Development Canada: I can add a few details. The program was restructured, the core funding for those organizations was cut, and focus was placed on workplace projects. That was the restructuring. We just launched a call for concepts, and we are expecting a good response.
Senator Chaput: How much time is allowed for that call you just launched? What fiscal year is it part of?
Mr. Thompson: From January to March. The call was open during that period.
Senator Chaput: Is it for the fiscal year ending in March?
Mr. Thompson: It is for this year.
Senator Chaput: So participants have to prepare their project request and submit it to you by the end of March? Are you currently going through the process?
Mr. Thompson: We are reviewing the proposals in order to implement the project during this fiscal year.
Senator Chaput: How much money is set aside annually for the literacy programs under that restructuring, that new way to provide funding through projects? What amount is set aside per year?
Mr. Séguin: For 2015-16 and subsequent years, the amount is $21.5 million annually.
Senator Chaput: How does that compare with previous years?
Mr. Séguin: There was a small decrease compared with previous years. The amount is about $21.5 million, $22 million. It varies slightly, but the base amount is about $21.5 million.
Senator Chaput: How many literacy groups have access to that funding? Illiteracy is still so high in Canada — affecting 40 per cent to 50 per cent of the population. That is why I am asking you these questions. How many groups have access to the funding and projects, and can submit requests?
Mr. Thompson: We could provide you with the list of groups funded through that program. I do not have the details with me today, unfortunately.
Senator Chaput: Could you provide them to the committee?
Mr. Thompson: Yes.
Senator Chaput: Would it be possible to get the details regarding the literacy groups in general and those who deal with francophones? Because their funding is often provided through the roadmap. I would like to have the list of groups who asked for funding, and of those who received some.
Mr. Thompson: Yes, we can follow up.
Senator Chaput: Thank you.
The Chair: Could you send the information to our clerk, please? We will distribute it to everyone. Thank you very much.
[English]
Senator L. Smith: A question for DND: Mr. Finn and General, I guess a year ago, in a similar meeting going over plans, you were kind enough to share some of the strategic plans of DND with respect to capital, shipbuilding and weapons. I just wondered: Where are you with your program in terms of your capital expenditure program? Could you give us an update? Is there any influence that these programs will have, either in reductions or cost escalations, within the budget?
Patrick Finn, Assistant Deputy Minister, Materiel Group, National Defence: Senator, thank you very much for the question. I'll start perhaps by giving you a little bit of a recap on the program, perhaps in the broader sense of the impact on the budget. I'll turn to my colleague and ask him to give you the overall impact.
We continue to move out, again based on the policy document, the Canada First Defence Strategy, which remains in place, which explains the roles and missions of the Canadian Armed Forces, and we continue to look to recapitalize the military accordingly.
We continue to move forward in the context of our air fleets, many in delivery. In fact, we augmented our strategic airlift last year with the acquisition of a fifth C-17 aircraft. The Hercules aircraft are delivered. Our medium- to heavy- lift helicopters are delivered. We continue to do the upgrades and improvements to other aircraft, the Aurora aircraft, which is actually serving very effectively right now on operations, and our allies have given us very positive comments on what they've been able to deliver as far as intelligence. We are on the cusp of delivering maritime helicopters after what has been a difficult project, and, this summer, we will deliver the first of the six aircraft, which will have the initial capability. Many of the aircraft are already in Shearwater and will be delivering that capability. On the air side, we're very advanced. We have a few more projects to come, but we've moved out on all of that work.
On the army side, we mentioned that one of the lines was reductions around the fleet of land combat vehicles. Again, there have been a number of upgrades there — upgraded tanks, which have been delivered, upgrades to our light armoured vehicles, which also are well into delivery. We have had some issues with one of our projects, called the Tactical Armoured Patrol Vehicle, where the vendor has not met our standards. As a result, they've taken responsibility for it and gone back to the drawing board on some of the systems. We are always adamant that we will not accept equipment that is not ready for operations for the Canadian Armed Forces.
Broadly speaking, on the army side as well, with the exception of that Tactical Armoured Patrol Vehicle, we are well advanced in delivering the program.
If I go to the navy, a lot of work, and, again, that is now really setting off in the new construction. We continue to modernize the frigates. We're well into delivery there. More than two thirds of the ships have now been returned post- modernization.
Senator L. Smith: Where does that take you?
Mr. Finn: Modernization of the frigates, which, of course, were first built mostly in St. John, New Brunswick, took place in Halifax and Victoria, so basically in their home port. We moved the ships from the naval yard to the commercial yards to do the work, and they came back out. In fact, it was a collaborative arrangement between the navy and our maintenance personnel and the shipyards. There was a lot of detail to it, but we really proved to be very effective in our ability to work together, both our workforce and the commercial workforce.
Senator L. Smith: Are you on time and on budget?
Mr. Finn: We are on time and on budget in modernizing the frigates. In fact, the first fully modernized frigate has deployed again to the Middle East operations, and the follow-on ones will be all modernized. The last of the frigates to be modernized will enter the work period this summer. As of the summer of 2015, we will no longer have any of the legacy configuration.
We've continued to modernize the submarines. In fact, I was told this morning that HMCS Chicoutimi, the submarine that was damaged in the fire and explosion, has now been returned to service to the Royal Canadian Navy, and they are using them quite effectively. Now, we're really getting into the new construction. We signed a contract, late last year, with, again, Irving Shipbuilding industries in Halifax for the construction of the Arctic offshore patrol ships. We will be starting full production on that in September. That design is virtually complete, material ordered, well under way in what is a brand new, world-class shipyard.
We are working on the West Coast for the replacement of our replenishment ships for the navy, again with a brand new facility in Vancouver, the Seaspan yard. That work is under way, still in design phase, but we are equally ordering material for it.
We have had to retire the previous generation of supply ships early, one because of the unfortunate fire that occurred off of Hawaii and the other for material reasons.
We are looking at options right now for an interim capability for replenishment ships for the navy, and of course our next generation of surface combatants, which we're about a decade away from bringing into service, will ultimately replace the frigates that we have modernized.
Now is the time to get into the detailed design and all of the work, and we are in active discussion with industry at large and Irving Shipbuilding, which was selected under the shipbuilding strategy to be our supplier for the combat ships. That work is all under way.
Within the overall program that I oversee on an annual basis, we're able to move quite effectively in what is a $6 billion a year program in equipment and materials, and about 85 per cent of that flows through a number of contracts. We have well over 10,000 contracts that we manage. Probably about 15 per cent we wind up re-profiling and reworking with our colleagues for a number of reasons — vendor performance, overestimation of costs, our ability to schedule — to better manage them. We certainly remain focused on delivering the capability the Canadian Armed Forces need. I would say in the majority, we're well on track.
Senator L. Smith: If 15 percent of the projects are reprofiled, does that delay delivery time? What does it mean in terms of your ultimate delivery time?
Mr. Finn: Thank you for the question. It is 15 percent of the money, not 15 per cent of the projects. It is really our largest and most complex projects where we wind up having more work to do.
The medium to small projects for the most part move out very effectively. But a lot of it could be not so much impact on the projects. For example, in the design contract we had with Irving Shipbuilding, as a result of lessons we learned internationally on terms and conditions and on how we could best situate those contracts for value for money, we built in a cost reimbursable incentive fee approach. As a result of that, the contract came in at about $30 million under budget. That was money returned to us.
We would have profiled that money into a given year to say there is a potential expenditure against that contract of $30 million that did not occur. We have to future forecast exchange rates on international contracts. What's going to happen? Are we going to underestimate because of a sudden drop in the Canadian dollar or find it strengthening, putting us in a better position?
I mentioned the tactical armoured patrol vehicle. That was a $300 million reprofiling by virtue of issues we found in the detail testing. We tested the vehicle for selection. We have learned over time to take the vehicle out and put thousands of kilometres on it, which is probably what many of us would like when buying a car, if we could drive it for 30 to 90 days to see if we like it first. That's what we do with a lot of our vehicle projects. As a result, we found issues and the supplier stepped up and is making all the corrections, but we have said we will not accept any of those vehicles.
Although that triggered about a one-year delay, it will have a very positive effect long range. We didn't want to have a bunch of problem vehicles that we were then trying to right under warranty. We wanted to make sure the design was completely correct before we took it on.
I would say to you from a program perspective, there can be some slippage in projects that has an impact, but a lot of it can also be us trying to forecast what the industry will be able to deliver. So we may forecast that once in a contract they will be able to deliver an aircraft in two years. As we get into contract, we get into more and more detail, and they say it will be a three-year process. We have to reprofile the money accordingly and then we're turning to my colleague and saying, "Please help us by rebalancing to make sure the profile of the money suits the program."
Senator L. Smith: For instance, with the Saint John shipyard, are they up to the level of production that you anticipated with the contracts that have been awarded so that the benefit to the local economy is actually taking place?
Mr. Finn: The Irving shipyard is in Halifax now, so it's not the Saint John yard.
Senator L. Smith: Sorry about that. I was trying to help the guys from New Brunswick. How many people are from New Brunswick here?
Mr. Finn: Senator, both the yard in Halifax and the yard in Vancouver have completely recapitalized to the tune of almost $300 million each. They are world-class facilities for a medium-sized yard, extremely impressive in the work they have done to completely modernize the facility.
With the yard on the East Coast, as they finished modernizing our frigates and moved to building mid-shore patrol vessels for the Canadian Coast Guard, they tore down the whole yard. It's really impressive what they have done to put in the whole assembly line and the facility to do world-class modern construction, to our benefit. That is why we created the strategy for a 30-plus year relationship, to benefit from the learning curves that occur because of the facility, as well as the workforce.
As I like to describe it, we're building through the Arctic off-shore patrol ships into the next generation, the combatants, which will be the most complex ships we will have to build.
The Chair: Could you clarify the vehicle that you were talking about? Is this an armoured reconnaissance vehicle like the LAV4 type?
Mr. Finn: Thank you again, senator, for the question. It's called the tactical armoured patrol vehicle, a smaller wheeled reconnaissance vehicle. It is not the light armoured vehicle, which is the mainstay of the Canadian Army. That vehicle is being upgraded and over 200 of them have been delivered back to us. So the tactical armoured patrol vehicle replaces some of our reconnaissance vehicles and a few other things.
Again, it's through the contract we built that said, "We want to do extensive reliability testing before we're prepared to accept." That processed revealed some issues in a couple of the systems, which the supplier is completely redesigning, pulling back together. In fact, we're re-testing as we speak. We're highly optimistic about getting back into delivery in early 2016.
The Chair: Will that tactical armoured patrol vehicle replace any of the vehicles that you currently have?
Mr. Finn: I believe our reconnaissance vehicle is the Coyote. I'm not 100 per cent sure. It will replace the Coyote, some of which have been disposed. We have reduced the amount of maintenance, knowing we will be back into delivery in about 10 months.
The Chair: I believe I read in the local news that the contract for the armoured personnel vehicle to transport personnel safely, which is smaller than a tank, was cancelled; is that correct?
Mr. Finn: There was a contract for a vehicle called the close combat vehicle. Under the family of land combat vehicles, there was everything from a tank to a close combat vehicle, to the light armoured vehicle, to the tactical armoured patrol vehicle, all of which lie within a spectrum of how much protection and capability they provide.
The light armoured vehicle is the one we used in Afghanistan quite extensively. It did suffer a number of IED hits. We've put a lot of effort into upgrading that vehicle. It's being done in Canada at General Dynamics Land Systems. When we started to receive the new light armoured vehicle and put it through its tests, we determined that the performance was actually better than expected. As a result, when we looked at the number of capabilities and different vehicles we need to train on and maintain, and what it could provide, we opted to focus on the light armoured vehicle as the next step down from the tank.
I would also say that no contracts were cancelled. There was a request for proposals that had gone out. The bids had come in. We had evaluated them. In parallel, we were looking for the requirement of the family of land combat vehicles. From a cost perspective, to train the crews and maintain the vehicles, we're in a better situation to have everybody kitted with the same vehicle.
That's why we focused on the light-armoured vehicle. General Dynamics Land Systems has actually won some pretty substantial international contracts to export the vehicle as well as a result of its performance.
The Chair: Just so we all understand: There's a tank, and most people recognize what a tank is. Then you've got the light-armoured vehicles and, from a point of view of armament, how heavily armoured they are. Then comes the vehicle you were discussing with Senator Smith.
Mr. Finn: That is correct, Mr. Chairman. And then there's a whole fleet of support vehicles, some of which are armoured. There are armoured logistics vehicles, and there are Force Mobility Enhancement vehicles that would be almost like tanks/tow-trucks that we use as well.
But for the combat troops, it's exactly as you described: from the tank to the light-armoured vehicle, and eventually to the tactical armoured patrol vehicle.
The Chair: That's helpful. Thank you very much for that.
Senator Eaton: Mr. Finn, I'm just going to follow up on some of Senator Smith's questions. When you talk about submarines, whatever happened to those submarines we bought from England? Are they in service? Are they in dry dock?
Mr. Finn: I am a submariner by background, so I could go on for a while on this, but I'll make it short. They are all in service. I mentioned very briefly that the HMCS Chicoutimi was the submarine that experienced the explosion and fire. It is now back at sea and back in service. So three of the four are at sea.
Senator Eaton: Are they nuclear subs?
Mr. Finn: They are not. They are what's called conventional propulsion, which is diesel-electric propulsion.
Three of the four are at sea. At times, they are at port, undergoing local maintenance. The fourth is in what we would call heavy maintenance. And that's the normal cycle. There will always be one of the four going through heavy maintenance.
Senator Eaton: As an aside, being a submariner, do we still have a reputation as being a great submarine force in the world, which we used to have in World War II?
Mr. Finn: I would say "yes," but I might be a bit biased. Canada, in World War II, was a reputable anti-submarine- warfare country. It wasn't so much that we operated or had submarines, although we actually built components for some. We actually acquired two submarines in World War I in Esquimalt.
But since the 1950s, we have had a number of Canadian submariners in British submarines. Since the mid-1960s, we ran our own submarine fleet for about three decades — a submarine called the Oberon class and what is now the Victoria class.
Getting them into service has been a challenge, principally around the supply chain. It has been a big lesson for us. People will often say, "Why don't you take ships off the shelf, build on what's there?" Establishing the supply chain after the fact is very difficult.
The Victoria-class submarines have proven to be very effective submarines. Our allies with nuclear submarines look to train with them because of the capability they bring and how quiet they are.
Senator Eaton: So we can use them in the Arctic?
Mr. Finn: We can use them at ice edge; we cannot use them under the ice. You talked about nuclear submarines. Both in the context of propulsion and the ability to regenerate the air inside, these submarines can't do that. We have brought them up North, but they can't operate under the ice.
Senator Eaton: Is this a discussion you have had; that because of our northern coast, whether we should have submarines that can operate under the ice?
Mr. Finn: It's more of a government policy piece. It is a discussion that has occurred and has appeared in white papers and discussions over our history. But I would have to say it's really something for the government to decide, what kind of capability they want.
Senator Eaton: To get back to the finance, when you were talking about putting off monies to pay things further down the line — I think in the family of land combat vehicles — are you doing the same thing for the F-35s? Is the F-35 still on the horizon? Where is that right now?
Mr. Finn: The replacement of our fighter capability remains an active file. Through a government decision, we are life-extending the current CF-18 fighters, which have undergone a pretty significant capability upgrade, as well. Structurally, we're going to look at extending them. They are being extended right now to 2020, and we're looking to move out to 2025.
Work does continue in looking at options around a fighter replacement in the middle of the next decade.
Senator Eaton: But it costs us money every year? We're paying money every year to work on the development of the F-35s?
The Chair: With the F-35 joint strike fighter, we remain a participant in the international memorandum of understanding, as you indicate, and that is to ensure that we can keep that option open to us. I would say that by virtue of being a participant, we actually benefit from the investment of all the countries. We could step away from it and come back later as a non-participant, but we would pay a lot more for the aircraft, if we were to choose to take that approach.
Senator Eaton: No, I was just interested to see where that the project was at.
If I could turn to social issues, Mr. Séguin, you talked about downloading some programs to other ministries. Could you tell us what you've downloaded? You said: "The planned sunsetting of programs and transfers to other government departments." What did you transfer to another government department, and what departments?
Mr. Séguin: I'll just get my notes on that. There was a small transfer of $2.5 million for accommodation costs to Shared Services Canada. We manage our own accommodation costs — leases. That's basically the accommodation of our databases that they now have; they own the databases, so they now take ownership of the facilities with them.
This transfer had been in the works for some time. It is effected now in 2015-16.
Senator Eaton: With Canada Job Fund, what you're doing basically is allocating funds to each of the provinces? Is that how it works?
Mr. Séguin: If I could call upon my colleague Paul Thompson, he's quite well versed in that. In essence, there are negotiations with each province; they have been completed.
He can provide more detail on how that works.
Mr. Thompson: I'm happy to do so.
We've transformed the previous labour market agreements into the new Canada Job Fund. That's been negotiated with all provinces, with the exception of Quebec, which has a different agreement in recognition of the previous alignment with some of the objectives of the new job fund.
The major component of the job fund is the Canada Job Grant, which is a very specific element of it, which has the employer- and government-sponsored training for very specific jobs in the workplace. The job grant component takes up an increasing share of the overall job fund transfer to provinces over the next three years; that amount gradually increases: 15, 30, 45, and then 60 per cent of the job fund transfer to provinces will be spent on the job grant.
Senator Eaton: Is there accountability; in other words, do the provinces have to account back to you? Do you negotiate each year with each province, or is it a one-time negotiation and then every year the money just goes to the province?
Mr. Thompson: These are multi-year agreements, but we've put in place a couple of important features. One is a two-year review. We're starting that process right now. There's been an agreement on the parameters for the review and the performance indicators that we'll be looking at. We're embarking on that exercise collaboratively with the provinces. Each province will do its own review, plus there's a roll-up, nationally, for the overall results.
Senator Eaton: So when you come back and see us next year, you'll have an idea yourselves how well the program actually works?
Mr. Thompson: Yes. The take-up, for example, on the job grant portion is one of the key areas that we'll be looking at; namely, was there adequate take-up, as well the nature of the projects that were funded.
Senator Gerstein: Mr. Séguin, my questions relate to the Canada Student Loans portfolio. I see that you're receiving or requesting $33.5 million of additional funding as a result of the rate assumption from the Office of the Chief Actuary.
What is the base on which this $33.5 million is being applied?
Mr. Séguin: You're referring specifically to the Canada Student Grant?
Senator Gerstein: Correct.
Mr. Séguin: I have it here. Sorry, there are a lot of programs to keep track of. It would have been calculated on a 2014-15 base of 722.6 million.
Senator Gerstein: So $726 on which you're adding —
Mr. Séguin: $722.6 million.
Senator Gerstein: Okay, you're adding 33.
Mr. Séguin: That's right.
Senator Gerstein: Would you expect to put out all of those funds this year?
Mr. Séguin: I'll have to ask my colleague, if you don't mind.
Senator Gerstein: Maybe I'll just ask a few other questions at the time, and then you can decide. I'd like to just go through.
Mr. Séguin: Sure.
Senator Gerstein: My next question is: What is the total receivables of the loans that are outstanding now? My final question on the subject is: What is the policy of the department with regard to how you write off bad debts? Inasmuch as we all know, if you grant loans, there are going to be bad debts, bad debts every year. My recollection is that, in 2014, nothing was written off. Last year, $295 million was written off, and I don't see any provision this year for any writeoff. So what is the policy of the department on how you deal with these outstanding loans and the bad debts? That's my list of questions, Mr. Chair.
The Chair: Good to get them out.
Mr. Séguin: Thank you for that. I'll start off with the bad debts. As you recall, we were here not long ago for the Supplementary Estimates (C). We came forward, and we wrote off over $200 million in bad debts.
Senator Gerstein: Correct.
Mr. Séguin: The policy is the same. It's statute-barred debts, as you know, those that are in hardship situations. They may have medical issues —
Senator Gerstein: I understand that, but why one year, not the year before, not the year after? What's the policy?
Mr. Séguin: I see, from that perspective. Our approach is to be as up to date on the debt writeoffs as we need to be. So, as they come forward, we accumulate those debts that we deem statute-barred and in a situation where they should be written off. We go through a committee process in the department. So the objective is to do it on an annual basis. We've been a little bit late in that regard. Usually, we'll come in and —
Senator Gerstein: So we will anticipate a writeoff this year.
Mr. Séguin: The objective would be this year, absolutely. Yes, we would be doing that.
I believe you asked about outstanding receivables. So, at the end of 2013-14 — because we don't have 2014-15 yet but we will — we had $16.8 billion in loans out.
Senator Gerstein: Just going back to the bad-debt writeoff of last year, did I understand you to say that you viewed, after your discussions, that this brought you up to date with writing off bad-debt loans?
Mr. Séguin: I think we're still a little bit behind. Yes, we're a little bit behind on doing that.
Senator Gerstein: So the keywords are "a little bit?"
Mr. Séguin: A little bit.
Senator Gerstein: Whatever that is.
Mr. Séguin: We may be doing some catching up this year in fact, yes.
Senator Gerstein: I see. We'll anticipate that, Mr. Chair.
The Chair: We'll look forward to that. Did we need Mr. Thompson to answer that other question that you had?
Senator Gerstein: No, Mr. Séguin did very well.
The Chair: Well done, Mr. Séguin; thank you for that.
[Translation]
Senator Maltais: Mr. Finn, you talked a lot about shipbuilding. You referred to Seaspan, in Vancouver, and Irving, in Halifax. We cannot change the past, but we build and prepare the future. Is Davie shipbuilding still part of your discussions, whether we are talking about repairs or building? We should not forget that last year, that shipbuilding enterprise was recognized as the best in Canada by its peers. That says something.
So, there is certainly something to be done. Does the federal government or do the armed forces intend to hold discussions in the near future regarding the repair, construction or maintenance of some of their ships? A large part of the fleet is in the St. Lawrence River. I have nothing against the fact that ships are repaired in Halifax, but they go right by the Davie shipbuilding company. They could at least refuel there.
Mr. Finn: Senator, thank you very much for the question. In fact, Davie shipbuilding is still there in the context of our projects. Moreover, it has shown interest in potential interim solutions for the two supply vessels we had to set aside.
Indeed, the fleet is mostly located on the east and west coasts. I know that a greater number of the coast guard ships are in the St. Lawrence and on the Great Lakes, and that the Coast Guard does a lot of business with Davie.
Regarding eventual repairs, once the fleet has been replaced, we generally always issue calls for tender to all of the shipbuilders in a competitive process to see which ones would be interested. Davie has been involved in a lot of our projects, including the retrofit of our destroyers and the construction of three of our frigates. It also worked on vessels in many of our refit periods.
We expect its participation, once again in a competitive context, in the repair and maintenance of federal fleets, either the coast guard ships or the navy ones.
Senator Maltais: Mr. Chair, I would like to ask another question. We talked a lot about our aircraft and submarines, ships, tanks and military vehicles. However, we have not talked about the poor relatives of the armed forces: the reservists.
I am the honorary colonel of the 62nd Field Artillery Regiment of Shawinigan. Because of that, I attend a lot of meetings, and in Quebec particularly, some requests never meet with a positive reply. I will cite a few. There is a problem regarding the shell supply.
Field artillery soldiers fire shells, not arrows. They do not have enough shells to be able to practise. In a regiment of 250 reservists, a limit of 15 shells per reservist is very little. I am told that there are shells elsewhere in Canada, particularly on certain bases in Ontario, and that it is very difficult to obtain practice shells.
Of course, once Quebec has some shells, we will have to deal with the problem of the cannons that are poorly maintained and are becoming dangerous. Would there be some way of maintaining them? Also, on the topic of recruiting reservists; Quebec, New Brunswick and Ontario are among the recruitment target areas, on the order of 70 to 90 per cent, as compared to 40 per cent for the central provinces.
Would it be possible to transfer these amounts the regiments are not using, since they cannot compete with the salaries offered in the oil industry? That is something very logical, very easy to understand. Since the amounts are already in your budget, they could be transferred to regiments that attain their objectives or surpass them.
This would allow them to have more young people in the reserves. Need I remind you that when there are missions outside of Canada, the military are chosen from the Reserve Force first, and not the regular force? So let us give the reserve the opportunity to train the reservists properly in order to make them career military people — at least those who want to be — and citizens of even greater value when they return to work in civil society.
[English]
Mr. Rochette: Thank you very much for the question, senator. I will ask Mr. Finn to talk a bit about the provision of supply and ammunitions and ask General Madower, as chief of the program, to talk about how they manage the business plan every year and how they decide where the funding will be appropriated.
Before I let my colleagues speak, I would like to raise one point about the reservist program that you may have seen in the estimates of 2015-16. It's a new grant that was approved. It's a grant that supports compensation to employers for the reservist program. Basically, it is a grant of $2.3 million that is set aside so that when we have employers adding reservists and we need to deploy them for an operation, domestic or international, they can ask for reimbursement of salary. I think this is quite welcomed by employers, to allow reservists to be part of the reserve force.
[Translation]
Mr. Finn: Regarding the distribution of shells, we acquire them and the army itself then determines and requests the distribution. I have no answer for you today. We could inquire and come back to you about why, in the context you describe, there is a surplus of shells in one place and a shortage in another.
As for maintaining the cannons, we have maintenance standards that must be met, especially as regards safety and effectiveness. Our organization does maintenance up to the third level, which is maintenance with the industry. There are in any case maintenance standards in the units and service battalions that make up the next level. Once again, I am not aware of the maintenance problem you describe, but I will look into it.
Senator Maltais: Let us be clear. I do not mean that they are dangerous. I went into the Laurentian Mountains to take part in firing activities. It would be inaccurate to say that they are dangerous; it would be falsely alarming the military and the population. However, I am told that they are not young and have been in use for a long time. Do they adequately meet the army's projections for the future? Young people of 18 to 25 are practising using this equipment. I was there, and even though it may seem quite simple to pull the trigger, it is not. The shell supply is a real problem. When I say that there are 15 shells for 250 people, let me reiterate that that is not quite enough. If in a battery there are 8 people using the equipment, and if you want everyone to be able to fire once, you will need as least 8 shells and we do not have enough, that much is clear.
As for transferring money to regiments that do not meet their recruitment objectives, would it be possible to transfer it to the regiments who do attain their objectives and could even surpass them?
As you know, the three provinces I mentioned — Ontario, Quebec and New Brunswick — are the front runners in this area. What is good for Quebec is also good for New Brunswick and Ontario.
Is there a way of looking at the whole issue? There are brigade and division generals in Quebec; it is up to them to communicate and make decisions, together with the commanding officers of each regiment, to see whether that sum is transferable, and how they can use it in each of the regiments.
Mr. Rochette: I would like to apologize because earlier I began to reply to the chair in English, and continued in English without even realizing that your question had been asked in French.
As for these funds, you are entirely correct. When we allocate resources at the beginning of the fiscal year, we provide the resources to the first level, that is to the chiefs of the army, navy and air force, as well as to the chief of the reserve force and cadets. When the leaders at that level receive their allotment, they are entitled during the year to transfer funds according to their needs, the needs of their units. If they have a unit that has less money, they can transfer funds where there are more immediate needs in the course of the year.
[English]
Maj.-Gen. Madower: Senator, thanks very much for the question. I fully concur with the comments of my colleagues, and I would simply add a couple of points, if I may, just to round out the response.
First, I started exactly as you described, as a reservist, many years ago. And, of course, we in the Canadian Armed Forces are very proud of the contribution that the reserves have made over the years, specifically the connection with Canadians. But if we look to our operations as well, we all know that 20 per cent of our deployed force in Afghanistan was made up of reservists. We continue to be very proud of their contribution to our defence efforts, and we look at it from a total force perspective.
As the army across the country prepares for operations, they structure themselves on something that we call tiered readiness, wherein you'll have some portions of the army that will be at a very high readiness state, ready to deploy; you will have some elements of the army that are deployed; and then you have those that have recently returned from deployment, and of course, they will be at a lower state of readiness in order to allow the personnel and equipment to be re-postured and reconstituted and to allow folks to take their personal leave and training, et cetera.
So there's a very well-managed, across the country, total force, tiered readiness cycle. You'll find that units and organizations within the Canadian Armed Forces vary in their readiness state, depending on what the operational future schedule has for them.
As the CFO indicated as well, recruiting is done from a central perspective. If the Chief of Military Personnel were here, he would tell you that he's responsible for recruiting for regular and reserve forces. The connection and the attraction happens right at the unit at the regiment, but it's through the national recruiting centres centrally managed within the Canadian Armed Forces that the recruiting is actually done. That allows exactly as you describe, for that recruiting effort to ensure that we in the Canadian Forces represent Canadian society and the Canadian population and attract the brightest and the best throughout Canada.
One of the things that the Chief of Military Personnel is very excited about is the transition to e-recruiting, which allows many folks to recruit online so that we have a very centralized perspective and we have the ability to manage the recruiting efforts centrally and select the brightest and the best for the Canadian Armed Forces. Thank you, sir.
[Translation]
Senator Maltais: Thank you very much for your explanations, Major-General. The slowness of administrative decision-making in recruitment offices was an important point for a lot of division COs. That was a problem. If this has been rectified, well done!
I will now go back to the poorest of the poor relatives in the army, the young men and women, the cadets. We know that funds are in the main provided by reserves and local sponsors.
In my senatorial district, there are more than 800,000 young cadets, both young men and young women. That is a lot of people. The Reserve Force budget is most certainly insufficient. Could the regular armed forces make a greater effort to find a few million dollars among the 18-odd billion dollars you have, so as to gradually modernize their equipment, uniforms, training and objectives?
[English]
Maj.-Gen. Madower: Senator, thank you very much. You're touching on my history. Again, I started as a cadet before I was a reserve. Many people in the regular forces actually have that pedigree. We look very favourably on the cadet program. In fact, as the CFO had mentioned earlier, we have a rear-admiral dedicated to reserves and cadet efforts.
As you alluded to, it's a shared effort between the various sponsoring agencies and the Canadian Armed Forces. One of the things that I can tell you about the resources, from a personnel perspective, is that there are very few organizations in the Canadian Forces that are fully manned to support the program. Recognizing the importance of the cadet program, we ensure that the various positions to support that program from a Canadian Armed Forces perspective are fully staffed, recognizing the importance of it.
[Translation]
Senator Maltais: I go back to the 18 billion dollars in the army's budget. Could you not find a few hundred thousand dollars over the next two years to increase the Reserve Force budget that is allocated to cadets? That is not a fortune for the government.
When you are young, before becoming an adult, that is when you might acquire a taste for the Canadian Armed Forces. The volunteers who work in the organization do exceptional work that we do not underscore often enough. They are preparing the future. These are not the young people we are going to find on the front steps of Parliament or in demonstrations. They are going to choose the regular armed forces or continue their schooling, or become model employees such as plumbers, electricians or carpenters. They have acquired a standard of conduct that will stand them in good stead their entire lives. Canada could do a bit more if it cut a little elsewhere in programs the population as a whole does not really need for the future of the country.
Mr. Rochette: I also began my career as a cadet in Quebec. I worked for 26 years in the Canadian Armed Forces. I understand very well the importance of cadets and of the Reserve Force as a source of recruitment for the Canadian Armed Forces. We give loans to cadet leagues, whether navy, air force, or army. For cadets we are talking about a $450,000 envelope to be used for the administration of the league.
Senator Maltais: For all of Canada?
Mr. Séguin: Yes, but only for the cadet league. There is also the funding to help cadets and the reserve. The Chief, Reserves and Cadets, administers that money.
We just completed our business plan for fiscal 2015-16. I will be working with my colleague, the Chief of Programme, and the Chief, Reserves and Cadets, to examine the funding allocated to the entire cadet program and determine whether we can provide additional funding.
I don't have the business plan with me, so I can't give you the exact figures right now.
Senator Maltais: I understand and I won't be too demanding. Mr. Chair, would it be possible to have the deputy minister send that information to the committee in the next six months, once his plan is ready?
The Chair: Would you kindly be able to do that for us?
Senator Maltais: If the information is public and it won't have a negative impact on policy, it would be appreciated. It's just for the sake of being well-informed.
Mr. Séguin: That's no problem, senator. In our report on plans and priorities, as well as our end of year report, we provide a breakdown of our expenditures by program. So we can do that a bit ahead of time. I'll speak to my colleagues. We'll do an analysis and provide you with a report of the funds allocated.
Senator Maltais: Thank you for your answers and the information. I found it a very helpful discussion.
[English]
The Chair: Mr. Rochette, when you're providing that information, you might also expand a bit on another point that's been brought to our attention by the Library of Parliament in the Plans and Priorities for this year, which were released a few weeks ago. It indicates that the Armed Forces are currently below its desired end state for total regular force manning of 68,000. Could you explain to us why there has been a greater-than-anticipated attrition rate? Is the general's indication that using e-recruiting is the solution to try to reach this desired end state? Have you made provision for hiring more this year?
[Translation]
Mr. Rochette: Thank you for the question. Before I turn the floor over to Major-General Madower to comment on Canadian Armed Forces recruiting, I would just like to point out a few things. First of all, when we appeared before the committee on Supplementary Estimates (C), we discussed recruiting. With us at the time was the associate deputy minister of public affairs, who answered Senator Chaput's questions about recruiting and the program's success. We received additional funding for this year and next year solely for e-recruiting, in other words, intranet-based recruiting, and movie theatre ad campaigns. The senator had wanted to know about the French-English split. The proportions are consistent with the size of Canada's English-speaking and French-speaking populations, and were set at 75 per cent and 25 per cent, respectively, with respect to recruitment and advertising spending. The Chief of Military Personnel is really the person in charge of recruiting. Major-General Madower could elaborate on that.
A lot of work is being done to achieve the 68,000 strength target, set out in the Canadian Armed Forces' defence strategy. We expect to see an increase this year.
One of our problems right now is that, despite considerable recruiting, we're dealing with an aging population, just like Canada. A lot of people are retiring, which means that our recruiting efforts are often been offset by those who are leaving their jobs. So that's why we aren't seeing a big increase in the number of Canadian Armed Forces members.
The Chair: Your target is 68,000, but where do you stand currently?
[English]
Maj.-Gen. Madower: You are quite right. We are under our 68,000 authorized personnel level. It's actually been that way for a fair while, going back a couple of years, I would say. Currently, we are at 65,800 and some folks in the Canadian Armed Forces, so slightly below the 68,000 level. But we monitor this very closely.
Currently, we're in a cycle of the year when we traditionally see the lower numbers, because we tend to recruit and bring people in following the academic year. So we're in a kind of downward part of the cycle, and we anticipate that later in the year, we will be in the upward part of the cycle.
One reason we're lower than our traditional numbers is because, in the last year in particular, we've experienced a slightly higher attrition rate than normal. But certainly we are seized of this issue within the Canadian Armed Forces. It's an issue that is regularly briefed to the senior leadership of the Canadian Armed Forces.
From a resource perspective, in order to ensure that this is addressed, we have and will continue to privilege the Chief of Military Personnel to enable his recruiting efforts to ensure that his plan to return us to our authorized personnel levels will be attained.
Something we've learned over the years is that it's like moving an oil tanker: You have to be very careful and deliberate to ensure that you don't induce spikes in your demographics that cause problems downstream. It's something that you have to adjust to in a very deliberate, careful manner.
We anticipate that it will be a considerable period of time over the next few years before we actually attain our authorized levels. But as I said, we monitor this on a frequent basis and very high up within the Canadian Armed Forces, at the leadership level, to ensure that we are tracking in the right direction.
The Chair: When we look at the financials that you're presenting to us, is there a provision there for hiring more than you currently have, or would you be back asking us for more money for salaries if you're successful in your efforts?
Mr. Rochette: The funding we receive — part of the Main Estimates — we are funded under Canada First Defence Strategy for 68,000 regular force members, so we do have the funding to pay for that.
Senator Wallace: Mr. Rochette, I see in the 2015-16 Main Estimates that Canada's contributions to NATO are projected to decrease by $20 million. Is that indicative of a decrease in Canada's engagement in NATO, or is there some other explanation for that?
Mr. Rochette: In terms of contributions to NATO, we contribute to three specific funds. The first one is the military budget; the second fund is for what we call NSIP — basically for the programs and infrastructure; and the third one is for other expenses in NATO, such as for administration and other needs to manage the organization.
Basically, these contributions are based on a set formula that we have, and the formula belongs to NATO. The committee every year does a business plan to look ahead, determines how much money they need in the next fiscal year, and then does a breakdown by country based on a set formula.
If you look in the Main Estimates, you will see that we had a reduction in the military budget, but we have an increase in the infrastructure budget. The $20-million decrease in contribution is not the decision of Canada but really the decision of NATO for their budget for the year.
Senator Wallace: When you look at NATO's involvement in a lot of the worldwide issues we're faced with today, is NATO increasingly engaged in these initiatives? For example, with Ukraine, is that something that NATO is actively involved in, or is Canada's involvement part of some other military alliance?
Mr. Rochette: If I may, I will ask General Madower to discuss the military decisions.
Maj.-Gen. Madower: Absolutely; it's predominantly a NATO-led effort. We contribute financially, as the CFO indicated. We also contribute through force contributions, particularly through Operation REASSURANCE, where we have a number of air force, army and navy folks participating and contributing to the stability in Eastern Europe, which is obviously very important to us all these days.
Senator Wallace: I'm trying to get a sense of this, though. Is NATO's involvement in those issues in Eastern Europe and beyond that changing? Is it stagnant? Is it increasing? Are there greater resources being applied by NATO, and obviously if that's occurring, there will be greater requirements through the NATO members. Where is NATO going?
Maj.-Gen. Madower: Yes, stability in Eastern Europe is a very important preoccupation of NATO; they are focused in that area. We are as well, as I said earlier, through Op REASSURANCE. That is our primary contribution to that Eastern European stability effort, but it's all through NATO.
Senator Wallace: I'm still not sure I heard the answer to my question; perhaps I wasn't clear enough. I'm trying to understand where NATO is going. I understand Canada's contribution to NATO, but regarding NATO's engagement in these areas of uncertainty, is NATO becoming more active in addressing these world insecurities?
Maj.-Gen. Madower: I can't speak for NATO, but I can say, through NATO, that our contribution and what we see amongst our peers and NATO exercises and training in response to the instability in Eastern Europe is significantly higher than it has been in the past. It's an issue that's in Eastern Europe, right on NATO's borders effectively, and is a large preoccupation for them. So we're seeing a significant increase in exercises, preparedness, troop postures, troop positioning, et cetera, certainly amongst our NATO colleagues.
Senator Wallace: I hear that, and I think of the different funding mechanisms, Mr. Rochette, that you described that Canada participates in NATO. When you look at them in the aggregate, are Canada's total contributions to NATO increasing, decreasing, or is the situation pretty much status quo?
Mr. Rochette: Canada provides 6.09 per cent of NATO contributions compared to all the other countries. It depends what you use as the comparator. For example, often they will talk about the contribution based on the GDP. If we base it on the GDP, we are currently at roughly 0.9 per cent. Of course with the price of oil in previous years, our GDP increased, so our contribution seems to be reducing. Now that the price of oil is lower, we will see a bit of an increase in our contribution based on the GDP.
This is how it looks, depending on the comparator.
If we look at the formula for the three different funds that I talked about, we are pretty stable. It's based on a set formula, as I mentioned before, so we have a set percentage that is established. How many operations and how much NATO wants to spend in any given year will determine how much we are spending or contributing.
With reference to your question, if I may, I would like to take the question as notice. Really, our assistant deputy minister of policy, who is responsible for NATO and Canada's contribution to other countries; is responsible for that area. So, if I may, I will take the question as notice and provide something in writing.
[Translation]
Senator Bellemare: My question is for Mr. Séguin. Yesterday, the Quebec government held a press conference on the Temporary Foreign Worker Program. The Fédération des chambres de commerce du Québec and the Canadian Federation of Independent Business were there.
The Quebec government and employers are extremely concerned about the implementation of the Temporary Foreign Worker Program in the province. They argue that the new parameters aren't tailored to Quebec's economic situation. Given that you are the program manager, are you able to take provincial issues into account? The program is based on median wage thresholds and unemployment rates, but given how big the administrative regions are, median wages don't reflect the issues in the northern and southern parts of the same administrative region. Is there a way you could work with the provinces to tailor the program?
Mr. Séguin: Thank you for your question. I'm going to ask Paul Thompson to answer that, since he is much more familiar with the program than I am.
[English]
Mr. Thompson: Last June there was a significant overhaul of the Temporary Foreign Worker Program. With regard to the Canada-Quebec immigration agreement and the different administrative arrangements in place in Quebec, there was a delay in the rollout of these reforms, so it's only at the end of this month that the changes that took place everywhere else in the country will take place in Quebec.
A number of measures to reduce the reliance on low-wage temporary foreign workers across the country, including the introduction of a cap on the number of temporary foreign workers per employer that starts at 30 per cent, goes down to 20 per cent and then down to 10 per cent. That is probably the most significant of the measures.
As I said, this is in place elsewhere in the country. That measure, with approximately a year's lead time, is now being implemented in Quebec as it is elsewhere in the country. That's the current situation with respect to the program in Quebec, and it's being implemented there with the same objective that the government has laid out elsewhere, to ensure that Canadians are put first for any available job opportunities in the province.
[Translation]
Senator Bellemare: Did you receive administrative requests to ease the rules for certain regions of Quebec?
Mr. Thompson: Some measures allowing for greater flexibility are already in place throughout the country but they don't apply to the agricultural sector, which already benefits from numerous flexibilities.
[English]
There are various flexibilities. The rules are less onerous in the high-wage sector; the cap, for example, does not apply. So where there are significant shortages and the inability to find available Canadians, the program is there to meet those instances. But it's in the cases of the low-wage occupations, where there are, in many cases, available Canadians, the program has been tightened up.
[Translation]
Senator Bellemare: Market gardening industry representatives from the Huntingdon region, as well as some high- wage earners, attended the press conference. I would urge you to consider the issues that were raised. I'm not sure whether there's a misunderstanding of the legislation, but these businesses are concerned about their region's economic health, given that they are part of the agricultural sector and work with local products. We are talking about a serious plea from the public.
Mr. Thompson: Absolutely. We've had numerous discussions with the Quebec government, and those talks are ongoing. We need to make sure the measures are well-understood. Those talks are going to continue.
Senator Bellemare: And to make sure that the regions' problems are well-understood, as well.
Mr. Thompson: Absolutely.
[English]
The Chair: Mr. Séguin, while we're in your department, you made the point in your introductory remarks that the operating expenditures for this year are $10 million less than the Main Estimates for last year. But at page 2-105 in the Main Estimates, we see that with supplementary estimates, you were almost $25 million more.
Can we anticipate that supplementary estimates — the Main Estimate for this year, which is $10 million less than the Main Estimate for last year — will be increased by a similar significant amount, or was last year extraordinary?
Mr. Séguin: That's a very good question. Thank you for that.
There's likely to be, yes, supplementary estimates this fiscal year. One example is the Temporary Foreign Worker Program. We received a supplementary estimate last year. I'm not sure but I believe it was in Supplementary Estimates (C). There will be some supplementary estimates in operating next year.
The Chair: We tend to spend a lot of time comparing mains to mains, but then the supplementaries make things quite different. Of course, we don't know what the year-end for your department will be until we get there. I point that out, that there were significant additional funds sought and approved by Parliament through supplementary estimates last year.
Mr. Séguin: Yes. That's helpful. Thank you.
Senator Mockler: When we talk about TFWs —
[Translation]
Senator Mockler: Thank you, Mr. Chair. With respect to temporary foreign workers, Mr. Séguin, I have a question that follows up on Senator Bellemare's. Could you please tell us why no changes were made in the agricultural sector?
Mr. Séguin: I'm going to ask Mr. Thompson to speak to that in greater detail. He knows the program intimately.
Senator Mockler: Mr. Thompson, I have a question further to Senator Bellemare's. It's often said that the program has a very significant impact on Canadian industry, and one of the country's major industries is agriculture. The government's decision wasn't supposed to have an impact on agriculture.
Mr. Chair, I have two questions. First of all, did the government's decision affect the agricultural sector? Second of all, is there any evidence or information you could provide the committee so that we could determine whether there was indeed an increase in the agricultural sector?
[English]
Mr. Thompson: Indeed, as I indicated, there are different streams in the Temporary Foreign Worker Program, and there are two streams in relation to agriculture. There's the Seasonal Agricultural Worker Program, which relates specifically to a set of industries with an ongoing seasonal demand. That's been in place for quite a number of years with very specific countries in Mexico and the Caribbean. That is a long-standing program to which there were no changes made. That program continues.
There is broader access outside of the Seasonal Agricultural Worker Program for any temporary foreign worker request for primary agriculture, and there's a definition of "primary agriculture" that's consistent with that used by the United Nations. It's basically on-farm agriculture, primary agriculture.
The changes that we've made to the program do not apply to that stream either. For example, the cap per employer that I mentioned does not apply to the primary agriculture stream, nor does the increase in the fee that has been charged. We now have a $1,000 fee for the low-wage stream, but that doesn't apply to primary agriculture. Those are a couple of examples of where the agriculture sector was accommodated in light of a demonstrated and ongoing need for labour where Canadians were not coming forward to fill those jobs.
Senator Mockler: And who are not impacted by the new quota program because agriculture is not impacted.
Mr. Thompson: Agriculture has not been affected by the program.
Senator Mockler: My last question would be to Mr. Thompson again. Can you share with this committee the number of temporary seasonal and also primary-sector applicants or workers that you have today, compared to the last two years? Do you have that? My question would be: Has it increased or decreased?
Mr. Thompson: We've seen an increase in the agricultural stream. It's modest, but there's been an ongoing use of that program. I don't have the numbers at my fingertips, but we are tracking and certainly can make available to the committee the most recent statistics on the applications that we receive by stream, whether it's seasonal, primary agriculture or the low-wage or the high-wage.
Senator Mockler: Thank you.
[Translation]
Mr. Séguin, would you be able to look into the situation Senator Bellemare was talking about regarding the Quebec government's press conference yesterday? As far as the program is concerned, it's important not to send a message that isn't true, especially in the agricultural sector. Could you look into the matter and follow up with the committee chair, so that we can determine whether the changes actually had an impact or not? Perhaps some people are spreading misinformation.
Senator Bellemare: Or in the agricultural manufacturing sector, in the postproduction sector.
[English]
Senator Mockler: Or in the processing industry. If it is in the process industry, I support TFW on the changes that processing first, if it's there, should go to Canadians. But, as to what was raised by my colleague, I think it's very important that we can determine the gray zone here and if there is indeed, like Mr. Thompson has just informed the committee, the primary industry.
[Translation]
The primary industry and the agricultural industry, overall, weren't impacted.
Mr. Séguin: We've made a note; we're going to look into it.
[English]
The Chair: Mr. Séguin, you, at the end of your statement, pointed out something we hadn't looked into, to my knowledge, in the past, in relation to Employment Insurance and Canada Pension and how they are accounted for. You indicate that both are reflected in your plans and priorities but not in your Main Estimates. We'll look into this further because I think this is an area that we haven't looked into in the past. Can you help us: Why would they be in your plans and priorities? Are they also reflected in your departmental performance reports?
Mr. Séguin: Yes.
The Chair: What I'm looking for is fiscal oversight of these two special accounts.
Mr. Séguin: Thank you for that. It does make for a complicated presentation of our financial situation. In the Report on Plans and Priorities, the RPP, there is a very good presentation of our full financial funding situation. I don't have the exact page of the RPP, but it does describe the full budget of the department at $116.7 billion, and presents a pie chart of the various sources, including what we have in the supplementary estimates. It would be page 24 of the RPP, 2015-16. It presents the full display of all the benefit programs, including OAS, CPP, EI, universal child care program, student loans, grants and contributions and operating.
So we have a full accounting of all of the sources. EI and CPP are special accounts, separate from our voted appropriation. Both of the accounts, both CPP and EI, are audited every year by the Auditor General. In fact, they're presented in the public accounts. So we're in the process of doing that right now.
The Chair: Every year, as opposed to periodically?
Mr. Séguin: Every year, the EI account and the CPP account are audited, presented in full financial statements according to generally accepted accounting principles. These are presented in the fall, with the Auditor General's public accounts.
That's how the presentation and accountability is presented. The Main Estimates are voted and statutory appropriations. These two are not voted, and they're not statutory. They are in legislation, but the amounts are agreed to with a different approach. Canada Pension Plan, as I mentioned, is managed or jointly controlled with federal and provincial governments, and the EI account is under the management of the Employment Insurance Commission, under the Employment and Social Development department as well.
So that's how these are managed, and the accountabilities present themselves that way. Like I say, the RPP, the Reports on Plans and Priorities, page 24, presents our full programs. In the DPR, you also have the financial statements of both accounts, and there are a few other financial statements, the government annuities account, et cetera. There are a number of programs that are presented in the DPR, in the financial statements presentation.
The Chair: Does your deputy minister have any line responsibility for either of those two special accounts?
Mr. Séguin: The department administers the programs. From that responsibility, in terms of administration, we do have an accountability and a responsibility. We do charge — and it will show in the RPP — under vote, net revenue, to both the CPP account and the EI account so that we can provide services to those accounts in our programs through Service Canada across the country.
The Chair: Those administrative services don't include a fiscal oversight responsibility?
Mr. Séguin: They are part of the audit of the Auditor General.
The Chair: Yes, I understand, but you don't charge for activity of the Auditor General?
Mr. Séguin: Sorry?
The Chair: Your department doesn't charge for activity of the Auditor General?
Mr. Séguin: No.
The Chair: That's helpful. I'm glad you raised that because we haven't explored that particular area in the past in this committee.
Senator Wallace: Mr. Rochette, I'm wondering, in circumstances where Canadian Armed Forces are required to contribute to international and/or domestic emergencies, whether for humanitarian aid or disaster relief, if those additional requirements are funded from a contingency fund. Or would each of them involve requests through supplementary estimates?
Mr. Rochette: Thank you for your question, senator. Basically, as to the Canadian Forces, as part of its appropriation, we do have funding available for any operations that may occur. Basically, for any operation that we have, we look exactly at what is required for the Canadian Forces, and we do a forecast of the costs. During that forecast, we look at any incremental costs that may accrue to the department, and this is what we present before Parliament to get funding for it.
Senator Wallace: So there isn't a contingency fund for when certain circumstances arise so you wouldn't have to go through that formal process? You don't have a contingency fund that you can draw upon?
Mr. Rochette: No, basically it's part of the appropriation. So for the chief operations, we do have funding. This year we are participating in 16 operations, so we do have funding for all these operations.
We also have funding for the sustainment. Sometimes if we are asked to go on an operation and to provide support to another country, it may be part of the training we would do to sustain the forces regardless. So at that time we would be using these funds to do it.
Senator Wallace: I see; good.
Mr. Rochette: Depending on the situation.
Senator Wallace: Thank you for that.
[Translation]
Senator Chaput: My questions build on those asked by Senator Bellemare and Senator Mockler. They have to do with the Temporary Foreign Worker Program reforms that the Quebec government addressed in its press conference. I know they also have problems out West. Specifically, I would point to Alberta, because a fellow senator has brought up the issue numerous times.
Are you aware that the changes you made are having a negative impact on certain companies in Alberta? If not, could the senator from Alberta, who works on the issue and knows more about it than I do, send you the information she has? Who should she send it to?
Mr. Séguin: She can send it to me directly, or to Mr. Thompson. One of us will take care of it.
Senator Chaput: Just yesterday, she was telling me about it again. The problem seems to be quite serious and needs to be looked into.
[English]
The Chair: I had one final question for National Defence to clarify what we have been talking about today. Could you refresh our memory on carry forward in your operating budget and in the capital budget for DND?
Mr. Rochette: Yes, sir. Basically the Canadian Forces and the Department of National Defence are entitled to 2.5 per cent carry forward. This is the total amount of our vote 1 operation and the vote 5 capital.
So for fiscal year 2014-15, our maximum carry forward that we are entitled to is $440 million.
The Chair: If I look at page II-174, which is National Defence's Main Estimates for this year, can you tell me how the $450 million is financially reflected in those numbers? With the numbers for 2015-16, for example, $13.483 billion, is the operating budget for this fiscal year. Does that include in it the carry forward from the previous year or because we already talked about it last year, it's not reflected there?
Mr. Rochette: Exactly. In the Main Estimates we don't include the carry forward. So basically a carry forward will be provided by central agencies, Treasury Board, around the August/September time frame, and this is outside the normal supplementary estimates process.
The Chair: Okay, that's helpful. We've often talked about this carry forward, and we understand how reprofiling is handled, but I think this is the first time we have realized fiscally how carry forward is accounted for, or not.
Mr. Rochette: If I may, Mr. Chair, there was a question from Senator Maltais, about how we fund the cadets, and if we had any initiatives to do it. Since it is good news, I would like to share it with the committee.
The Chair: Mr. Rochette, I would like to think you would share it with us whether it is good news or bad.
Mr. Rochette: But it's even better to share it because it's good news.
The Chair: Please do.
[Translation]
Mr. Rochette: Senator, on top of the $1.4 million I mentioned for the cadet league, we undertook a review of our processes. A number of initiatives are actually under way, one of them being a review of how the cadets and reserve are managed. One of the objectives is to figure out whether we can find funding to reinvest.
Another initiative is focused on headquarters and involves consolidating functions to save money. We've identified $6.3 million that could be reinvested in the cadet program.
Senator Maltais: That's excellent news.
[English]
The Chair: It's always good to have good news, and while we were sitting here getting all the good news from each of these two departments, when we started I had mentioned that Patrick Finn normally is in uniform, but I've discovered from my sources that you officially retired two weeks ago, Rear-Admiral.
Mr. Finn: That's right.
The Chair: We would like to congratulate you on your retirement and thank you for continuing to allow your expertise to be used in the Department of National Defence procurement.
Mr. Finn: Thank you very much, senator.
The Chair: Colleagues, I was about to adjourn, but Senator Mockler has a point.
Senator Mockler: I have a question for Mr. Rochette. Will Mr. Finn continue, even if he is retired, into the future going forward? I just learned this morning with the knowledge of all the programs that he's certainly an asset.
[Translation]
Mr. Rochette: Yes, of course. In fact, not only did Mr. Finn retire from the Canadian Armed Forces, but he was also Chief of Staff to the Assistant Deputy Minister, Material. He has now been appointed Assistant Deputy Minister, Material. He is a tremendous asset to the Canadian Armed Forces.
[English]
The Chair: I think once an admiral, always an admiral.
National Defence and Employment and Social Development Canada, we appreciate you being here. Thank you for the work you do for Canada and Canadians.
Colleagues, this meeting is now concluded.
(The committee adjourned.)