Proceedings of the Standing Senate Committee on
National Finance
Issue 19 - Evidence - May 15, 2012 - Afternoon meeting
OTTAWA, Tuesday, May 15, 2012
The Standing Senate Committee on National Finance met this day at 4:45 p.m. to examine the subject matter of all of Bill C-38, An Act to implement certain provisions of the budget tabled in Parliament on March 29, 2012 and other measures introduced in the House of Commons on April 26, 2012.
Senator Joseph A. Day (Chair) in the chair.
[English]
The Chair: I call to order this meeting of the Standing Senate Committee on National Finance.
[Translation]
Honourable senators, this afternoon we are continuing our consideration of the subject-matter of Bill C-38, An Act to implement certain provisions of the budget tabled in Parliament on March 29, 2012 and other measures.
[English]
Honourable senators, this is our fourth meeting on the subject matter of Bill C-38. This bill comprises 424 pages and covers many different areas of the budget, as well as certain other measures, as is indicated by the title of the bill. This afternoon we welcome the Honourable James Flaherty, Minister of Finance.
Mr. Minister, we thank you very much for being here with us and appreciate your attendance. We had hoped to have completed our study of the subject matter of the bill by now, but we are moving ahead on it fairly nicely. We understand that you have a few opening remarks and then we will proceed to a discussion period.
Hon. James M. Flaherty, P.C., M.P., Minister of Finance: Thank you, Mr. Chair. I will be relatively brief in opening so that we can have as many questions as possible.
Before I begin, I want to thank all members of the Standing Senate Committee on National Finance for their ongoing examination of the consumer price gap between Canada and the United States over the past few months. I appreciate this has been an extremely comprehensive study and that the committee has endeavoured to hear from a large number of individuals and groups. I, along with many Canadians, have been following the committee's work, and we look forward to your report and findings in the near future.
[Translation]
Mr. Chair, today I am here to speak to you about Bill C-38, the jobs, growth and long-term Prosperity act, which implements a great many of the key elements of the economic action plan for 2012. As we have seen, Canada has been quite successful at avoiding the uncertainty dominating the global economic situation.
[English]
This resilience of performance did not happen by accident, as our government has made abundantly clear since 2006. We have been squarely focused on the economy, and our government's focus has served Canada well. Canada has come out of the recent global economic turbulence in the best shape of all G7 countries. Indeed, since the end of the recession, since July 2009, over 750,000 net new jobs have been created, which is the strongest job growth record in the G7. I should note that 90 per cent of these jobs have been full time and over 80 per cent have been created by the private sector.
What is more, independent international organizations like the IMF and OECD are forecasting Canada to be at the head of the pack of G7 countries for economic growth in the years ahead. Additionally, our banking system is ranked as the soundest in the world by the World Economic Forum, and Forbes magazine has ranked Canada as the best country in the world in which to do business. Moody's Investment Service, along with the other major agencies, recently again reaffirmed Canada's top credit rating:
. . . [the Government of Canada's] AAA ratings are based on the country's economic resiliency, very high government financial strength, and a low susceptibility to event risk. . . . The economy's very high degree of resiliency is demonstrated by a high per capita income, the large scale of the economy, and its diversity. . . .
As senators know, and as events in Europe demonstrate, the global economy remains fragile and challenges lie ahead. What is more, Canada is also facing greater and increasing competition from emerging economies. Canada cannot be complacent, and we cannot rest on our laurels. As the Irish poet William Butler Yeats once said: Do not wait until the iron is hot but make it hot by striking. That is exactly what we are doing through Economic Action Plan 2012, responding to challenges and opportunities that present themselves to support a strong economy today and achieve long-term prosperity well into the future. The plan is an unapologetically ambitious and comprehensive response to the equally complex global challenges that Canada faces today and will face in the years ahead.
[Translation]
We are targeting not only the next few years but also the next generation of Canadians. The reforms that we are bringing forward are substantial, responsible and necessary, and will help us ensure that the Government of Canada can encourage and sustain the overall long-term growth of the Canadian economy. The economic action plan for 2012is aimed, in particular, at contributing to the creation of high-quality, well-paying jobs by investing in entrepreneurship, innovation and world-class research; supporting employment and growth through responsible resource development; and investing in training, infrastructure and opportunities for job creation, while offering new opportunities to youth, First Nations peoples, new immigrants and the unemployed.
[English]
Our government is also taking action to ensure that important social programs will be there well into the future when they are needed most. To this end, we are gradually raising the age of eligibility for Old Age Security. The actions contained in Economic Action Plan 2012 help to ensure sustainable public finances and respect for taxpayers' dollars, which is why we have found fair, balanced and moderate savings in government expenditures and moved to eliminate wasteful government spending.
As I mentioned, this is an ambitious and comprehensive response to the challenges and opportunities of the global economy, while ensuring sustainable social programs and sound public finances for future generations. I am happy to report that since its release nearly two months ago, the reaction to the Economic Action Plan 2012 has been extremely positive. In the words of the Canadian Chamber of Commerce, the economic action plan ``presents a plan for long- term economic growth that builds on Canada's economic fiscal advantages. It creates a solid foundation on which to build.''
As I mentioned earlier, Bill C-38 moves to legislate many of the key measures from the Economic Action Plan 2012. As you know, in the normal course, this is the first budget bill in the spring, and there will be another budget bill in the normal course in the fall.
[Translation]
Allow me to briefly outline for you a few of the measures contained in the bill.
[English]
As you know, Canada's energy and natural resources are high-value assets that help fuel job creation and economic growth. We propose, while protecting the environment, to streamline the review process for such projects according to the following principle: one project, one review, completed in a clearly defined time period.
[Translation]
We will improve the employment insurance program by promoting job creation, eliminating factors that deter people from working, and supporting Canadian unemployed workers and anyone else looking for a job in Canada.
[English]
We will build a fast and flexible economic immigration system to meet Canada's labour market needs by reducing the backlog of applicants to the Federal Skilled Worker Program.
As I mentioned earlier, we will make gradual adjustments to the Old Age Security program to put it on a sustainable path for future generations. These adjustments will not affect current recipients, or those about to retire, as we will only gradually increase the age of eligibility from 65 to 67 starting in 2023. Furthermore, to improve flexibility and choice, starting in July 2013, we will allow for the voluntary deferral of Old Age Security for up to five years, allowing Canadians the option of deferring the take-up of OAS to a later time and receiving a higher actuarially adjusted OAS.
We will also take action to ensure that Canada's housing market remains strong and stable by enhancing the governance and oversight framework for the Canada Mortgage and Housing Corporation.
Following the sage advice of this very committee in its 2010 report, we will eliminate the penny, saving the Canadian taxpayers $11 million per year. I want to tell the committee personally that your hearings and your report were instrumental in this policy decision. I want to thank you for your assistance and work, led, I know, by Senator Gerstein.
In terms of how the penny elimination will work, first, Canada will no longer distribute pennies as of the fall of this year. In fact, I recently presided over the production of the last penny at the Royal Canadian Mint facility in Winnipeg. Pennies can still be used indefinitely, as they will continue to retain their full value for payments and can be redeemed at banks. Prices will continue being set at one-cent increments and payments by card or cheque will not change, while transactions in cash, bills and coins will be subject to voluntary rounding of the final cash register total if pennies are not available.
The government has also been working with and encouraging charities and communities across Canada to organize fundraising activities to benefit from the elimination of the penny. For instance, Habitat for Humanity Canada has launched a campaign to collect 690 million pennies, enough for each of its 69 affiliates across the country, including in my area in Durham region in Ontario, to build at least one additional home each. I would strongly encourage all Canadians to support charitable efforts such as this and others under way right across the country.
Mr. Chair, thank you for the opportunity to highlight some of the key measures from Economic Action Plan 2012. As I mentioned, this is an ambitious and comprehensive plan to grow Canada's economy now and into the future. I welcome your questions.
The Chair: Thank you very much, Mr. Minister, and thank you for your comments with respect to the price discrimination study. That is between Canada and the United States in relation to certain goods. We are still working on that one, but we are glad you saw fit to follow our penny study recommendations. We made a specific recommendation with respect to charities in that report, and you made comment in that regard, so thank you for recognizing Senator Gerstein, who led us. He was deputy chair at the time.
Mr. Minister, I have a good number of senators who would like to engage in a discussion with you. I will begin with Senator Buth, one of our newer senators on this committee, from Manitoba.
Senator Buth: Thank you, chair, and welcome, minister, to the National Finance Committee. I would like to follow up with you on some of your opening remarks regarding Canada's resilience and performance during the recent economic downturn and also during the recovery.
These are very important signs here at home, but you mentioned Europe, and every day we get more news out of Europe, whether it is about Europe's fragility overall, but especially with the political instability we are seeing in Greece. Can you comment on the situation in Europe, its potential impact on the global and Canadian economy, and how this bill addresses some of that potential instability?
Mr. Flaherty: Thank you for the question.
It has been quite frustrating the last several years dealing with the European situation. You can go back to the beginning of the credit crisis in August 2007 when it became apparent that the sub-mortgage crisis was arising in the United States, and then into 2008 and the crisis in the real economy and what the economists are calling ``The Great Recession.''
It became apparent a few years ago that European banks were undercapitalized and that the level of sovereign indebtedness by a number of European countries was of great concern and was not sustainable over time. We have been urging our eurozone friends to use their resources to overwhelm the problem. This is what the government of the United States did in the latter part of 2008, pouring trillions of dollars into their system in order to overwhelm the problem and get the banking sector back on an even keel, which was quite successful in the United States.
What we have seen in Europe is incremental action over the course of the past several years which has not been successful at anything, quite frankly, but kicking the can down the road. The problem gets worse and becomes more expensive. Now, it challenges the inclusion of all of the countries in the eurozone.
We continue to encourage our European friends to use their resources to overwhelm the problem, the problem being not only sovereign indebtedness but also under-capitalization of some of the banks.
Senator Buth: Can you comment on Canada's position in the IMF in relation to Europe's position?
Mr. Flaherty: There was a move by some of the non-European G20 countries to put additional resources into the IMF for use in Europe in the eurozone. We declined to participate in that, as did the United States. Our view is that we are dealing with some of the wealthiest countries in the world. The primary purpose of the IMF is to deal with the countries that get into a lot of trouble fiscally and need to be bailed out. We all know some of the countries that they have looked at and helped over the years. Indeed, the IMF looked at Canada in the mid-nineties. Our view has been that the Europeans have adequate resources and should address the issues themselves.
I had an article published to that effect in The Telegraph, in London, about 10 days ago.
The Chair: Mr. Minister, before I go on to the next senator, I wanted to tell you that we are moving along quite nicely with our study of Bill C-38. For a bill like this, we tend to have quite a few different departments involved. That is the team sitting behind you. They have done a very good job, and we will continue to work away at getting our way through this bill. The Parliamentary Affairs Coordinator, Kathleen Mannion, is retiring in one week. I want to go on record as thanking her very much for the fine job that she has done.
Hon. Senators: Hear, hear!
Senator Callbeck: Welcome, Mr. Minister.
Under this legislation, the RCMP will be under provincial health care assistance rather than under the federal government. I am wondering why you are making the change. If the RCMP has been consulted, have the provinces been consulted? Will this change the benefits that members of the RCMP receive?
Mr. Flaherty: Does anyone have that? I will ask one of my officials to answer the technical part of it.
Chief Superintendent Gilles Moreau, Director General, HR Transformation, RCMP: If the changes are made to the Canada Health Act, the RCMP will be covered by provincial health care and members will receive basic health care, the same as any resident of the provinces where they reside and pay taxes.
The Chair: Could you state your name for the record, please?
Mr. Moreau: I am Chief Superintendent Gilles Moreau, Director General for HR Transformation for the RCMP.
Senator Callbeck: The services will be basically the same, as if you were still under the federal government?
Mr. Moreau: The services will be the same as far as the benefits are concerned. The only difference will be that you will have a provincial health card. Right now, we have another card that we use. Sometimes it is taken by doctors; sometimes it is not. Sometimes members have to dispense money from their own pocket and submit a claim. There is a large administrative component that the RCMP has to manage. We are getting out of that business with this change, if it occurs. Also, RCMP members and the Canadian government will be charged at the resident rate or the provincial rate as opposed to right now where we are charged as non-residents. Sometimes the cost can be twice or three times the cost of what a resident would pay. The federal government picks up a piece of that and charges it back to the provinces when we have contracts with the provinces.
Senator Callbeck: What is the total cost of this? Do you know?
Mr. Moreau: As far as basic health care, the total cost is $40 million. The savings to the federal government should be around $25 million, and, to the provincial partners on the Solicitor General's side, will be about $15 million.
The Chair: Senator Callbeck, were you going on to another item?
Senator Callbeck: Yes.
The Chair: Senator Runciman has a supplementary on your first question.
Senator Runciman: Does this deal with the RCMP who are on contract to the province? In effect, are they provincial employees? I want to get that clarified. For example, the OPP pay their own OHIP, and in fact the RCMP is providing the same service at a provincial level. To me, it makes sense that they should be part of the provincial program if that is the case.
Mr. Moreau: Right now, all regular members of the RCMP are covered by the federal government. The way forward would be that they would be covered by the province in which they reside. In Ontario, our members who reside there would be covered by provincial health care.
Senator Runciman: This has nothing to do with provincial policing contracts?
Mr. Moreau: No, it does not.
The Chair: Thank you for that clarification, Senator Runciman.
Senator Callbeck: Mr. Minister, I wanted to ask you about the Canada Health Transfer, which will stay at 6 per cent until 2016-17. It then goes to the moving average of the last three years.
What has been the average annual increase, over the last three years, of the health care costs in Canada?
Mr. Flaherty: The average increase of the federal contribution?
Senator Callbeck: No, of all the provinces.
Mr. Flaherty: I do not have that in front of me. I can tell you that going forward, if I look at this year's provincial budgets — and most of them are done — the average increase is slightly in excess of 3 per cent. It is 3.8 per cent. We will increase our health care contribution, which is about 20 per cent of the total. We will increase it by 6 per cent, for five more years. We are significantly ahead of all of the provinces but for Alberta. As one can see here, they are at 7 per cent. The Province of Ontario, for example, is budgeting a 2.83 per cent increase, and our contribution will increase by 6 per cent.
Senator Callbeck: There has been quite a decrease by the provinces.
Mr. Flaherty: Yes, over time there has been. These projections, of course, are just that. They have to implement them.
Senator Callbeck: If the average of the last three years of the GDP was in effect, what would that figure be roughly?
Mr. Flaherty: The percentage of GDP?
Senator Callbeck: If we stop the 6 per cent in 2016 and 2017, and you go to the average of the last three years — the increase of the GDP.
Mr. Flaherty: Nominal GDP.
Senator Callbeck: Yes.
Mr. Flaherty: Right. The reason we use nominal GDP is that it is the best measure of government revenues. That applies to the provinces as well as to the Government of Canada.
Nominal GDP would now be slightly in excess of 4 per cent on average, over that three-year period. One of the reasons we put in a floor as well is so that it would not fall below 3 per cent in case we had a period of recession or whatever. It was to guarantee the provinces, for planning purposes, that it would not be less than 3 per cent all the way to 2024.
Senator Nancy Ruth: I will ask a couple of questions about charities and also about the museums.
First, the budget plan says, on page 204, that approximately $2.9 billion of federal tax assistance was given to the charitable sector. Could you provide the committee with how that $2.9 billion is calculated? I also would be interested to know if you have a comparison for federal tax assistance to non-Crown corporations in Canada, that is, corporations in the public sector.
Mr. Flaherty: The second part, senator, I do not have, unless some of my officials have that information.
Senator Nancy Ruth: Okay. Can you tell me how the first $2.9 billion is calculated?
Mr. Flaherty: The $2.9 billion is based on receipts that individuals and corporations filed to reduce their taxes by claiming the charitable donations tax credit for individuals or the charitable donations tax deduction for corporations, which was about $2.9 billion in 2011.
Senator Nancy Ruth: The budget plan also provides that the CRA will improve transparency by requiring more information on funding charities receive from foreign sources. Will the enhanced transparency be limited to funding from foreign sources, or will it include domestic sources as well?
Mr. Flaherty: Both.
Senator Nancy Ruth: Both?
Mr. Flaherty: Yes. The idea is to have greater visibility, greater transparency related to the political activities of charities. As you know, there is not a prohibition to charities advocating or advancing their particular cause, but with a limit of 10 per cent.
Senator Nancy Ruth: Minister, coming from the charitable sector, I have to ask this: Is there any chance of delaying the coming into force of subclauses 7(1) and (3) of Bill C-38, the clauses that restrict the extent to which charities may fund the political activities of qualified donees until we can measure the effect of the improved disclosure, education and compliance provided in the budget plan?
Mr. Flaherty: No. This is not a change in policy. The continuing law in Canada has been that limit of 10 per cent on political advocacy activities by registered charities. There are two reasons for this. First, this is a tax-receipted initiative, so there is a significant cost to the treasury because of this exemption that is permitted, the tax credit. Second, the expectation by Canadians when they give money to charity, which is tax-receipted, is that it will be used for the charitable purpose for which the charity exists.
Senator Nancy Ruth: On to museums, then. My understanding is that the Canadian Museums Association is absolutely delighted with what the federal government has done in this budget, specifically to raise the indemnification limit from $1.5 billion to $3 billion and increase the maximum amount of level of support for each exhibition, from $450 million to $600 million. Can you tell us why you did that? What do you think it will mean for Canadians?
Mr. Flaherty: Sure. A number of senators who are here raised this issue with me. A number of the institutions, art galleries and others also raised the issue with me during the course of the pre-budget consultations and with the House of Commons Finance Committee as well.
It became apparent that the limit that had been there for many years was inadequate for the risk of hosting some of these exhibitions. There was one situation in particular where the profitable exhibition that was to be presented would lose all of its profit if they had to pay the large insurance premium they would have had to pay if we did not increase these limits.
These events, these exhibitions, are good for the economy. I am told that the projections for the upcoming Van Gogh Up Close exhibition, which is slated this year at the National Gallery of Canada — I see the signs up for it — suggests that it will attract between 200,000 and 250,000 visitors. That is good for the economy.
Senator Nancy Ruth: Thank you, minister.
[Translation]
Senator Ringuette: It is a pleasure to have you with us, Mr. Minister.
The first question I would like to ask concerns sections of the budget that the committee has not yet examined.
[English]
In your opening statement, with regard to EI you said that ``we will be removing disincentives to work.'' Honestly, minister, I have yet in my lifetime to meet people who do not want to work. Could you give us an example of these disincentives to work in the EI program?
Mr. Flaherty: Yes. Thank you for that question, senator.
For example, there is a disincentive in the system now for someone who wants to work part-time, that they may become disentitled to EI because of the number of hours they are working part-time, which is counterproductive. We actually want people to work, and we ought not to have the EI system discouraging them from working. That is one example of where there can be improvement.
In the broader picture, one of the pillars of this budget and this budget bill — the one in the fall will have elements of it as well — is to ensure we have more people available for work in Canada because this will be a significant problem in the future for our country, and it will hinder economic growth unless we have more people working.
One of the measures is to get rid of disincentives in the EI system, but we are also putting taxpayer money into encouraging seniors who want to work, to work; to assist persons with disabilities, many of whom want to work and are capable of working and engaging in the workforce; and to do much better in training efforts with respect to Aboriginal people, particularly Aboriginal youth, where the unemployment rate is quite significant. This is all part of a larger package.
Senator Ringuette: In terms of the part-time disincentive you are referring to — as I say, we have not delved into that section yet — that issue was resolved in the late nineties when the system went from weekly based insurance, with a minimum of 15 hours of work per week, to an hourly based system. However, minister, I will hold my further questions on this issue until we receive all the information from the department.
I had the impression prior to the tabling of the budget that you had done extensive consultation. Would that include consultation with provincial ministers of finance?
Mr. Flaherty: Yes.
Senator Ringuette: One of the issues in this budget is the exemption for cross-border shopping. You establish that by Budget 2013, which is next year's budget, there will be $17 million just in federal taxes. If you take 5 per cent GST, it means your department is estimating $340 million in extra duty-free shopping. However, that also indicates a loss of provincial sales tax to all provincial governments — except Alberta, of course — of $23 million, which could otherwise be allocated to provincial issues such as health care, education, even the food bank.
What did the provincial ministers indicated to you when you brought forth this exemption of taxes for cross-border shopping?
Mr. Flaherty: When we discussed budgeting issues at our meeting in British Columbia in December, I did not discuss this specific exemption with the provincial ministers. I can tell you the rationale for that. The limits were quite out of date, and they were not harmonized with the American limits. In order to protect businesses that are in border towns near the U.S., we did not touch the 24-hour exemption; we do not have one, and we will continue not to have one if this passes. However, the Americans do have a 24-hour exemption. The problem with that is it hurts stores and gas stations, and so on, in border towns. We did not touch that, but we harmonized with respect to the longer stays.
Senator Ringuette: The provincial ministers were not consulted. I guess the Retail Council of Canada was probably not consulted, either, because if you look at it on a yearly basis, with a loss in sales to the Canadian retail sector of $340 million, particularly in border communities, that is roughly equivalent to 11,000 full-time Canadian retail jobs.
I understand you are the Minister of Finance at a time when the objective is to reduce the federal budget deficit, and you have chosen not to acquire $17 million in taxes federally and $23 million in provincial sales tax to provide services to Canadians. Minister, with regard to the 425 pages of this budget, this is certainly not a measure that I see will be helpful for economic growth and job creation in Canada.
The Chair: Thank you, Senator Ringuette. Mr. Minister, do you wish to reply to that?
Mr. Flaherty: Yes, on just two things. First, this is very popular with consumers and with the Consumers' Association of Canada. It will also help us focus on issues of security rather than the processing of returning Canadian travellers at our borders. There are some 30 million overnight trips outside of Canada each year.
The Chair: Senator Runciman, you had an intervention earlier. Do you have another question?
Senator Runciman: With respect to the price discrepancy study, minister, we have had testimony at this committee on this exemption issue — some pro and some not so pro. I believe one of the arguments was about the competition it provides by driving down Canadian prices, as well as the increased security, and the concerns we have heard from consumers with respect to the significant discrepancies 20 miles away, or whatever the distance might be.
I am looking at the April employment figures that are showing the best two months in job growth since 1981. That is 140,500 new jobs. That indicates considerable confidence in Canada and in the government's economic plan.
Perhaps there is a sore thumb here in the province I represent. We did not see job growth in Ontario. How do you view that? What thoughts do you have with respect to the Ontario economy and how the budget may assist growth in that province? I know the auto sector is improving and bringing in new lines. What are your observations with respect to where the province is heading?
Mr. Flaherty: Thank you, Senator Runciman.
First, the job numbers are encouraging but I am always cautious about monthly numbers. It has been two good months, but we know that we are likely to have a lumpy recovery. We are seeing some of that in the United States as well this fiscal year and into the next fiscal year.
This is anecdotal, but in terms of the Ontario economy, I was at the first Kitchener-Waterloo manufacturing innovation conference about three weeks ago. The manufacturing base in Kitchener-Waterloo is growing and is doing very well. It represents about 17 per cent of the economy in that part of Ontario. As you know from your experience in Ontario, that is a high-tech area in the province but it also has a significant auto element.
You are correct, senator, the auto sector is doing very well. The average age of a car is something like 8.5 years, so the auto sector will likely continue to do well in the foreseeable future. We are very pleased about that and pleased that we invested taxpayers' money in General Motors and Chrysler a few years ago, along with the American government, in order to save those companies and their operations in Canada.
Other parts of the Ontario economy are strong. The financial services sector in the Greater Toronto Area is very strong and growing, with hundreds of thousands of well-paying jobs in that sector. The mining industry in the northern part of the province is doing well, with tremendous potential in the north and the Ring of Fire in Ontario and so on. I am not a pessimist about the manufacturing future of the province of Ontario.
Senator Larry W. Smith (Deputy Chair) in the chair.
The Deputy Chair: We have one more question on the first round, with Senator Eaton.
Senator Eaton: Thank you, minister, and welcome. Can you clarify something for me about the museum identification, which I hear they are jumping up and down about? There has never been a call on the Government of Canada to come through with any cash, has there? The identification program is more of a guarantee, is it not?
Mr. Flaherty: Yes.
Senator Eaton: It is an insurance guarantee, is it?
Mr. Flaherty: Yes, the program has never submitted a claim in its 12-year history.
Senator Eaton: All you have done is raise the guarantee, have you?
Mr. Flaherty: Yes. We have raised the potential indemnification from $1.5 billion to $3 billion, and an increase in the maximum level of support per exhibition from $450 million to $600 million. It is a potential liability.
Senator Eaton: In other words, the museums do not have to go out and buy insurance for their exhibitions; is that correct?
Mr. Flaherty: That is right.
Senator Eaton: Could you once more make something clear to me? In your economic action plan all you are doing with the extra money for charities is to enforce a long-standing rule that they devote 80 per cent of their activity to their stated goal; is that correct?
Mr. Flaherty: Yes, and to seek more transparency. That is the purpose of providing more resources to CRA.
Senator Eaton: Might they become as transparent as political party fundraising?
Mr. Flaherty: That is to be hoped for.
The Deputy Chair: Thank you, Senator Eaton.
I apologize; we do have another member to ask a question on the first round. It is Senator Peterson, from the province of Saskatchewan.
Senator Peterson: Thank you, minister, for being here.
As indicated earlier, we have had a number of witnesses before us going through this document and we will probably have a number more. When we drill down, we have trouble determining where the savings are and how much. We see this global number of $5.1 billion by 2015, but we are having trouble getting at where this will happen. It is almost to the extent of waiting until next year for the financial statements in order to find out where the savings are and how much are the savings. What is your comment on that?
Mr. Flaherty: Well, we set out in the budget the savings that will be accumulated from the various departments. There is more detail to come on that from the various departments as they go forward.
One of the big challenges is the collective agreements we have with the 400,000 employees of the Government of Canada. The Government of Canada is the largest employer in the country. At the end of the day the reductions in the workforce will be approximately 12,000 people, but it is necessary for the departments to send out notices to many more people than that because there are certain rights under the collective agreements for an employee to bid for someone else's job. This will take a year or two to work its way through the system because of the complexity of the provisions of the collective agreements.
We were very careful in what we did. We could have done austerity in Canada; we chose not to, unlike the United Kingdom, where hundreds of thousands of public servants are losing their jobs. Unlike some other countries in the world with severe fiscal problems, we do not have a severe problem. We have a modest problem and we are modestly able to make the savings over the course of three years, as you mentioned, in excess of $5 billion. That will allow us to balance the budget in the medium term without moving into the realm of austerity.
Senator Peterson: On another topic, the other thing we hear about is concern in relation to the level of household debt and that it could not withstand an interest rate hike. Do you have any comments on that?
Mr. Flaherty: Yes. We watch that carefully. Most household debt is not credit card debt but residential mortgage indebtedness. We watch that market particularly carefully. We have tightened the residential mortgage insurance market three times since we became the government in 2006. We continue to watch, and if we have to tighten it again we will tighten it again.
As you know, there are provisions in this bill with respect to CMHC, particularly governance and supervision of the financial institution part of CMHC — the securitization and commercialization part. CMHC has become a significant financial institution in Canada and will now be subject to the supervision of the Superintendent of Financial Institutions, just like the other federally regulated financial institutions. That office has a well-deserved, excellent reputation for regulation and supervision of financial institutions in Canada.
Senator Peterson: CMHC is getting very close to its limit on what it can do now. Is it your intention possibly not to increase that again?
Mr. Flaherty: There is no present intention to increase the limit.
The Deputy Chair: That is the end of round one. We have some questions for round two. Mr. Minister, maybe I could ask you a question first.
We have heard a lot about the potential of the North and the commitment that the government has in its economic action plan with the rules having been set up in terms of amendments for the Yukon Act, the Northwest Territories Act, and the Nunavut Act in the increase in funding. I guess we have $800 million, $400 million and $400 million for Northwest Territories, the Yukon and Nunavut. What can the people in the North expect from the government's actions?
Mr. Flaherty: They can expect significantly more infrastructure. The territories, as you know, are very exciting places in Canada today in terms of growth, particularly in mining, and they need infrastructure. They need to build infrastructure — bridges, roads and so on. The federal government determines the borrowing authorities or limits of the territories. In my discussions with the ministers and premiers of the territories, we arrived at these figures. All of the territories are happy with the borrowing limits that have been reached.
The Deputy Chair: What do you see as the biggest challenges to the increased flexibility that has been provided to the territories in terms of actually executing and developing the potential of the North?
Mr. Flaherty: It is a challenge for relatively small governments to take on some of these complicated projects, but we work with the territories. The federal government has major responsibilities for the three territories, so we do work with the territorial governments to assist them in accomplishing their goals.
There have been some difficulties in the last few years with a project here and a project there where we have had some discussions, and we have had to make some special provisions. However, it has worked out over time. The governments are trying to do their best to create jobs and growth for the people of the territories.
The Deputy Chair: Thank you. We will continue.
Senator Callbeck: I want to ask you about the Public Appointments Commission. That was part of the Federal Accountability Act in 2006. It was announced with great fanfare. It was to oversee, monitor, review and report the public appointments selection process. Under this legislation, it will be eliminated. Why?
Mr. Flaherty: As you know, it never got up and running because when we were a minority government we could not get agreement on the appointment of the person who was going to be the chair. Therefore, there was never a chair. It was moribund. That is true up to the present time. We now have adequate appointment reviews and, when we looked at it now, we realized that it is just not essential.
Senator Callbeck: You say it never got up and running, so there were not any appointments made under this commission. However, how much did it cost Canadian taxpayers?
Mr. Flaherty: I do not have that number. One of my officials will check that for me.
Senator Callbeck: With the cancellation of this commission, what mechanism will be put in place to oversee, monitor, review and report on public appointments?
Mr. Flaherty: We still have the PCO operations with respect to appointments. We go through quite a lengthy process when we look at appointments, for example, for the chairs of the various Crown agencies and boards. I am responsible for a group of them. There is an extensive process followed through the Privy Council Office to advertise positions, to ensure that people are qualified and to develop a short list. It takes a long time; it takes months and months to go through the process, but it works.
Senator Callbeck: It seems strange to me that this was, as I say, announced as part of the Federal Accountability Act and that it was so important. Now you say there could not be an agreement made with the other parties. However, now that you have the majority, I would have thought you would have gone ahead with it.
Mr. Flaherty: It would have been wonderful to go ahead with it on a timely basis. The other parties made it not possible for us to do that. In the meantime, PCO has developed its expertise with respect to appointments, so it has become superfluous.
Senator Callbeck: They have developed their expertise. Was the secretariat of the commission involved with that? This commission cost Canadians millions of dollars.
Eileen Boyd, Assistant Secretary to the Cabinet, Senior Personnel, Privy Council Office: I may be able to answer this. What is your question, senator?
Senator Callbeck: We are talking about the expertise in the Privy Council Office for these appointments. Was the commission involved with developing this expertise in the Privy Council Office?
I am trying to figure out what the commission did in the last two years. I know it cost the taxpayers over a million dollars a year, and there were no appointments made.
Ms. Boyd: Perhaps I could clarify that the purpose of the commission was never intended to actually make appointments. The Governor-in-Council has the authority to make the appointments. The secretariat to support the commission was established really to lay the groundwork for the commission. Therefore, the secretariat certainly did provide advice and looked at best practices. The work they did while they were operational was to identify best practices, which they did share with us at PCO. In fact, we did use a lot of the information that the Public Appointments Commission Secretariat developed in order to help improve the rigour of the appointments process.
Senator Callbeck: I have other questions on that, but in view of time I will go on to another one.
The Deputy Chair: We have only 10 minutes left. The minister is under a tight time frame and we have two other senators who have questions.
Senator Ringuette: Another very important issue that has come up is in regard to the temporary help services. The last report was in October 2010, 18 months ago, on a portion of the public service. It indicated that there were 2,624 contracts for full-time people. It does not indicate how many people per contract were employed.
There is this Treasury Board policy that is not being enforced — and it was amended by your government in January 2011 — and it states:
Government policy is that employees of temporary help agencies are to be used only in those situations where it is not feasible to assign exempt staff, departmental employees, or other Public Service employees. Temporary services are normally engaged when there is a short-term vacancy, when an exempt staff member or Public Service employee is absent for a short period, or when there is a temporary increase in workload for which staff is not available.
With 19,000 public servants receiving layoff notices, when are we going to stop these contracts for full-time and part-time employees as per the policy of Treasury Board?
Mr. Flaherty: I think what you have read is a Treasury Board guideline for contract workers. I respectfully would have to suggest you ask the question of the President of the Treasury Board and not me, since I do not do the Treasury Board guidelines.
Senator Ringuette: My next question is in regard to the 14 audits that are being removed from the obligations of the Auditor General of Canada, plus numerous other reports from departments, i.e., the Treasury Board report to Parliament.
Removing all these reports removes the accountability built into Parliament. Taxpayers elect members of Parliament to question actions or non-action of government through Parliament. In order to do that, they need their reports, all of these reports. Why are we removing all of these reports? Why are we removing all of these audits? There is no rhyme or reason, minister.
Mr. Flaherty: There actually is with respect to both points. With regard to the first point about the Auditor General, he in fact requested that these audits be discontinued because he felt that there was sufficient oversight and that it was a waste of money to continue with them. We respected his point of view on that and accepted his recommendation.
With respect to the reports, senator, I am sure you have seen them; I see them. We produce countless reports in the Government of Canada that serve primarily as doorstops, or whatever. They are just not read. Some reports are vital, are very important. The financial reports that my department does are very important, but there are many reports that are in part redundant, and some of them are just not necessary any more.
Senator Ringuette: When you are in the service industry, as the government is, removing the report of Treasury Board in regard to the state of the public service in Canada at a time where you are fundamentally laying off 19,000, potentially 12,000, employees I think is a mistake. I think it is a serious mistake not to ask Treasury Board to continue to produce that report on a yearly basis and have it reviewed by Parliament.
The Deputy Chair: We have to move on. We have time for one more question.
Mr. Minister, just before our last question with Senator Buth, you had mentioned earlier the total number of civil servants is around 400,000; is that correct?
Mr. Flaherty: Yes, that includes the Armed Forces.
The Deputy Chair: No one likes to see anyone lose their jobs, but if we keep it in perspective and look at the percentage of the total work population of the government, I would assume that 12,000 is a huge number. However, how does our total workforce compare to other countries? You mentioned earlier that some of the other leading countries are making much larger cuts. Could you give us that perspective? Then we will go on to Senator Buth for the last question and maybe you could give a wrap-up before you go, if you would be so inclined.
Did you have any comment on the actual downsizing of our workforce compared to the actual size?
Mr. Flaherty: It is being done with great care, I know, by the deputy ministers and assistant deputy ministers. They are trying to be as incisive, if I can put it that way, as they can to make sure that the civil service, the public servants remain strong.
We have an excellent public service. I saw it myself during the economic action plan back in the first six months of 2009 during the crisis when we had to get the infrastructure programs for the colleges and universities and municipalities out the door, and do it in a responsible way. That was accomplished back then by the federal public service, Treasury Board and others in a very successful way. When the Auditor General reviewed that, she gave it her stamp of approval. That is a great accomplishment.
We hired a lot more people during the time of the economic action plan phase one. Now, with some of these reductions, we will start moving back toward a size of government that will be more like it was in 2008.
The Deputy Chair: Thank you.
Senator Buth: I have a general question in terms of the responsible resource development piece, which is a large section of the budget, and will first make a comment that the Senate has actually referred that Part 3 to the Energy and Environment Committee to ensure that we have the expertise around the table to give it a really good look.
Clearly, part of Budget 2012 is based on the importance of natural resource development in Canada, and that affects almost every province and territory in Canada. Can you comment on the importance of resource development to the Canadian economy now and moving forward?
Mr. Flaherty: This is an extraordinary opportunity for Canada to compete with and take advantage of the growth of the emerging economies in the world. This budget looks to the emerging economies and not so much back at the old economies of Europe. The future of Canada really depends on our success with those emerging economies, many of which are served through our Pacific coast.
We have some major projects dealing with pipelines, with ports, in Canada. Some have been held up a long time. We certainly support full environmental assessments and processes, but we do want to see time limits so that proponents of major projects, whether it is hydroelectricity in Newfoundland and Labrador, or more potash development in New Brunswick, or Plan Nord in Quebec, or the Ring of Fire in Ontario, or the hydroelectric projects in northern Manitoba, or the tremendous mining, gas and oil projects in Saskatchewan and Alberta, or the development of the ports in British Columbia — there are major projects across the country that we would like to advance. As I say, we have a superb opportunity for our country now to leap ahead.
The Deputy Chair: Mr. Minister, we thank you for your time. You have been gracious to give us an hour to ask questions and listen to you. We know you have a very busy schedule. Do you have any closing comments or words of wisdom for us before you depart?
Mr. Flaherty: I realize this is a large bill, and I appreciate the fact that the pre-study is being done in the Senate and in various Senate committees, which is very helpful in terms of, I hope, moving the bill forward so that it can receive Royal Assent before the summer break. I very much appreciate the cooperation of senators and the committees in the Senate in accomplishing that goal.
The Deputy Chair: Thank you very much for your visit, sir.
(The committee adjourned.)