Proceedings of the Standing Senate Committee on
National Finance
Issue 40 - Evidence - May 22, 2013
OTTAWA, Wednesday, May 22, 2013
The Standing Senate Committee on National Finance met this day at 6:47 p.m., in a public meeting, to examine the subject-matter of Bill C-60, An Act to implement certain provisions of the budget tabled in Parliament on March 21, 2013, and other measures, introduced in the House of Commons on April 29, 2013.
Senator Joseph A. Day (Chair) in the chair.
[Translation]
The Chair: Honourable senators, this evening we are continuing our examination of the subject-matter of Bill C-60, An Act to implement certain provisions of the budget tabled in Parliament on March 21, 2013, and other measures, introduced in the House of Commons on April 29, 2013.
[English]
Honourable senators, this is our fourth meeting on the subject matter of Bill C-60, which is a budget implementation bill. This evening we are pleased to welcome the Honourable James Flaherty, Minister of Finance.
Mr. Minister, we thank you very much for being with us here today and we appreciate that you have a busy schedule, as does your team with you. We have been working on the bill, we have started on the bill, so we have a bit of an understanding of what is there, but we very much appreciate your being here to give us an overview on what you are hoping to achieve with this legislation. The floor is yours, sir.
Hon. James M. Flaherty, P.C., M.P., Minister of Finance: Thank you, chair. It is good to be here again. Usually you are across the street, but anyway we are here.
The Chair: They did not have enough chairs.
Mr. Flaherty: I am pleased to be here. I know this committee, unlike the House of Commons Standing Committee on Finance, is studying the entire bill. In the house it has been split up among various committees, so I appreciate how much work is involved in going through that. I thank honourable senators for all of that.
I also thank this committee for conducting the study done about price disparity between Canada and the United States and the report that resulted from that. That work was reflected in the budget. I will say a few more words about that in a moment or two.
I will try to be relatively brief so we can get on to questions. I will abbreviate some of the remarks.
[Translation]
I would like to present a brief overview of Bill C-60, Economic Action Plan 2013 Act, No. 1.
We are focusing first on what matters to Canadians: economic growth. In the last few years, however, Canada has had to deal with a difficult global economic message that has resulted in persistent threats from outside our borders, particularly from the United States and Europe, two of our largest trading partners.
In addition to that uncertainty, Canada is facing increasingly intense competition from emerging economies like China and India. In a constantly changing global market, we must continue to focus on the economy.
[English]
Let me talk for a minute about the big picture here. When we were first elected in 2006-07, our fear, from an economic and fiscal point of view, was the relatively high deficits being run in the United States and the accumulation of substantial public debt. We did what we could to protect the Canadian fiscal situation by paying down large amounts of public debt with the surpluses that we were running in our budgets. It amounted to about $38 billion before the crisis began, which was the credit crisis in August 2007, followed by the crisis in the real economy in the later part of 2008.
We changed course because we had to change course, so we created the economic action plan. We brought in the earliest budget in the history of Canada in January 2009. We ran a very substantial deficit of about $58 billion, but we also presented a plan to get back to balanced budgets in the medium term. We are on plan. We will be back to a balanced budget in 2015. We have already reduced that deficit, which I have mentioned, by well over half.
I think we are on the right track. The good news about the economic action plan back then was that it worked. Unemployment in Canada never went into double digits. We did not have a long, dark, persistent recession. We had a recession that was the shortest in the major industrialized economies. It was over three quarters, so it was over by the middle of 2009. Since then, Canada has had the best record, relatively speaking, of the major industrialized economies in the world.
Having said that, our growth is modest, and we have to be cognizant of that so we try to, in the budgeting process, hit that balance between moving on to balanced budgets but also some economic incentives built in to make sure that the economy continues to grow.
That is the bigger picture. We have had the creation in Canada of more than 900,000 net new jobs since the end of the recession. It is the best job growth in the G7.
I just came back from a meeting about 10 days ago in England with my colleagues in the G7, the bank governors and the ministers of finance. I can tell that you the view of Canada in the industrialized economies, the Western ones, is very positive. Their view is that we have strived for that balance and that we have been relatively successful.
As you know, most of Europe, certainly the eurozone, is in a recession, and it is a prolonged one in the eurozone. The U.K. has its own troubles, and the American recovery so far, outside of the housing sector, is tepid.
We have done relatively well. We just have to make sure we stay on track.
We have the lowest debt-to-GDP ratio in the G7. We have a triple-A credit rating, and that is not very common in the world anymore. It is the Scandinavian countries, Germany, Singapore and a couple of others, plus Canada. It is not very common anymore to have the highest credit rating.
The Vancouver Board of Trade said recently:
Given the state of the global economy — where we are seeing recessions, drops in national and sub-national credit ratings, and out-of-control deficits — we are truly fortunate in Canada to be contemplating balanced budgets, receiving AAA credit ratings, and growing our GDP.
The balance that we tried to strike in this budget — and as you know this is the first budget bill, and there will be another one in the autumn as we do every year — is between economic growth and some incentives in sectors of the economy that we think need some assistance, particularly infrastructure. We have had many meetings with the Federation of Canadian Municipalities, individual mayors, big city mayors, small municipalities, and we came up with a 10-year plan. This is the longest and largest infrastructure plan ever entered into by a federal government with municipalities in Canadian history.
The other thing we addressed of course is skills training because we have a gap. I know many of you meet with business people and people who are looking for jobs and so on around the country, and you know we have a mismatch. It comes up time and time again between educational qualifications, skills training and the availability of jobs. This is an issue we are trying to address through the Canada Job Grant.
Third, is manufacturing, because we know the manufacturing sector, particularly in southwestern Ontario, was damaged heavily by what the economists are calling ``the great recession.'' For that reason we continued the temporary accelerated capital cost allowance, at very great cost: it approaches $1.5 billion. This is a major budgetary decision when we do that, but we know that it gets used and it is long-term, it creates more investment in machinery and equipment in manufacturing.
[Translation]
A number of elements of the plan will be implemented in this legislation. For example, in order to build a stronger Canadian economy and promote job growth, Bill C-60 will provide tax relief for new investments in machinery and equipment; index payments from the Gas Tax Fund; extend eligibility for the mineral exploration tax credit; provide $18 million to the Canadian Youth Business Foundation; provide $5 million to the Indspire Foundation for post- secondary scholarships for Inuit and First Nations students; and undertake numerous other important economic initiatives.
[English]
Those are some of the items that are in Bill C-60. In addition, there are some other items that are not as big in spending terms but are important for, I think, our quality of life as Canadians.
For example, enhancing the Adoption Expense Tax Credit; introducing a new first-time donors super credit to encourage people who have not given to charitable causes to begin doing so, to donate to a charity; expanding tax relief for home care services; providing $30 million to support the construction of housing in Nunavut; investing $20 million in the Nature Conservancy of Canada to continue their work with respect to conserving ecologically sensitive land; providing $3 million to support training in palliative care for front-line health care providers; and committing $3 million to the Canadian National Institute for the Blind to expand library services for the blind and partially sighted.
Let me highlight a couple of other important measures in the legislation and then I will stop.
We have done a major thing with respect to the General Preferential Tariff. This comes from the 1970s, when it was considered a good idea in the foreign aid world — probably it was — to help out some of the poorer countries in the world that were just starting to develop by having a preferential tariff treatment for their goods coming into Canada. It has not been looked at since the 1970s, and we now have on the list China, Korea and some other countries that do not need that kind of foreign aid from Canada any longer.
In essence, it is a foreign aid program created in the 1970s by the Western countries to give these poorer countries preferential access. We are ending the preferences for those countries that have developed.
Nearly 80 per cent of the special breaks are now going to China, even though China now has an economy over four times larger than that of Canada. Without our changes, Chinese companies would continue to benefit from what is, in effect, a one-way trade deal, receiving special breaks and Canada receiving nothing in return.
Today's legislation also responds to the important recommendations that came from this committee's recent report on the U.S.-Canada price gap by proposing to eliminate all tariffs on baby clothing and select sports and athletic equipment, including skates, hockey equipment, skis, snowboards, golf clubs and other products that help promote physical fitness and healthy living. This is a tax break for Canadians of about $79 million per year.
We will watch this. I know the committee's report — Senator Gerstein was very much involved in that — covers a lot more than what I have just mentioned. What we want to do in cooperation with the Retail Council of Canada is watch these items in the next year, watch their retail prices in the United States and see if this works, see what effect the tariff eliminations will have with respect to these particular items. If it works, then we can do more. If it does not work, I suppose we can do less, but we will have a look a year from now.
[Translation]
Thank you for allowing me to present this brief overview of what Bill C-60 covers and how it helps to keep the Canadian economy on the right track.
[English]
I welcome your questions.
The Chair: Thank you very much, Mr. Minister. On the point you were just talking about in relation to our report, which focused, as you indicated, on the price gap between Canada and the U.S. for the same goods, we had recommended a review of as many of the tariff items as possible — I know there are many of them — to determine whether they are really necessary to protect Canadian industry.
Is that part of the watching you indicated you would be doing with respect to the two that were reduced? We thank you for that because the two general areas you have reduced or are proposing to reduce in this legislation are areas that we had recommended, namely, equipment, especially children's hockey equipment and sports equipment, and children's clothing. However, there are many other tariff items that might have been put in place to protect an industry in Canada that does not exist any longer. Is it necessary to continue those tariff items?
Mr. Flaherty: I am going to engage the help of one of my officials here.
Dean Beyea, Director, International Trade Policy, Department of Finance Canada: Thank you. We have looked very closely at the report. As the minister said, this is a test case in this budget, and we are looking broadly at the tariff. We will look closely at the Retail Council and the impact this will have on prices, and then we are looking broadly at the tariffs on an ongoing basis to see the impact they are having, particularly on the Canada-U.S. price gap.
The Chair: As you work with the Retail Council — we worked closely with them in developing our report — is this the type of information you will be able to share with this committee once it has been developed and we can see how this reduction has worked its way through to the ultimate consumer?
Mr. Flaherty: Absolutely.
The Chair: Thank you very much.
Senator Buth: Thank you very much, minister, for being here this evening. It is always a pleasure to have you before our committee.
You made the comment that you were at a G7 meeting. Can you perhaps comment more on Europe and the situation they are in, especially with the recent move of some of the countries away from their austerity programs? How do you think that will play out? How could it affect Canada and what we are doing to protect ourselves?
Mr. Flaherty: Those are very good questions. There is no question that we had some animated discussions about this issue, about trying to strike that balance between economic growth and incentives. There are some who are of the view that economic growth at any cost is very important, that not only should they do more in fiscal policy, but also they should continue doing what some of them are doing in monetary policy, which is printing money. I am sorry, it is called quantitative easing, or printing money.
This is worrisome. There are some of us, including Canada and a couple of others, who do not share that view. If we cannot prepare ourselves for the next crisis — there is no doubt that there will be another crisis down the road somewhere — then we make our countries vulnerable to the consequences of the next crisis, and we limit what we will be able to do, such as an economic action plan or something like we had in January 2009, if we do not have a solid fiscal footing.
There is some debate about that. There is some question also involving the commitment of some of the countries involved, the communiqué at the Toronto summit that created certain goals for debt-to-GDP ratios up to 2016, and then an agreement, which was confirmed by our leaders at Los Cabos at the G20 meeting, that we would also agree on goals for following 2016. This is important, and I am a believer in having targets and having goals because it focuses the mind.
Senator Buth: Could you comment about China, too? That economy has been slowing a bit. Where do you think that might go and how might it impact Canada?
Mr. Flaherty: I had a meeting recently with the finance minister from India in this building, and he was lamenting that the growth in the Indian economy was only 5 per cent last year. Wow, it would be kind of nice to have 5 per cent growth in the Canadian economy.
The emerging economies, the big ones, are suffering somewhat, but they are still growing at a rate that is substantial, quite frankly. We hope they continue to do so.
The eurozone situation is a problem with respect to demand for goods because the euro area overall, including the eurozone, is 400 million people. It is a huge economy, and it is weak.
Senator Buth: Thank you. I have some other detailed questions, but I will wait until the second round.
Senator Gerstein: Thank you, minister, for being here tonight. I noted with great interest that Budget 2013 continues the government's commitment to ensuring that public sector employees' compensation is both reasonable and fair and fair to both the employee and to Canadian taxpayers. Specifically, I think it is in Part 3, Division 17, which requires Crown corporations to receive approval of their negotiating mandate from Treasury Board before they begin labour negotiations, and Bill C-60 also requires Treasury Board approval of collective agreements before they take effect.
While it seems to be common sense to me, I see there are a few critics who claim this amounts to interference in the independence of Crown corporations. Could you comment on that?
Mr. Flaherty: Sure. Thank you, senator. We have done a lot of work on compensation issues with respect to people who work directly for the Government of Canada, with respect to members of the House of Commons and the Senate and with respect to contributions to our pension plans and so on. It is to make them more realistic and in line with what most Canadians do who do not work for the federal government, whether they are elected or not.
The Crowns, some of them, have not followed that path, quite frankly. Some make an argument about independence and so on. This is a democracy; this is a parliamentary democracy. No Crown is independent with respect to financial matters. They must respond to the minister responsible and, through the minister, to the government and the Parliament of Canada, including the House of Commons and the Senate, and ultimately through Parliament to taxpayers.
We are going to ensure that the Crown corporations follow similar procedures to what we follow with respect to government departments — that is, that they ensure they have their compensation proposals vetted before entering into them. That includes pension plans, pension arrangements and benefits, in addition to direct compensation.
Senator Gerstein: I am interested in what you said about accountability to ministers because I believe I read in the newspaper that the CBC's CEO Hubert Lacroix wrote a letter suggesting that perhaps he did not have to follow this route. He argued that it might even lead to litigation. That certainly does not fit in with what you described to us.
Mr. Flaherty: I received the letter and was disappointed because I think it follows the fallacy that we have some entities in Canada, funded by the taxpayers of Canada, that owe no fiscal duty to the taxpayers of Canada through Parliament. I frankly think that is a mistake. There are independent aspects to what certain entities, Crown corporations do, such as the independence of the press in terms of the CBC. If I wanted to do something not nice to the CBC as the Minister of Finance, I would have done it a long time ago. I have had lots of budgets to do it and we have not done that at all. In fact, we have maintained a high level of budgeting for CBC. It is also true for the Office of the Superintendent of Financial Institutions, the Royal Canadian Mint, the Bank of Canada. They all have a fiscal duty, and the ones I just mentioned all participated in the compensation issues that we addressed with respect to government overall because I asked them to. They all report to me, and I asked them to make sure they were following the general trend, which they did. I would hope the CBC and others would do the same thing.
Senator Gerstein: Thank you, minister.
Senator L. Smith: Thank you, Minister Flaherty. Senator Buth asked you about Europe. First, in your assessment of the U.S. versus Europe, who has the biggest risk or threat, or is it equal? Second, pitfalls that could affect our economy moving forward in relation to these two — what would they be?
Mr. Flaherty: I think the greater danger now is Europe because of the persistent recession, and the outlook is not positive. In fact, it is relatively grim for the next while, which reduces demand. They are not our biggest trading partners; the United States is, so for that reason, to the second part of your question, the potential pitfall for the Canadian economy would be a very modest recovery in the United States that founders. That would be a great danger. Still about 75 per cent of our exports go to the U.S. We saw very early on the U.S. housing market was coming back because suddenly the demand for lumber was way up. Mills were reopening in Quebec, British Columbia, Ontario, sawmills and so on. We know that is real. The rest of it will take some time to see, so I think that is the greatest danger for the Canadian economy.
The other one is addressed in the budget, and this actually concerns me. We have quite a few young people who do not fit into the economy right now. We talk about skills training and jobs and all that, but it is really fitting into the economy. It is not just the Canada Job Grant; we are doing more funding for apprenticeships and we have internships now in this budget. We need to ensure that young people, whether they graduated from community college, skills training courses or university, have their first shot at exposure and show an employer what they can do and get some experience working at whatever it is. That concerns me much more in some of the European countries where their youth unemployment rate is staggering. Our youth unemployment rate is higher than we would like. Historically, it is higher than the adult unemployment rate anyway, but we need to do better.
Senator Callbeck: Welcome, minister, and thank you for being here this evening.
I have a couple of specific questions I want to ask about. You mentioned the Adoption Expense Tax Credit. I assume it is non-refundable. Now, in the last number of budgets you have generally included one or two of these non- refundable tax credits. As we know, they are fine for the people who can get them, but there are a lot of people who do not pay any tax and are not able to take advantage of these tax credits. To my way of thinking, they are the people who need it the most. You have had the child tax, the child fitness, children's arts and I could name a lot of them. I know in my province, I think it is roughly 107,000 people who file income tax and 30,000 do not pay any tax, so 30,000 cannot take advantage of these programs. I wonder why the government continues with this. Why does the government not initiate programs that will help the poorest of the poor, who really need the boost?
Mr. Flaherty: I appreciate your point, senator. It is non-refundable. It is a tax credit; that is, one must pay tax in order to have the benefit of a tax credit. I personally, and as the minister, think that is right. We have reduced taxes overall. We have taken hundreds of thousands of people off the federal tax rolls in Canada. We do that by reducing rates overall, and then for those who are paying tax, we try to incent what we view as highly societally valuable behaviour, such as adoption.
Senator Callbeck: As I say, they are great for the people who can get them, but in my province, 30 per cent — and I understand that nationally 40 per cent of the people who file income tax — do not pay tax. They are wiped right out; they cannot take advantage of these programs.
Mr. Flaherty: That is right. It is a tax credit, and that is the nature of what we are doing. In each province, I am sure there is a different situation for whatever the means testing does or whatever they do with respect to their particular family services program, which I do not know for each province.
Senator Callbeck: I think it is very unfair, but I want to go on to something else.
The budget announced the Canada jobs training program, yet in Bill C-60 there is no mention of it. I know that program requires $5 million from the feds, $5 million from the provinces and $5 million from the employer. Have you had discussions with the provinces and can we expect to see money for this in the supplementary estimates later this year?
Mr. Flaherty: The current arrangement with the provinces does not expire for about a year, so we have to keep our obligations, obviously, under the current agreement. This is designed for after that. It gives us the opportunity to have almost a year to have discussions with the provinces about hopefully integrating what we are doing federally with what they are doing provincially and, very important, engaging employers for the first time directly in the process.
Here is the problem: We spend a lot of federal taxpayers' money, giving it to the provinces pursuant to agreements to get people into jobs. We do not get good reporting from the provinces. Some of the provinces actually use some of the money for other purposes, and we do not get the outcomes we want. We do not even know, from some provinces, what the outcomes are other than that they will come back and tell us, ``We have trained so many people.'' We do not know if they are working, if they have jobs. We know what it cost the taxpayers in order to do this, so we want to do a lot better at it. We think we can do that in a cooperative way. Yes, there have been discussions. It is not my direct responsibility, but I know there have been discussions. I also know that some of the provinces like the idea. They like the idea, particularly, of engaging employers so that you can match someone who has a job and someone who needs a job.
Senator Callbeck: In other words, we are looking at this program down the road, but did I not see this advertised on Hockey Night In Canada, in a 30-second spot, which I understand costs $95,000 for every spot or commercial.
Mr. Flaherty: We advertise the economic action plan, yes. We inform Canadians about steps in the budget.
Senator Callbeck: I thought this Canada jobs training program was being advertised, and yet you have not got tie-in from the provinces. In fact, I understand that Quebec has said it will not participate. It just seems to me it is pretty premature to be advertising that program when it is not put to bed.
Mr. Flaherty: It is not put to bed, no, but most budget items are not. The budget bill is not passed. You are just beginning your study of the bill. There are lots of items in there, too, but I think it is reasonable for the government to say, ``Here is the budget. Here are the measures in the budget. Here is why we think it advances the interests of Canadians, particularly for jobs, growth and the long-term prosperity of the country. Many parents are worried about this issue. There are lots of young people who are not matching jobs, and it is very worrisome to families. I know that in my own community. It ranges from young people with post-graduate degrees to young people who struggled in high school.
Senator Callbeck: There is no question that young people are having a tough time getting jobs. The idea of a full- time position for recent graduate is more of a dream than a reality. If they get a six-month job doing something, they seem to think they are lucky.
I am wondering why more money was not put into the student summer job program? I think the amount has been the same for the last three years. Roughly, it will provide jobs for 37,000 students.
Mr. Flaherty: Yes, we continue to fund it at the same level, which is quite significant because we do have a deficit and want to reduce it. We are going to balance the budget. Yes, I make decisions as Minister of Finance not to increase certain spending or sometimes to eliminate certain items of spending.
Senator Callbeck: Can I go on?
The Chair: I will put you on round two. I think your time is just about used up.
Senator Eaton: Welcome, minister. I would like to go back to the bigger picture for a minute. We are talking about a balanced budget quite soon. What effect will it have if the Americans keep on putting off Keystone for another year and the Northern Gateway does not get pushed through? What effect will that have, in the next couple of years, on our economy?
Mr. Flaherty: Senator, it would impede growth, but the assumptions we have made with respect to economic growth, which lead us to a balanced budget in 2015, are quite modest. They have been supported, by those experts and critics and so on who look at budgeting in Canada, as being realistic. In fact, we have had some people say that we could run a much bigger surplus than we have been saying we will run in 2015. I hope that is true. We are close to the line, and I am satisfied we will be above the line in 2015. I do not anticipate any large surplus. Should we have some fabulous new economic developments, substantial growth in the United States and big growth in our exports to the United States and to Asia, then will be in even more of a surplus situation in 2015.
Senator Eaton: That is nice to know. I do not know whether it was you or Mark Carney who talked about dead money. When you talk about the manufacturing sector, especially in southern Ontario and parts of Quebec, is it still very much a reality that people are sitting on money that could be reinvested in the country?
Mr. Flaherty: In the big picture, there is too much capital sloshing around the world, which is worrisome because we have seen this before. In 2007 this was so, and it tends to create asset bubbles. We have been very mindful of that in the Canadian housing market. I certainly have with respect to the fiscal part of it and Canada Mortgage and Housing Corporation's mortgage lending business, which I have been very careful about of late, with the Superintendent of Financial Institutions being involved there. I think we are watching our own situation carefully.
About dead money, since the governor said that last year, I think we have had a bit of a Lazarus-like reawakening. Investment in machinery and equipment has gone up quite significantly, and this is good for the Canadian economy because we know what follows from that. Growth and increased productivity follow from that, though not always a lot of jobs. This is one problem that the Americans are having. Their productivity is strong, but they were not creating, at least not until recently, the numbers of jobs that they hoped to create through the investments by their corporations. However, we are seeing good investments in machinery and equipment. Part of that, I am sure, is helped by the Accelerated Capital Cost Allowance because it is at 50 per cent instead of 30 per cent, a very substantial incentive for Canadian manufacturers to invest in their own operations.
Senator Chaput: Minister, it is a pleasure to see you. My question has to do with Part 3, Division 4, of the bill, which is the payments to certain entities or for certain purposes. When we talk about entities in the bill, it says foundations or not-for-profit organizations. Then there are not-for-profit corporations, and then there are registered charities. I am not sure what the difference really is between the three of them, but there must be one otherwise they would not be named differently.
Who decides, for example, that one foundation versus another one will receive payments from the federal government? Who makes that decision?
Mr. Flaherty: I am not actually certain. Let me look at it. I am not sure exactly what the issue is. We are just going to check on your good question about one entity instead of the other.
Let me ensure that I understand your question. In Part 3, Division 4, we have payments to certain entities, and there is a list of them. How did that come to pass?
Senator Chaput: Yes. Some entities, when you look at the explanation, are called foundations or not-for-profit organizations. Another one is a not-for-profit corporation, and then another one is a registered charity.
Mr. Flaherty: I can assure you that the nature of the entity, whether it is a foundation or registered charity, is not something that determines whether they receive funding in the budget. These are choices made among competing alternatives.
Senator Chaput: When they do get monies from the payments from the federal government, is the money being spent toward a specific initiative, or can it be added to an endowment fund in the case of a foundation, or does it have to be spent?
Mr. Flaherty: It is for specific initiatives as listed in Part 3, Division 4; for example, Genome Canada is for genomics research, and they spend the money on genome research. It is not to build up an endowment. Nunavut Housing Corporation is to build houses in Nunavut. Indspire is for Aboriginal people and their post-secondary education. All of that money gets spent.
Senator Chaput: The money gets spent and is not there to build an endowment fund.
Mr. Flaherty: No, it is not. We review all of these things; we review hundreds and hundreds of particular requests by very worthy entities in Canada. They are very worthy, but choices must be made.
Senator Chaput: In Part 3, you have seven of them — you include entities and purposes. In a year, how many foundations or that kind of fund would the federal government make payments to? Would you have many more?
Mr. Flaherty: It is not obviously in one budget; some of it is multi-year funding.
I do not know the answer, but I will get an answer for you.
Senator Chaput: Please send it to the committee.
Mr. Flaherty: I will send it to the committee, yes.
[Translation]
Senator Bellemare: I am very pleased to meet with the Minister of Finance.
I would like to ask two questions. We know that the economic situation is actually going quite well when we compare it with what is happening in Europe, but it is still precarious and that is cause for concern. In the budget, you have a vision of the balanced budget to be achieved. However, there are still elements in the budget to support demand in Canada in case there are problems, in particular in the infrastructure plan that is to be implemented over 10 years with the other levels of government.
My first question relates to that infrastructure plan. Could you compare it a little with the plan adopted in 2009? That was the $63-billion plan that was, in part, in any event, responsible for Canada's success in getting through the major financial crisis we experienced.
As well, could the 10-year infrastructure plan potentially be used if unforeseeable and catastrophic events were to happen in Canada?
My second question is about the Canada Job Grant. We know that in Quebec, the grant will be funded under the agreements that will be expiring in a year.
There are various fears in Quebec. For example, based on the conversations I have had with them, some businesses are afraid they will not be able to get that money because they worry that small and medium-sized businesses are not in a position to make the matching $5,000 investment. On average, in small businesses, that much money is not invested per employee. People are saying they may lose out, while others argue that ultimately, the grant might be used by companies that already do training.
That means it may have a substitution effect: businesses that are already using the grant, and are funding youth or other people, so they come to study, might get the grant, and that would add nothing to the total.
I would like to know your reaction to that and ask you about the regional budget envelopes; if a province were to have trouble meeting demand, would it be possible to set up a specific agreement or ways of doing things to encourage them to do on-the-job training?
Mr. Flaherty: I thank the senator for her question.
[English]
Let me deal with the second part of it first — the part about the employment grant. This will be negotiated with the provinces. Some agreements with some provinces may differ in certain respects from some other provinces. I do not know of a province — and I am not an expert on this — that does not invest provincial tax money in skills training. I think they all do, because it is so important. We spend billions of Canadian tax dollars every year on job training. We want to ensure the money is getting the job done. We want accountability, and we want to involve employers.
To try to answer your question about companies already doing skills training, the grant would be available to them if they are looking to upgrade employees. We will not exclude them; that was not the idea.
For small and medium-sized businesses, we can work with the numbers. It does not have to be precisely $5,000. The idea is to match the individual with the available job, and to get their foot in the door, ensure they are trained right and that they are actually gainfully employed, for everyone's benefit.
On the first part of your question about infrastructure, there are several things here. One, the municipalities were very keen on a long-term agreement. I hesitated about it, because, having been in governments for a long time, I do not like to enter into agreements that are beyond the term of a government. It is a bit presumptuous in a way, even though we have 20-year agreements. Will you be able to carry it through?
In infrastructure it is difficult. They satisfied me that it is. They have long-term projects. If you look at something like the new Pont Champlain in Montreal, that will take years. That is true with large infrastructure projects across the country. They need long-term financing, and if the municipalities are to arrange their financing in an advantageous way, they need the ability to go to financial sources and say, ``We are guaranteed this funding over this 10-year period'' and plan on that basis.
That is one of the reasons why it is different than what we currently have in the infrastructure plan. It is more generous; there is more money over the 10-year period. It is only for municipalities. It is not for others; it is not for colleges or universities. It was not designed like the big EAP infrastructure program. This is specifically for municipal infrastructure. It includes regional municipality infrastructure because, as you know, we have some regional municipalities across the country.
The other thing we did is we indexed the Gas Tax Fund at 2 per cent, which was a major request by the municipalities across the country. That will ensure that the Gas Tax Fund grows. This is a very valuable thing for municipalities.
Every time I meet a mayor or councillor in Canada, I ask, ``Are you leveraging the Gas Tax Fund?'' We have the top credit rating in the word in the Government of Canada. We are guaranteeing them 2 per cent of a fund. Now it is permanent, which we legislated last year, I think, or the year before. We now have indexed it, so you can literally take it to the bank and turn that into a very valuable source of funds to leverage.
[Translation]
Senator Bellemare: Concerning infrastructure, will the municipalities be participating? It is 50-50; it is shared infrastructure funding. The federal fund is used as a lever.
[English]
It will be shared with the municipalities; they, too, will have to put some money in the investment.
Mr. Flaherty: I want to answer it quickly, but I want to ensure we get a detailed answer.
[Translation]
Sébastien Badour, Principal Advisor, Policy and Communications, Policy and Planning, Infrastructure Canada: It depends on the initiatives. For the Gas Tax Fund, it may go as high as 100 per cent from the federal government, but it really depends on the programs.
Senator Bellemare: Right. And the total over 10 years represents about how much? Do we know?
Mr. Badour: For the Gas Tax Fund, it is $21.8 billion. For the GST rebate to the municipalities and the increase, it is in the order of about $10 billion.
For the new Building Canada Fund, it is $14 billion, and for the Public-Private Partnerships Fund, it is $1.25 billion. There is an existing $6 billion, for a total of $53 billion.
[English]
Senator De Bané: Thank you so much for being here today. I think the priority of the government to conclude free trade agreements is very good for expanding the markets of our country. What is your opinion about succeeding to include a free trade agreement with the European Union before they start negotiations with the U.S.? Are you optimistic that that will be achieved? What is your opinion on that?
Mr. Flaherty: I am not the Minister of Trade. I obviously participate in some of these discussions, but I do not know. If I could give you an informed opinion I could give you one, but I really cannot offer you an informed opinion. I can say that there is a lot of goodwill in the eurozone. I know all the finance ministers and central bank governors. I know there is a lot of good will towards Canada. There are the usual difficulties with free trade negotiations that have to be overcome. As in many negotiations, some of the most difficult negotiations take place near what one hopes is a successful conclusion.
Senator De Bané: Will the supply management in agriculture products be an obstacle for successfully concluding those free trade agreements?
Mr. Flaherty: I have been involved in these discussions generally for a lot of years now, including internationally in the Doha Round. A lot of people hoped the Doha Round would have success and it has not. Agricultural issues — I am not talking about Canadian negotiations, just generally — always come to the fore. This is true for Asian countries, for European countries, for the North American countries and the South American countries. Agriculture is always a major topic.
Senator De Bané: Another question, Mr. Minister: You have told us, and I think rightly so, that we can recognize that the performance of Canada's economy compared to others has been better. That being said, you really shoulder the whole perspective of Canada's performance. What are the weaknesses, bottlenecks, challenges for Canada to attain its full potential? Is it true, for instance, that the barriers between interprovincial trade are really a greater impediment and obstacle than the trade between the 27 European countries? I see how Canada has managed to perform in the last few years compared to others, but in your opinion, when you look to the big picture, what are those obstacles, breakdowns, impediments for Canada to attain its full potential?
Mr. Flaherty: I think it is actually very disappointing that we still have the barriers to interprovincial trade that we have in Canada. I was a provincial minister. Actually, they meet; there are ministers responsible for the interprovincial agreements and so on. I remember meeting with my colleagues one time, and I will not say which province had broken the rules, but the penalty was nothing. There was no consequence to breaking the rules, and it is not just interprovincial trade in goods, it is interprovincial services. It is the ability of people in one part of the country, if they are trained with a certain skill or profession, to practise their skill or profession in another part of their own country. That is very regrettable, and very little progress has been made that I can see.
One of the great needs we have is to get our resources to markets. Senator Eaton mentioned the Keystone pipeline. One way or the other we have to get our resources — I include agricultural resources and so on — to market. The great emerging economies for the most part are in Asia, and we are very fortunate to be in a country that has three coasts. We are investing a lot in the ports on all the coasts, and we need to do that. We need to ensure we can get our resources to market. If we fail at that, then we have a big challenge to economic growth.
The other one we have been talking about tonight is job matching, matching our young people to jobs, whatever they are suited for. I think that is vitally important because otherwise we run the risk of having a group of young people who feel like non-participants in our society.
Senator Moore: Thank you for being here. You started off talking about the big picture and the economic threats outside of the country. I would like to talk a bit about some economic threats inside the country. I will refer to some statistics from the Bank of Canada to the end of March of this year.
The ratio of household debt to personal disposable income is 167 per cent now, whereas our American neighbours are some 40 points less than that. They have been getting theirs down since 2008, and ours has gradually been going up and up. We are at a record high. Credit card debt is at $76 billion and line of credit is $257 billion. Despite the lower interest rates, people are not transferring that credit card debt to lines of credit where you get a lower interest rate and save money. They do not seem to be doing that. Our residential mortgages since 2009 went from $453.3 billion to almost $865 billion — a 91 per cent increase.
I know recently you have done some things to reduce the amortization period and equity requirement, but we have been at an all-time low in terms of the interest rates. A reasonable person would think that sometime they will go up, they cannot go much lower. There is no room to go down. Looking at your crystal ball, you must be concerned about these numbers. I would like to know what your thoughts are. Do we have a housing bubble that could be troublesome economically internally, and how do we get the debt load down? How do you convince people to get that down rather than going up?
The Chair: The time designated has expired. If you are able to handle that question, that is fine. We will have to deal with the other senators who wanted to go to round two with your officials.
Mr. Flaherty: The senator raises a very important issue, with respect to which I have been concerned about more than four years. It was about four years ago that I took the first action to start tightening the residential mortgages that CMHC and the two private companies in the business offer because we regulate that. I have done it three times since, including last summer. It is not solely that factor, of course, but there has been some beneficial effect in the residential housing market, particularly the condominium market. We have seen a softening of demand in the condominium market in Canadian big cities. This is a good thing. I welcome this. I see some people worrying about it. We do not have a bubble. I think if we had failed to take some action we would have a bubble, and this is not irrational. The Bank of Canada has had its policy rate at 1 per cent since 2010, I think, which results in lower residential mortgage rates from the financial institutions. It is not surprising that many people think they can afford more house and so on.
It was actually interesting in that some of the builders in 2012 — among other people, of course — spoke to me about what was going on, and they were worried that people were buying too much house, as they say, and paying too much for some condominiums that did not make sense in terms of what they perceived as the construction value, even if you add a strong market and low interest rates. We have tried to tighten up on that.
The Governor of the Bank of Canada has indicated that the policy rate of the bank is not likely to change for some time, so this is a persisting problem. As I say, we have seen some softening in the housing market, and I welcome that.
On credit card debt, with respect to credit card payments, people paying their credit cards on time have gone up, and that is a good thing. I check with the banks and other financial institutions about that fairly frequently. That is a good development. I agree with you that if people think about it and get a line of credit instead of using a particular credit card, it makes perfect sense to me.
I do have concerns about CMHC, concerns I have had for some time. CMHC, as some of you know, I am sure, was created after the Second World War to help soldiers get affordable housing in Canada. It has become a major financial institution. Quite frankly, in terms of governance — I am not criticizing anyone in particular — it needs to be operated more like a major financial institution. It also has responsibility for social housing, which is separate.
We made legislative changes in last year's budget, which are now law, about the securitization part of CMHC reporting to the Department of Finance instead of to Human Resources. As I said, the Superintendent of Financial Institutions and her team have been over there and have done some stress testing, and we will continue monitoring CMHC very closely. They were ensuring HELOCs, home equity lines of credit. I see the senator shaking his head; that is what I thought when I found that out. They are not doing that any longer because we prohibited it.
They still insure what are called portfolio residential mortgages. Those are residential mortgages held by the banks that are not insured mortgages, not high-ratio mortgages and therefore obligated to be insured. We talk about that in the budget this year, and we are looking at that as well. We just appointed a new chair of CMHC within the last few weeks.
Senator Moore: I know Bob Kelly. He is a good man.
Mr. Flaherty: Was he a good choice?
Senator Moore: Yes.
The Chair: Mr. Minister, we will continue to study the budget implementation act, Bill C-60, with the help of your team behind you. Thank you very much for being here and giving us the overview. I regret that we have three senators who wanted to get onto the second round, but all senators here had an opportunity to participate to some degree. I hope that our study will provide you with some insight and assistance once we finish.
Mr. Flaherty: Thank you for your continuing work and advice. Thank you, chair. Thank you, senators.
The Chair: We have, from Citizenship and Immigration Canada, Ms. Hiles, Ms. Paré and Ms. Melis. Who would like to start us out with Division 10, amendments to the Citizenship Act?
Alexandra Hiles, Project Lead, Citizenship Modernization, Citizenship and Immigration Canada: I will start. Good evening. It is our pleasure to be here this evening to outline the amendments proposed to the Citizenship Act in Division 10 of Bill C-60.
My name is Alexandra Hiles. I am the Acting Director of Citizenship Program Delivery and Promotion. I am joined by Karine Paré, Director, Cost Management; and Caroline Melis, Director General, Operational Management and Coordination Branch.
I will briefly describe the content of each clause in Division 10, and we will then be available to answer questions from committee members.
[Translation]
Since 2006, Canada has recorded the highest immigration levels in our history. As a result, the number of citizenship applications has risen, and the effect has been longer processing times and higher program costs.
The biggest problem in connection with the current citizenship program relates to longer processing times and the citizenship application processing fees, which have not changed in nearly 20 years.
[English]
The current $100 processing fee that applicants pay covers only 20 per cent of the actual cost to process a citizenship application. This means that Canadian taxpayers are subsidizing 80 per cent of the actual processing cost.
In addition to the processing fee, adult applicants pay a privilege fee of $100 for the right of citizenship, for a total fee of $200. The government proposes to address these issues through an increase to the citizenship application fee and additional funding to process applications.
Clause 170 would repeal the existing fee-making authority in section 27 of the Citizenship Act and replace it with a broadened authority permitting the Governor-in-Council to make regulations governing fees for services provided in the administration of the Citizenship Act and cases in which those fees may be waived by the minister. Existing fees made under the act shall continue to operate following the coming into force of the new authority. The proposed amendments would ensure that CIC can recover costs for enhanced and modernized services to be provided to clients beyond the costs that can currently be recovered under the Citizenship Act.
Clause 171 would exempt fees for services provided in the administration of the Citizenship Act from the application of the User Fees Act. These fees would continue to be subject to the Financial Administration Act requirements, notably that a fee for service must not exceed the cost of providing the service. There is an extensive process associated with conducting consultations in the manner prescribed under the UFA, which can take years.
[Translation]
My colleagues and I will be happy to answer any questions that committee members may have.
[English]
The Chair: As a point of clarification, it could take years under which act, under the Financial Administration Act?
Ms. Hiles: No, under the User Fees Act.
The Chair: Any other comments from anyone else? Let us talk about the User Fees Act because I had hoped that last day we would talk about that. You say what you do not like about it is that it could take forever to get an approval to increase under the User Fees Act. Is that correct?
Karine Paré, Director, Cost Management, Citizenship and Immigration Canada: I can explain to you why we are seeking an exemption under these amendments.
The Chair: Yes. Would you do that?
Ms. Paré: We are seeking an exemption because we want more flexibility and want to be able to shift the burden of the costs from the taxpayers to the users of the service. As previously mentioned by my colleague, we are already following a legislative framework that is set under the Financial Administration Act. The government is not allowed to charge more than the cost of processing, in this instance, the citizenship application request, so this is a boundary that we need to follow. Also, in reviewing fees we are looking at other factors, such as comparable countries in terms of similar service, making sure that Canada is still competitive in our fees. Also, we will be consulting through the regulatory process that is already in place.
The Chair: Was the procedure for increasing or decreasing user fees in the Financial Administration Act in place when Parliament saw fit to pass the User Fees Act?
Ms. Paré: Yes. The FAA was there. The User Fees Act was put in place in 2004, so the FAA was already in place at that time.
The Chair: Yet, you are saying that although Parliament passed the User Fees Act, you are finding it a little inconvenient and would like to stay with what was in existence before. I am starting to see a number of requests for exemptions under the User Fees Act.
The only thing you can tell us is that you are following what was already in existence under the Financial Administration Act and you are finding it a little inconvenient to deal with this new legislation. Is that what you are telling us?
Ms. Paré: Over and above the Financial Administration Act, in the User Fees Act there is a section that says we need to compare our service to that of other countries, so we are going to do that also. Our intention is to follow the spirit of the User Fees Act. However, the consultations will be done through the regulatory process.
The Chair: Do any other senators wish to follow up on that particular issue before I go to my list?
Senator Buth: Can you give us an idea of how long it takes to go through the User Fees Act?
Ms. Paré: It depends on the service and the number of users you need to consult, but based on historical data that we have, and depending on departments, it can take from two to four years, and we need to add the regulatory process to that time frame.
Senator Buth: Is the consultation process much broader?
Ms. Paré: You need to consult the users of the service, and for CIC that means many users. You also need to address the complaints. You do a fee proposal, and if there are complaints, you need to address them, which can take more time. That is why I say it depends on the scope of the users you need to consult and the outcome of the consultations. The regulatory process, however, also allows for consultation of the users.
Senator Buth: How would you consult the users?
Ms. Paré: It is done through publication in the Canada Gazette.
Senator Buth: But through the User Fees Act, which is a slower and longer process?
Ms. Paré: It can be through the Internet or different media.
Senator Buth: Thank you.
The Chair: I am wondering about this answer. I have expressed a concern about seeing all these exemptions in here. You told us at the beginning of your comments that as far as the Citizenship Act is concerned you have not had any increase for a good number of years. The User Fees Act is a fairly recent piece of legislation, so how do you know how long it would take to go through a process when you have not gone through it?
Ms. Paré: I assumed the time lines of the process based on other departments.
The Chair: You are just estimating based on hearsay information you have received.
Caroline Melis, Director General, Operational Management and Coordination, Citizenship and Immigration Canada: If I could, the passport fee was recently changed and went through the User Fees Act process. That is a comparative example for us of how long it would take for that process. That process took well over two years for the changes under the User Fees Act. They have been about four years in the process from end to end. That is a comparative for us.
The Chair: That was passport?
Ms. Melis: Yes.
Senator Chaput: You talk about consultation through the Canada Gazette. Is it consultation where you ask the users for reactions to whatever changes you want to make, or is it a consultation where you advise them of changes that will happen?
Ms. Paré: We propose the fees and then people have the opportunity to react and provide comments, and we need to look at this input as part of the regulatory process.
Senator Chaput: They have an opportunity to react?
Ms. Paré: Absolutely.
Senator Chaput: You take that into consideration and make your final decision?
Ms. Paré: Exactly.
Senator Eaton: You talked about other countries. How do we compare right now with charging $100 for processing citizenship? How do we compare to countries like the U.S. and Australia, high immigration countries?
Ms. Paré: Usually we compare with similar countries, the Five Country Conference, which includes the U.K., the United States, New Zealand and Australia. In Australia the current fee for citizenship is $270; in New Zealand it is $385; in the United Kingdom it is almost $1,500; and in the United States it is $673.
Senator Eaton: Thank you very much.
The Chair: Senator Buth, was your question answered?
Senator Buth: Yes, thank you.
The Chair: Thank you very much. You know my concern and that of some of my colleagues with respect to these exemptions being asked for by everyone. The other approach might be for you to speak to someone about repealing the User Fees Act if you think that the public and the taxpayer are properly protected under the Financial Administration Act.
Thank you very much for being here.
We will now go on to Division 11, which amends the Nuclear Safety and Control Act. Mr. Cameron and Mr. Albert are the two representatives of the Canadian Nuclear Safety Commission. Could you help us with Division 11?
Jason K. Cameron, Director General, Strategic Planning Directorate, Canadian Nuclear Safety Commission: Thank you very much, Mr. Chair. I have some short opening remarks, although I think we have one of the shortest sections in this budget. Thank you for spending a couple of minutes on the Canadian Nuclear Safety Commission. I have with me this evening Michael Albert, our Director of Corporate Planning.
We do not see this committee very often, so I may just take a moment to remind you who we are. We are Canada's nuclear regulator, and we regulate all nuclear activities in this country to protect health, safety, security and the environment and to implement some international obligations.
To carry out these activities in Canada, licensees must possess a licence from us, and for the most part they must pay a fee for that licence. The proposed technical legislative amendment that is included in the budget bill before you supports our current fee-charging structure. In some cases, the CNSC will receive a payment from licensees on an annual basis to support our regulatory activities, but these payments do not align with the government's arbitrary fiscal year end date of March 31, and in such cases, when a licensee has paid funds to us but they have not been used by us, they will lapse at end of the year, and then we as an organization will navigate the government's estimates process to get that money back. This legislative amendment essentially provides us with the opportunity to carry forward unspent revenues collected from these fees from one fiscal year to the next fiscal year.
Just to situate the licensees in question, there are about 1,200 to 1,500 of them across the country. They are small and medium-sized enterprises. Many of them will be unfamiliar to you as regulated entities by the nuclear regulator. They will include entities like pulp and paper mills, bottling companies, construction companies that have densitometry equipment that is used for paving. There are many applications of radiation devices across this country that are used in everyday applications, and these would be the type of licensees that would be in question.
We are here to answer your questions.
The Chair: From the licence fees point of view, are you subject to the user fee legislation?
Mr. Cameron: After your line of questioning that we have been hearing over the last few days, thankfully, no. In the case of the licence fees that we impose on entities that we licence, this is not a right, this is a privilege, and they must pay a fee for us to carry out our regulatory activities. Thankfully, no; but even in this case no new fees are being added. These are existing fees to licensees. We are essentially trying to find a way to ensure that no burden is placed on some small and medium-sized enterprises in this country.
The Chair: Is it full cost recovery? We do not have our estimates before us right now, but this committee is familiar with the Main Estimates.
Mr. Cameron: It is in fact full cost recovery. I will say that the licence fees in question are just a small portion of the CNSC's overall cost-recovery regime. Just to situate you, we are about 850 people who regulate all nuclear activities in the country. We have an annual budget of approximately $140 million; $100 million to $110 million of that is cost- recovered. For the most part, 90 per cent of them are recovered from very large entities that you may be familiar with — nuclear power plants, uranium mines. Nuclear power plants still provide 60 per cent of the province of Ontario's electricity. Those big licensees are able to align their fee structure to the government's year end, March 31 to April 1, so those ones are okay.
The ones that are in question are a smaller number covering about $4 million to $6 million of our activities, and they are the ones that are caught on an annual basis that do not align with the government's year end.
Senator Buth: My question has been answered.
The Chair: I have no other senators who have any questions. Thank you very much. We appreciate it. Good luck. Maybe we will have you back to our committee more frequently.
Mr. Cameron: We do, in fact, offer a service across the country as well. This one is actually free. It is a CNSC 101 course. We have offered it to parliamentarians in the past and we would be pleased to do so again, Mr. Chair.
The Chair: We will make note of that.
We will go now to Division 12. We have from Foreign Affairs — and we can still call them DFAIT for the time being — Mr. Graham Shantz, and from the Canadian International Development Agency, Mr. Tobias Nussbaum. Who would like to help us with the legislation here, which is Division 12?
Graham Shantz, Director General, North Asia, Foreign Affairs and International Trade Canada: We are both offering our assistance, and I will go first, with your agreement.
My name is Graham Shantz. Thank you for the introduction. I am Director General, North Asia. Mr. Chair, honourable senators, it is my pleasure to be with you today to speak on behalf of the proposed department of foreign affairs, trade and development act, Division 12 of Bill C-60.
[Translation]
In Economic Action Plan 2013, the government announced the merger of the Canadian International Development Agency and the Department of Foreign Affairs and International Trade, which will compose a new department and will be in a position to better harmonize our foreign affairs, development and trade policies and programs. The bill provides for CIDA and DFAIT to be combined in a new Department of Foreign Affairs, Trade and Development. The merger will take effect once Bill C-60 is enacted by Parliament and receives Royal Assent.
[English]
As indicated in Budget 2013, international development, poverty alleviation and humanitarian assistance will remain central to Canada's foreign policy. Indeed, they will be a core function of the new department.
The government has reiterated its commitment to effective and efficient international assistance. The new department will allow the government to achieve greater policy coherence and will maximize the impact of its efforts.
Poverty alleviation through development assistance and the provision of humanitarian assistance in times of crisis are a tangible expression of Canadian values, which the government will continue to advance on the international stage. While it will take some months to organize the core functions of the new department and to maximize policy coherence and synergies, I can assure senators that we remain committed to ensuring that the process is as seamless as possible both for employees and for our operations at home and abroad.
Indeed, lessons learned and best practices from previous amalgamations of Canadian departments and, indeed, from the experience of other countries are being considered, and external stakeholders and staff will be consulted along the way. Throughout the transition, the government will continue to take advantage of any opportunities to increase the effectiveness and efficiencies of its programs and operations.
I would now invite Mr. Nussbaum to provide an update on certain sections of the proposed DFATD act.
Tobias Nussbaum, Director General, Strategic Policy Directorate, Canadian International Development Agency: Thank you, Mr. Shantz, and good evening, senators. Before I start, I note that the new act builds very much on the current DFAIT Act and many sections remain the same. For that reason, I will just highlight briefly some of the clauses of the bill that contain new elements.
[Translation]
Section 2 provides that the Minister of Foreign Affairs has the management and direction of the new department. The powers and responsibilities assigned to the Minister of Foreign Affairs, including responsibility for international development, were already set out in the act currently in force.
Section 4 provides that the Minister for International Development is to be appointed, while the act in force provides that a minister may be appointed.
[English]
Moving on to proposed section 5, it indicates that the minister for international development, like the minister for international trade, is to act with the concurrence of the Minister of Foreign Affairs. This relationship between the ministers is unchanged. Proposed section 8 provides for the appointment of associate deputy ministers; again, this is mostly unchanged language. The provisions of proposed section 10 do not change the legislated role. The power, duties and functions of the Minister of Foreign Affairs already include international development. Under the proposed legislation, proposed section 10 states that the Minister of Foreign Affairs is to foster sustainable international development and poverty reduction in developing countries and provide humanitarian assistance during crises.
There are just a few more left. In proposed section 14, the roles and responsibilities of the minister for international development with regard to development in humanitarian assistance will be enshrined in law for the first time. According to the proposed legislation, the minister will be responsible for fostering sustainable international development and poverty reduction by doing four things in particular, which are noted in the actual legislation.
Those four points in particular are as follow: one, undertaking activities related to international development and humanitarian assistance; two, ensuring the effectiveness of Canada's international development and humanitarian assistance activities; three, fostering relations with other countries and organizations engaged in international development or humanitarian activities; and four, ensuring Canada's contributions to international development and humanitarian assistance are in line with Canadian values and priorities.
Lastly, section 19 provides for all CIDA contracts, leases, licences and so forth to become those of the new department. The powers, duties and functions of the current Minister of International Cooperation, president and employees of CIDA will transfer with them when they join the new department. This will help ensure continuity and a smooth transition to a unified department.
With that we will stop, and Mr. Shantz and I are available to take questions.
The Chair: Thank you. I have a couple of senators who have indicated an interest in pursuing your presentation.
Before I do that, Mr. Shantz, you talked about the new acronym. I wonder if you would like to have some reaction from the honourable senators as to what, instead of DFAIT, you will be calling it?
Mr. Shantz: It will become, upon Royal Assent, should there be Royal Assent, department of foreign affairs, trade and development, which could be described as DFATD and has been rendered as D-FAT-D.
The Chair: Are you getting any reaction to that?
Mr. Shantz: I think DFATD.
The Chair: Thank you.
Senator Buth: I think DFATD sounds better. Thank you very much for being here this evening.
I have a couple of questions. First, just a comment that after the announcement was made there was a letter from Lloyd Axworthy in one of our local papers in Manitoba — he was a previous Liberal minister, foreign affairs or international trade, though I cannot remember which — indicating that this was a very positive move. One comment he made was that other countries have their aid departments integrated into foreign affairs and trade. Can you comment on what other countries those would be?
Mr. Shantz: Thank you. We are actively studying those countries, and there are some with a very long track record of delivering excellent development assistance. That includes Denmark, for example, Norway, the Netherlands, Belgium, the United States and Australia as well. We have looked at their models. Nothing is really exactly 100 per cent an overlay of Canada and what Canada is doing and how we structure ourselves.
In Europe, for example, trade policy is generally in Brussels in the European Commission, so therefore the bilateral countries do not have trade policy. The department of foreign affairs, trade and development will have trade policy, so there is nothing exactly analogous, but there are certainly models that have helped inform our own deliberations. Clearly we want to choose the best experiences from those, and so we have been actively consulting and engaging with those departments to learn from their experience. They will admit they have made some mistakes and they have had some great successes, and we are determined to try to learn as best we can from their experiences.
Senator Buth: What kind of successes would they have talked about?
Mr. Shantz: It is the integration piece, which is what this act is trying to get at, the policy coherence between the various aspects of any country's engagement internationally, and in this case Canada's.
It is the foreign policy priorities of a government: the commercial interests expressed through trade policy, expressed through the Trade Commissioner Service and the development assistance programs that we have been delivering for years as Canada and that we want to ensure are delivered effectively.
I think the positive lesson is when you structure yourself to take into account all those sets of interests. It is a complex business when you are talking about development or about the international engagement of any country.
Senator Buth: Could you perhaps give an example of how that integration would occur, where we might have a policy on foreign affairs or diplomacy and what we are trying to do in a country in terms of aid?
Mr. Shantz: When you ground it in aid you are immediately talking about a certain subset of Canada's international engagement. For example, at the moment the government has over 170 missions around the world, of which there are countries of concentration. My colleague can talk more about those countries, but roughly 20, with some other countries of modest presence of roughly a dozen or so. There you are in a subset of 32.
If you want to look for a concrete example, I would highlight the announcement by the government today in Peru where you are talking about programs of assistance that are designed to strengthen education management, but also designed to strengthen the regulatory framework around resource management in Peru in the bilateral relationship between Canada and Peru. That obviously reinforces some of Canada's interests in Peru and assists the Government of Peru in its own framework for creating the conditions for economic prosperity and growth. That is good for Peru and it is good, in this case, for education in Peru.
That is an example of where you can better integrate, as a single entity, as a department, all those aspects into a coherent and coordinated relationship with a country.
Senator Buth: When this announcement was first made, some NGOs expressed concern that we would lose that focus on humanitarian aid through foreign affairs. When the bill came out, I heard from some of those groups saying they were reassured because the minister of international development is to be appointed. I want you to confirm that, and then can you comment on whether section 14, the requirements for the minister's focus, is the first time those requirements are proposed to be in legislation?
Mr. Nussbaum: Thank you for the question. With regard to the first point, yes, I think you are right that the reaction, once the bill was out, was one that focused on section 14.
You are right as well with this proposed act — the words you chose — a minister for international development will be appointed. That was not the case in the current DFAIT Act. You are correct about that.
With regard to whether this is the first time poverty reduction is enshrined in law, I would make mention of the existence of The Official Development Assistance Accountability Act, which also talks about the role of ODA. There is a three-part test contained in that act which talks about the need for ODA to satisfy the requirement of poverty reduction. It is not a new concept, but it is the first time that it will be part of the departmental act, per se.
Senator Buth: Is there any impact on what you called the official development assistance act?
Mr. Nussbaum: The Official Development Assistance Accountability Act.
Senator Buth: Is there any change to that act because of this?
Mr. Nussbaum: No. I think there was a minor amendment somewhere in this that changes something fairly peripheral, but the substance of the ODAAA, as it is called, is not changed.
Senator Callbeck: Welcome, and thank you for coming. Are there any cost savings from this merger?
Mr. Shantz: The government's intention behind the act is not cost-savings driven. Having said that, if there are efficiency gains then there are efficiency gains. To answer your question, no, there is no estimate, but it is not driven by an estimate or a target.
Senator Callbeck: I was reading that CIDA's budget, by 2014-15, will have been cut by 39 per cent. What are the main areas that have been cut?
Mr. Nussbaum: I am not sure which figures you are looking at. Certainly, when you look at the history of the CIDA budget over the last few years, the effects of this strategic operating review, which took place and were manifested in Budget 2012, certainly saw reductions in the CIDA budget. Beyond that, I cannot comment now on what any further budget reductions are because I am not aware of them post the Strategic and Operating Review cuts, which were in last year's budget.
Senator Callbeck: It says here that, in 2010, there was $1.8-billion cut. In 2012, it was $378 million.
Mr. Nussbaum: The 2012 cuts you mentioned were, as I said, part of those cuts that were manifested as part of the Strategic and Operating Review. I would have to get back to you on what was cut in the 2010 Budget figures that you just gave me.
Senator Callbeck: That would be great. Could you give us an outline for both of those years?
Mr. Nussbaum: Yes.
Senator Callbeck: Thank you very much.
Senator De Bané: When the Minister of Foreign Affairs already had authority over the minister of CIDA, what is the synergy you will have by merging the two together? CIDA already had to have policies congruent to the ones of Foreign Affairs, and they were under the authority of the Minister of Foreign Affairs. CIDA could not start a project in a country with which Canada has broken relations. In other words, the reason why we had that department is that its objectives were totally different from the ones of Foreign Affairs and International Trade. We wanted to be sure that, when we appointed an agency or a department to do some poverty reduction programs, they had to promote and favour untied aid programs. We are not going to help you on the condition that you buy Canadian goods. We are going to help you if you buy the best products that you need to do what has to be done, not to help Canadian companies to export to your country.
Those are the questions upon which I would like you to comment.
Mr. Shantz: Perhaps we could both try to answer, senator. I think the idea of coherence is that, when you are under one roof, you have perhaps more frequent interaction and more conversation. I take your point, from a legal perspective. Effectively, your point is that it was one roof, but, with this, I think we are confident, structurally, that we can deliver those more frequent interactions that would lead to greater policy coherence.
You make two other very important points. One is that the intention is not to abandon those principles and the assistance that they underpin. The delivery of poverty reduction and poverty alleviation, consistent with Canada's tradition and values, and the delivery of international humanitarian assistance remain in the act. That is not changing. You remind me of the fact that we untied aid many years ago — the loans — and we untied food aid. In fact, we were a champion of untying food aid, more recently. We are confident that, structurally, we can deliver greater policy coherence. My colleague might wish to add to that.
Mr. Nussbaum: Just very briefly, as Mr. Shantz said, we have untied all of our food aid. We have untied 99 per cent of the non-food aid. That will not change under the new structure. One point just about the notion of coherence: One statistic that has always struck me as being relevant to understanding the changed development landscape is that, if you go back to the 1960s, over 70 per cent of financial flows to developing countries consisted of official development assistance. Around the year 2010, that was down to about 13 per cent. That was during a period of incredible growth in the amount of ODA that was delivered.
What that means is that, increasingly, developing countries are relying on other financial flows to get their citizens out of poverty and to build sustainable economic growth. What that requires of donors like Canada is increased integration and coherence of the various tools that contribute to poverty reduction. I think that is one of the important background and trend-line arguments that argue for the importance of a more integrated approach.
Senator Moore: Thank you, witnesses, for being here. Mr. Shantz, you said that the merger of these two units under the new umbrella was not cost-efficiency driven. What is being achieved here? Are we looking at some synergies that make this more efficient? In the creation of this new department, are there jobs being cut or jobs being added? What can you tell us about that?
Mr. Shantz: Again, it is not a cost-driven exercise. Having said that, the government is constantly looking for greater efficiencies. In terms of any workforce adjustment, I do not know what those would be now. There might be, but that is not the prime driver. That would just be part of the process of integrating over time.
The other lesson that, in part, answers your question is that it takes time. That was the lesson we have learned from others. We will be a single entity from Royal Assent, but it takes 12 to 18 months, which is what we learned in the creation of DFAIT over 30 years ago now. There is a structural change that can happen and a cultural change that can happen, and it takes time to achieve the single, unified entity.
Senator Moore: I understand that, but someone must be looking forward, given the continuation of some programs. Maybe we are cutting some programs — I do not know — but someone must be looking at that in terms of the mandate, the programs being addressed and the people it takes to carry out those programs. Someone must have an idea.
Mr. Shantz: We know the size of DFAIT today. We know the size of CIDA today, and we know what happens when you put those two together. I want to make a distinction between —
Senator Moore: Tell us what happens; that is what we want to know here.
Mr. Shantz: The act talks about what happens at the highest level with respect to the ministers and with respect to senior management, the deputy ministers of the department. The remainder of it is an exercise in looking at how to achieve policy coherence. What structures do you put in place to achieve that? Again, I would highlight that the government's intention is not a cost-savings exercise. This is a policy-coherence exercise. I cannot give you a hard answer of numbers and bodies.
Senator Moore: You are looking at an increase or a decrease in money and in people.
Mr. Shantz: Again, assuming Royal Assent, we will stand up a department that will look, in size, more or less like CIDA plus DFAIT, but, again, I would highlight that this is just the standing up of the department. There are 20 countries of concentration and 16 of moderate presence for development assistance. There are 170 missions abroad. That can change, but not as a result of this process, as a result of other government decisions down the road. That is not part of the creation of this department.
Senator Moore: Are you saying that there will not be any changes in personnel?
Mr. Shantz: No, I am no the saying that. There might be changes in personnel. I cannot prejudge the outcome of the structure. I would only highlight that it is not a cost-savings driven exercise.
Senator Moore: I heard you say that three times. However, do you not sit down as a team and say we will be doing this and that, we see this going here and there, and therefore we may need more people for this and fewer people for that? Do you not do that? How do you plan?
Mr. Shantz: We plan by providing options for the government's consideration, senator, so that is the exercise we are going through at the moment. It is early days in terms of the planning of this.
[Translation]
Senator Chaput: How will the merger of the Department of Foreign Affairs and International Trade and the Canadian International Development Agency make international policy more coherent?
Since there will be new deputy ministers for International Development and International Trade who will be under the direction of the Deputy Minister of Foreign Affairs, who will answer questions from Parliament? Who will be boss, if I may put it that way?
Mr. Shantz: I would say it is the Minister of Foreign Affairs and International Trade. For presentation of the main estimates, it will be the minister.
Senator Chaput: And for Canada's international policy?
Mr. Shantz: Canada's international policy is a responsibility of the Minister of Foreign Affairs.
Senator Chaput: And do you think it will be easier with the merger?
Mr. Shantz: The government thinks it will be more coherent, yes, with the new department. There will be better coordination after the merger of CIDA and the Department of Foreign Affairs and International Trade.
Senator Chaput: You say there are examples of other countries that show this can work well?
Mr. Shantz: We think so. Things are happening in other countries like the United States, Australia and Europe. There are several examples.
[English]
The Chair: Thank you very much. As I understand it, gentlemen, there is a new piece of legislation — there is an act within an act here — and this new piece of legislation creates this new department, which now includes former CIDA activities. However, the Minister of Foreign Affairs is the boss. That is the way I read this, in my simple interpretation of this. Also, the deputy minister, who works for the Minister of Foreign Affairs, is the boss of all the deputy ministers; the others are associate deputy ministers who act as deputy heads for those other subsections. Am I reading this correctly?
Mr. Shantz: Yes. Although, as my colleague mentioned, the new act does call for a minister for international development to come about. It is to enshrine in legislation the requirement for a minister for international development.
The Chair: That minister is to act with the concurrence of the Minister of Foreign Affairs?
Mr. Shantz: That is correct.
The Chair: That is proposed section 5?
Mr. Shantz: That is correct.
The Chair: We look at proposed section 14, which my colleague referred you to, and that is subject to section 5. Whatever that sub-minister for international development has as a responsibility, it is done under the concurrence — that is the term used here — of the Minister of Foreign Affairs?
Mr. Shantz: Yes.
The Chair: Correct?
Mr. Shantz: Yes.
Senator Buth: Am I correct that right now, the foreign affairs minister is in charge of Foreign Affairs and International Trade, and the international trade minister works in concurrence with the Minister of Foreign Affairs?
Mr. Shantz: Yes, that is correct.
Senator Buth: So it is a similar situation, where you have the Minister of Foreign Affairs, you have international trade working in concurrence with foreign affairs, and now you have international development working in concurrence with the foreign affairs minister.
Mr. Shantz: That is correct.
The Chair: Just to finish up on my line: That blends in. We are just trying to understand the structure. This bill continues the Department of Foreign Affairs and International Trade; DFAIT is continued under a new name. How do CIDA and all its activities get blended into this, because there is nothing in here that says that the act that creates CIDA is continued under this piece of legislation?
Mr. Shantz: The legislation notes that employees of CIDA and employees of DFAIT, — both sets of employees — will be continued under the new department, the department of foreign affairs, trade and development.
DFAIT ceases to exist in that sense, as well, and both sets of employees become employees of the department of foreign affairs, trade and development under the transition section.
The Chair: Is CIDA now incorporated, or is there a piece of legislation that creates CIDA separate from DFAIT? What is happening? Do we need a clause in here that says the legislation that creates DFAIT is discontinued?
Mr. Nussbaum: The answer is no. CIDA always operated under slightly interesting legal parameters, because there was not a formal act that established the agency.
As I said in my opening statement, there was provision in the Department of Foreign Affairs and International Trade Act for a minister for international cooperation who, the words were, ``may be appointed.'' However, under the current DFAIT Act, that, too, happens under the umbrella and the ultimate legal authority of the Minister of Foreign Affairs.
That part is unchanged. In answer to your question, no other legislation is required to change the status of CIDA, because it did not have an enshrining act, per se.
The Chair: Previously, it was almost like it is now, except we are formalizing this and saying we will appoint associate deputy ministers and two sub-ministers, and it is all in this one piece of legislation and we will give it a new name.
Senator Callbeck: I want to follow up on what Senator Moore asked you. When this legislation, Bill C-60, goes through, this merger takes effect; is that right?
Mr. Shantz: That is correct — with Royal Assent.
Senator Callbeck: Yet, am I to believe that no one knows how these two structures will be blended together? In other words, what will the structure look like after the merger?
Mr. Shantz: The legislation speaks to the structure of the ministerial level and to the deputy minister level. The structures below that provide a certain solid structure — development, foreign policy and trade — and the structures below that will be a decision of the government, as it stands up the department. However, those basic structures that are the core of Canada's foreign policy interests, including development assistance, foreign policy and trade — meaning trade policy and commercial services — remain at the core of the department, as reflected at the deputy minister level.
Senator Callbeck: So the bill becomes law and the merger takes effect, and you know what that will be as to who is at the top level and the second level, but underneath that, there is no structure? Someone has to know how this thing.
Mr. Shantz: The central core functions of the department's finance function, which is critically important for the department as a whole, for both CIDA and DFAIT today, require that there be signing authorities and the personnel systems, et cetera, which will be there from day one. We are committed to making the department work from day one; that means the finance function, the obligations of the ministers under their various obligations to Parliament with respect to the finances. This is also driven at the policy coherence level with respect to policy coordination.
Mr. Nussbaum: We want to reassure you that there is lots of work under way to start mapping ideas and options for what a future structure could look like, but that work is in the heavy stages of analysis and option building, and those options will go to the ministers for their approval.
We do not want to give you the impression that we are not thinking of structures, but none of the decisions have been made on what those final structures will look like.
Senator Callbeck: I find that strange.
The Chair: Senator Moore had a supplementary question.
Senator Moore: Further to your questions and the questions of Senator Buth and Senator Callbeck, I am not clear as to what the ministerial structures will be. Is the department called the department of foreign affairs, trade and development?
Mr. Shantz: Yes.
Senator Moore: That is the new name if this gets Royal Assent. It will have a Minister of Foreign Affairs, right?
Mr. Shantz: Yes.
Senator Moore: Will it also have a minister of international trade and development?
Mr. Shantz: That is correct. There will be a minister for international development. In addition, there will be a minister for international trade.
Senator Moore: Plus the Minister of Foreign Affairs on top of everything?
Mr. Shantz: Yes.
Senator Moore: There are three ministers? There will be the Minister of Foreign Affairs, minister of international development and minister of international trade? Which one does CIDA go under, international development?
Mr. Shantz: Minister for international development.
Senator Moore: I am still a bit perplexed that you do not have something mapped out here. If I was doing this, I would have some ideas about people and numbers and money. I guess you operate differently. I do not understand how you would not have this.
Senator L. Smith: Is it fair to assume you have a model that you will be able to fine-tune, develop best practices and look around the world to see what other countries are doing that may be of help to you? Is this a work-in-progress and at a certain point in time, whether it is 12 to 18 months down the road, you will have to come up with something that will respond to Senator Moore's types of questions? Is that what you are looking at?
Mr. Shantz: Yes, that is right. As my colleague mentioned, there is a lot of work going on right now to examine what the options are, what the best practices are in other countries and what the best options are for consideration by ministers of how to structure this so it operates from day one. There is a good implementation plan beyond.
The Chair: I think you have given us a good understanding of the current state of affairs. We have had an understanding of the legislation and the structure that is contemplated by the legislation. We thank you very much for that. We look forward to hearing from you further in due course as to how this is developing.
Mr. Shantz: Thank you.
The Chair: We have just completed Division 12, and the time is concluded for this evening. Our next scheduled meeting is next Tuesday morning, and we have six more divisions that we hope to get through that day. The more preparatory work you can do in that regard for next Tuesday would be appreciated. This meeting is now concluded.
(The committee adjourned.)