THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
OTTAWA, Wednesday, December 6, 2017
The Standing Senate Committee on National Finance, to which was referred Bill C-63, A second Act to implement certain provisions of the budget tabled in Parliament on March 22, 2017 and other measures, met this day at 6:45 p.m., to continue its study of the bill.
Senator Percy Mockler (Chair) in the chair.
The Chair: Honourable senators, I see we have a quorum, so I now call the meeting to order.
My name is Percy Mockler, a senator from New Brunswick and chair of the committee. I wish to welcome all of those who are with us in the room and viewers across the country who may be watching on the television or online.
Now I would like to ask senators to introduce themselves, starting on my left.
Senator Marwah: Sabi Marwah from Ontario.
Senator Pratte: André Pratte from Quebec.
Senator Maltais: Ghislain Maltais from Quebec.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
Senator Eaton: Nicky Eaton, from Ontario.
Senator Forest: Éric Forest from Quebec, the Gulf region.
The Chair: This evening, we are continuing our study of Bill C-63, A second Act to implement certain provisions of the budget tabled in Parliament on March 22, 2017 and other measures.
It is a large bill, with 261 clauses in 317 pages. This afternoon, we completed Part 5, Division 3. Therefore, we will continue this evening with Division 4 of Part 5.
To the officials of the Department of Finance, thank you very much for your availability and for helping the National Finance Committee of the Senate to have a better comprehension, for clarity, in order that we can share information with the Canadian public.
Honourable senators, before I ask the officials to introduce themselves, I would like to bring to your attention that Part 5, Divisions 4, 5, and 6 are of the same context. We will have the officials identify themselves. They will make their presentation and then questions will be asked, if I have consensus around the table, on Part 5, Divisions 4, 5, and 6 simultaneously. Do we have agreement, honourable senators?
Hon. Senators: Agreed.
The Chair: For Division 4, I will ask the Department of Finance officials to introduce themselves and designate the person who will be speaking for them.
We will do the same with Divisions 5 and 6. You will introduce yourselves as the persons responsible for making the comments and giving information.
I see here in the notes that are being shared with me that we will commence with the presentation on Division 4, followed by Division 5 and then Division 6.
I ask Lynn Hemmings and Daniel Robinson to introduce themselves and make their presentations.
Lynn Hemmings, Senior Director, Financial Sector Division, Financial Sector Policy Branch, Department of Finance Canada: My name is Lynn Hemmings, Senior Director, Payments Group, Department of Finance and Acting Director General, Financial Sector Division, Department of Finance.
Daniel Robinson, Senior Economist, Framework Policy, Financial Sector Policy Branch, Department of Finance Canada: My name is Daniel Robinson, Senior Economist, Financial Institutions Division, Department of Finance.
The Chair: For Division 5, one of the people I see here is Marie-France Loranger. Would you please introduce yourself?
Marie-France Loranger, Senior Adviser, Financial Sector Policy Branch, Department of Finance Canada: Good evening. My name is Marie-France Loranger, and I am the senior analyst in the Financial Stability Section, at the Department of Finance.
The Chair: Thank you, Ms. Loranger.
Christopher Graham, please introduce yourself.
Christopher Graham, Principal Economist, Regulatory Policy, Bank of Canada: I am Christopher Graham from the Bank of Canada, Financial Stability Department.
Hugues Vaillancourt, Director, Financial Sector Policy Branch, Department of Finance Canada: Good Evening. My name is Hugues Vaillancourt, and I am the Director of the Payments Policy Section at the Department of Finance.
The Chair: I have been informed that Mr. Robinson will make the presentation, to be followed by Ms. Hemmings and then Mr. Vaillancourt.
Mr. Robinson, the floor is yours.
Mr. Robinson: I am here to discuss Part 5, Division 4, of the bill. The proposed amendments in Part 5, Division 4, would clarify the treatment of and protections for eligible financial contracts such as derivatives in a bank resolution process.
Canada’s bank resolution toolkit enables the Canada Deposit Insurance Corporation, CDIC, to manage the unlikely failure of a bank or other CDIC member institution in a manner that protects depositors, taxpayers and financial stability. As part of this toolkit, the Canada Deposit Insurance Corporation Act includes provisions aimed at preventing the mass termination of eligible financial contracts during a CDIC resolution process.
These existing provisions are important because mass termination of these contracts could be highly destabilizing to a bank in a resolution, exacerbate market instability at the time, and frustrate authority’s ability to maintain continuity of the bank’s operations and restore it to viability.
The proposed amendments clarify these existing stay provisions and are aimed at ensuring an appropriate balance between a robust bank resolution toolkit for CDIC and adequate safeguards for the rights of parties to these contracts to manage their risks. The amendments will allow Canadian banks to continue participating in key financial markets on a level playing field with their international peers. This will help Canadian banks, as well as their clients and customers, to effectively manage their risks.
I would be happy to answer any questions you may have once we’ve completed the introductions. Thank you.
Ms. Hemmings: I will start off by providing some context around the Emergency Lending Assistance amendment.
The Emergency Lending Assistance is a loan or advance to eligible financial institutions and financial market infrastructures at the Bank of Canada’s discretion. Emergency Lending Assistance is designed to provide last resort liquidity to individual financial institutions that are facing serious liquidity problems.
In 2005, the Bank of Canada modified its Emergency Lending Assistance policy to include mortgages as acceptable collateral. The decision to accept mortgages as collateral significantly increased the capacity of eligible financial institutions to draw on Emergency Lending Assistance. It also provided the Bank of Canada with greater flexibility in the types of collateral it may choose to accept.
The Bank of Canada is legally required to lend on a secured basis, meaning it must obtain a valid first priority security interest in any collateral pledged for Emergency Lending Assistance. In the case of collateral backed by real property such as mortgages, this requires the transfer of the legal title and its registration in the land registry or title office where the mortgage is located. This process is time consuming and therefore effectively limits the quantity of collateral that can be pledged.
The proposed amendments seek to overcome these impediments and allow the Bank of Canada to take mortgages as collateral in meaningful quantities by allowing loans secured by real property to be pledged by assignment only, that is, transferring the rights to the mortgage without registration. Thank you.
Mr. Vaillancourt: The Payment Clearing and Settlement Act gives the Bank of Canada responsibility for the oversight of payment and other clearing and settlement systems in Canada for the purpose of controlling systemic risk and payments system risk. The proposed amendments enhance the oversight powers of the Bank of Canada by further strengthening the Bank of Canada’s ability to identify and respond to risks to financial market infrastructures in a proactive and timely manner.
The proposed amendments include expanding the Bank of Canada’s power to issue directives for a broader range of risks and situations; providing the Bank of Canada with the power to approve significant changes; and clarifying the Bank of Canada’s ability to enter into oversight agreements with financial market infrastructures. The changes would make it easier for the Bank of Canada to exercise its powers and perform its duties and functions, by providing more graduated tools to improve the effectiveness of the bank’s oversight powers over financial market infrastructures.
Senator Marshall: Could each of you indicate to us why these amendments are being made at this time?
Mr. Robinson: I’m happy to go first with respect to Division 4.
The proposed amendments to the Canada Deposit Insurance Corporation Act would respond to concerns raised by stakeholders regarding the interaction between bank capital rules, on one hand, and certain interpretations of the CDIC Act stay provisions relating to the treatment of eligible financial contracts in the bank resolution process.
In particular, stakeholders indicated, if the CDIC Act provisions were not clarified, the ability of Canadian banks to participate in key financial markets, notably for derivatives and securities financing transactions such as repurchase agreements or repos, as they are known, could be adversely affected.
The amendments would support the ability of banks to continue participating in these markets, as they do currently, on a level playing field with their international peers.
Senator Marshall: When you refer to stakeholders, are you referring to the banks?
Mr. Robinson: In particular, yes.
Senator Marshall: Those are the banks. Would this have gone out for consultation to the banks?
Mr. Robinson: Yes.
Senator Marshall: What kind of response did you receive? Was this favourable to them?
Mr. Robinson: Yes, we consulted with the bank on these proposed amendments.
Ms. Hemmings: In terms of the Emergency Lending Assistance, this amendment essentially codifies what has been the Bank of Canada policy since 2015 in terms of accepting mortgages as collateral in the case of providing Emergency Lending Assistance.
We are just codifying a policy that has been in place for a while.
Mr. Vaillancourt: For the changes to the Payment Clearing and Settlement Act, those changes are being proposed at the moment as an ongoing review to make sure the Bank of Canada has the appropriate tools and is in a position to provide early intervention and effectively able to control the systemic risk.
Senator Marshall: On the Emergency Lending Assistance, who decides when an institution is entitled to emergency assistance?
Mr. Graham: That is at the discretion of the Bank of Canada so it’s ultimately up to the governor. We would internally be making recommendations to him, and he would consult with his advisers and come to a decision on whether an institution should receive ELA.
Senator Marshall: Do you have to meet certain criteria or is it subjective? If so, could you give me a brief flavour?
Mr. Graham: Yes, there are criteria published in our policy on our websites.
For federally regulated financial institutions including the large banks, they would need to meet two criteria. First, they need to be a member of Payments Canada, which all banks are by definition. Second, they need to have, in the view of the Bank of Canada, a credible recovering resolution framework.
What we are getting at there is the idea that the ELA would be provided as a bridge somewhere to ensure that it supports coordinated action across agencies either to maintain the institution's liability or restore it.
Senator Eaton: To continue along with Senator Marshall, I’m not as sophisticated financially as she is. In 2008, when the crash happened and big firms in New York crashed because they were holding so many mortgages, Canadian banks were sort of a bright star around the world.
Did you learn anything from the crash? Did we make changes in 2008, or is it just now that things have changed so much that we have to make changes?
Mr. Graham: I can respond to that.
As you said, Canada came through the crisis quite well, but we did learn internationally and that fed into the ELA policy changes mentioned earlier in 2015. On the idea of supporting a credible recovery and resolution framework, there has been a broad move internationally across countries to put in place for financial institutions, especially systemic ones, recovering resolution plans to make sure they can know what to do to get out of stress when they are in it. That fed into our revised policy to ensure that ELA is one aspect of supporting that.
Senator Eaton: We often have Canada Mortgage and Housing Corporation here before us. There was a fear, certainly last year, that if the rates went up there would be quite a few people who would not be able to pay their mortgages.
With the rates looking like they might go up this spring, and you were talking about making it easier for the banks to take mortgages as collateral, are you worried that people will not be able to walk away from their unpaid mortgages?
Mr. Graham: It is something we take into account. When we accept collateral for Emergency Lending Assistance we don’t give a loan that is of the full value of the collateral. We apply what we call a haircut or give an advance that is of lesser value than the collateral.
Senator Eaton: You take that into account.
Mr. Vaillancourt, I believe, at one point, you talked about financial market risks, saying that you wanted the power to issue directives. Could you give me an example of a directive?
Mr. Vaillancourt: I’d like to take a step back, if I may.
Senator Eaton: Absolutely. Please help me to understand.
Mr. Vaillancourt: Under the Payment Clearing and Settlement Act, the governor is responsible for ensuring that payments systems control systemic risks and payments system risks. The system, then, is responsible for that. Currently, the governor can issue a directive if a systemic risk or a payments system risk is —
-- “being or likely to be materializing.”
Senator Eaton: Does it call attention to it? Is that a directive?
Mr. Vaillancourt: The purpose of the directive is still to ensure that systemic risks or payments system risks are being controlled. The proposed amendment reduces the threshold at which the governor may intervene. The idea is to give the governor the flexibility to intervene more quickly than is currently possible. The language in the current act refers to a risk that “is being or is likely to be inadequately controlled,” whereas the proposed amendment would change the language to a risk that “could be inadequately controlled.” Thus, the purpose of the amendment is to give the governor the flexibility to intervene sooner in situations when the governor is of the opinion that the operation of the payments system poses a systemic risk.
Senator Eaton: Thank you.
Senator Pratte: Did you base the change in language on what is being done internationally, for instance, on international standards? Conversely, did the bank simply review the act and determine that it did not provide the governor with the necessary flexibility? A considerable amount of work is being done internationally.
Mr. Vaillancourt: That is a good point. Yes, the proposed amendments essentially bring the bank’s powers in line with best practices around the world. The bank’s risk management systems rely on financial market infrastructure principles, which are internationally developed standards. It is based on those standards that the Bank of Canada establishes its own risk management principles. The proposed amendments are modelled on those principles, which were developed by international agencies, in order to root the powers in a solid foundation and ensure that the bank’s practices are consistent with international practices.
Senator Pratte: Thank you.
Senator Forest: In 2008, international standards were brought into alignment. That brings me to my question. Earlier, we heard that, in order for the bank to intervene, in other words, in order for a financial institution to be eligible, it had to meet two criteria: it had to be a member of Payments Canada and it had to have the possibility of recovering. Those are the only two criteria, then, at the governor’s discretion when considering whether an institution is eligible for assistance, are they not? Is that not a bit flimsy?
Mr. Graham: Yes, those are the two standards required, the two requirements that we lay out in our policy for Emergency Lending Assistance. If they meet those two criteria, it doesn’t automatically mean that the governor would provide Emergency Lending Assistance. It just means that once they pass those hurdles then he can have that discussion about whether or not they should.
Senator Forest: Does the financial institution have to submit a recovery plan before the governor makes a decision?
Mr. Graham: Not necessarily. The way we lay it out in our policy is that we speak of a credible recovery resolution framework. Framework is a broader concept than just a document or a plan.
If an institution has a plan that helps support the credible framework but is one piece. We would look to larger institutions in particular. We would expect they would have one but it’s not explicitly required.
Senator Forest: In light of how much money is at stake, do you not think institutions should provide the bank with a recovery plan before it decides whether or not to intervene?
Mr. Graham: Yes, I do. The distinction I will make, for instance, is that OSFI, the Office of the Superintendent of Financial Institutions, will require certain institutions to have a document prepared that they call a recovery plan. Likewise, CDIC, the deposit insurer resolution authority, would have a plan that it calls a resolution plan.
If we have those then that does a lot of the work for us in terms of assessing this framework. If that does not exist, for example, for a smaller institution, that doesn’t mean we cannot consider them to have a credible framework. It means we would be looking at other information at the time that might end up being in a plan some day but at the moment is not. We would just be discussing with the institution and with the relevant regulators as well.
Senator Marshall: I’m just looking at the Payment Clearing and Settlement Act again. Let me make sure I have my right notes here.
Who funds the Emergency Lending Assistance? Where is the source of funds?
Mr. Graham: The Bank of Canada is in a unique position as the central bank of Canada. It’s the only body that can create currency. We fund it ourselves.
Senator Marshall: It just prints the money and uses it.
Mr. Graham: Yes.
Senator Marshall: Is that active? Is there a lot of lending under the Emergency Lending Assistance Program?
Mr. Graham: No. It’s very rare that we use this. It’s an exceptional facility that is only meant to be used in extreme circumstances. The last time we used it was in 1986.
Senator Marshall: In that instance would you have recovered the funds after? It’s like a loan, is it?
Mr. Graham: That’s right. It’s a secured loan that would be paid back.
Senator Marshall: In that case it was repaid, was it?
Mr. Graham: Yes.
Senator Marshall: I have another question, if I can find it here now.
Again, under the Payment Clearing and Settlement Act, would those amendments have been proposed by the bank?
Mr. Vaillancourt: We’ve been working closely with the Bank of Canada.
Senator Marshall: I’m just wondering about the impetus for the change. Would it have been the bank or would it have been the government?
Mr. Vaillancourt: The bank is fully behind and supporting those changes because it helps them better manage and control the risks.
Senator Marshall: This is something that the bank would like.
Mr. Vaillancourt: Absolutely.
The Chair: To the officials, thank you very much. This concludes consideration of Divisions 4, 5 and 6.
We will move, honourable senators, to Division 7, NRCan, the Northern Pipeline Act, at tab 7 of the binder.
If you’ll permit me some latitude, as chair, I’ll ask the witnesses to introduce themselves and then make their presentations. As you have seen prior, senators will then be asking questions.
Lorraine McKenzie Presley, Director General, Portfolio Management and Corporate Secretariat, Natural Resources Canada: My name is Lorraine McKenzie Presley, Director General, Portfolio Management and Corporate Secretariat Branch, Natural Resources Canada.
Victor Ndihokubwayo, Legal Counsel, Natural Resources Canada Legal Services, Natural Resources Canada: Victor Ndihokubwayo, Legal Counsel.
Ms. McKenzie Presley: If you will permit me, I will describe the issue we’re trying to correct through the Budget Implementation Act and the solution for consideration that we propose to go forward with. Then we can respond to questions.
The Northern Pipeline Agency is a federal agency within the Natural Resources portfolio established by the Northern Pipeline Act. It is responsible for administration of the act.
The agency’s core mandate is the federal regulation of the planning and construction of the Canadian portion of the Alaska Highway Gas Pipeline project.
The issue at present is that the agency is overcollecting its costs from TransCanada pipelines, the project proponent. This is an unintended consequence of the current cost recovery regulations, as the agency is required to use estimated operating costs as set out in the Main Estimates to build the proponent. It’s unable to fully remit any overcollected funds back to the proponent through this current billing process.
Our solution is to resolve the overcollection of the funds permanently through a minor technical amendment to section 29 of the Northern Pipeline Act. Specifically, we’re seeking a technical amendment to the cost recovery framework used by the agency, as set out in section 29.
There are two aspects to this amendment:
First, the amendment would allow the agency to recover its full costs, its full operating costs, from the project proponent based on actual costs rather than on estimated costs. Specifically, it would change the formula that the agency uses through which the government recovers the cost for the running of the agency
Second, the amendment would remove the requirement to use the National Energy Board’s cost recovery regulations. The Northern Pipeline Agency uses the regulations of the National Energy Board, the unintended consequence of which is to cause the agency to overcollect from the project proponent.
Why are these amendments being made at this time? Budget 2017 identified the need to modernize or streamline the framework for recovering costs for this project. The government believes that this amendment would improve the existing cost recovery mechanism of the agency, making it more efficient and enhancing transparency.
It is a federal responsibility to correct the overcollection issue, to enable the repayment of the project proponent, and to do so as soon as possible, in other words, to reduce the liability.
To conclude, the proposed amendment in the BIA will resolve the overcollection issue for this agency on a permanent basis, thereby preventing future overcollection of the funds from the proponent and the long-term liability for the Government of Canada.
The government is of the view that an improved cost recovery mechanism would further support the agency in carrying out its federal responsibilities, which are, first, to efficiently and effectively fulfill Canada’s ongoing obligations as set out in the act and in the Canada-U.S. agreement that is the foundation of the act and, second, to maintain a state of federal readiness should the proponent proceed with the construction of the project.
Thank you, and I welcome any questions.
Senator Marshall: Thank you very much for the explanation.
You spoke about two terms. One was actual costs and then you talked about estimated costs. Does the term “costs” relate to the same costs? What would be in the costs? Would it be salaries?
Ms. McKenzie Presley: Yes, absolutely. It’s the operating costs of the agency. The agency is funded through appropriations, which are done through the Main Estimates. They’re estimated costs.
At the end of the year we know the actual costs of the agency, what it actually spent, versus what it projected to spend in support of the activities that would be required of the agency to support the pipeline project regulatory framework.
Senator Marshall: When you say “actual costs” it’s the same costs as when you say, “estimated costs.”
Ms. McKenzie Presley: Yes.
Senator Marshall: Will the $4.8 million be refunded?
Ms. McKenzie Presley: Yes, it will, if we get this amendment through.
Senator Marshall: The 1.5 per cent compounded monthly seems high to me in terms of current interest rates. Where did that percentage come from?
Ms. McKenzie Presley: That percentage comes from the current cost recovery framework they use right now as part of the framework for the operations of the agency. It is part of the regulations of the National Energy Board which are used currently by the agency.
Senator Marshall: There will be an interest cost of 1.5 per cent a month, if they don't pay their bill on time. The $4.8 million that has been sitting there overcollected for a number of years, will the government pay interest on that?
Ms. McKenzie Presley: No.
Senator Marshall: That doesn’t seem quite fair. If it’s late one month it’s 1.5 per cent, and after waiting 15 years there’s no interest. That was my question.
Senator Eaton: How much money does the agency receive annually?
Ms. McKenzie Presley: In the Main Estimates for 2017-18 the agency’s budget is around $454,000, or almost $500,000, but those are projections in the Main Estimates. At the end of the year on March 31 we will see how much of that they would have spent.
I can tell you that last year they would have spent roughly half of that. I don’t have that number with me. I can look it up.
Senator Eaton: Why the difference?
Ms. McKenzie Presley: What happens is that they project they will spend a certain number of dollars to conduct their business, to travel and to support TransCanada in whatever activities they may need to provide; but if their costs are reduced because TransCanada decides that it doesn’t need as much activity, which is really the root of what has caused the overcollection, then the agency ramps right down. It basically does as minimal activities as possible. That means by the end of the year they’re spending less, if TransCanada doesn’t require them to do a lot of activities.
Senator Eaton: The way this legislation will work is that they will pay what they owe and there will be no cost.
Ms. McKenzie Presley: Precisely. They will base the cost recovery on actuals. After public accounts have closed, we know exactly what they have spent that year. In that same November the invoice would go to TransCanada. It would be more predictable. It would be more transparent and in fact more efficient because right now they invoice TransCanada four times a year under the current regulations.
Senator Eaton: On the basis of projections.
Ms. McKenzie Presley: The regs say that you must invoice based on those projections but if in that quarter you’ve spent half that amount you’ve overcollected already.
The regulations have a glitch in them. They weren’t built for this agency. They were built for the National Energy Board. This agency has one proponent, whereas the National Energy Board has a number of proponents. The regulations don’t seem to have created any issues of this nature for the NEB.
Senator Eaton: Do you think the regulations should also be changed for the National Energy Board?
Ms. McKenzie Presley: That’s an interesting question. I would have to ask the National Energy Board. There may be a need to tweak that for them, but at this point I’m not aware that they need to adjust the regulations for their purposes.
Senator Forest: Thank you for being here today. I would like to put all of this in perspective. Over what period of time was the $4.8 million overcollected? On average, how much was collected annually?
Ms. McKenzie Presley: I can give you a sense of how the overcollection occurred. On average I don’t really have that per se. It’s really based on annually projecting costs for the agency. I would say this traces back to 2003.
In previous years the government has been able to manage the overcollection through remission orders and repay the company amounts owed periodically. We don’t think that’s the most efficient way to manage a cost recovery framework.
When the company decides it wants to ramp up its activities because it sees a commercial benefit to go forward, the agency has to respond. That’s how the act works. When it decides as it did in 2013 to put the project on hold, the agency had ramped up to a budget amount of $3.1 million annually. When TransCanada decided to halt the project and to just maintain its assets at a most minimal level, the agency ramped down to about $1.2 million at the end of the year. That created a real gap, and there’s no way to remit the money back to TransCanada.
Basically, the problem is a result of fluctuations, dramatic changes in the agency’s budget as opposed to an overcollection on an annual basis that we can really predict. It is based on the activity of the proponent and the Northern Pipeline Agency matching that activity. When it drops or when it rises in a given year dramatically, that’s when we run into problems in terms of being able to reconcile the differences.
Senator Forest: If I understand correctly, the $4.8 million was overcollected over a period of about 14 years; in other words, dating back to 2003.
Ms. McKenzie Presley: Yes. It accumulated over those years. In some instances, at least in this time period, the government did repay TransCanada some of that overcollected money. The last time was in 2013, but that was actually the same year that TransCanada made a very dramatic change in terms of its level of activity. That created the last bit.
It hasn’t been overcollected as much, except for the last three, four or five years.
Senator Andreychuk: For clarification, you’re saying that you used remission orders to repay before.
Could you do that now, or are you able to do that but you want to change the process now so you can go on a cost recovery?
Ms. McKenzie Presley: That’s an excellent question. In fact we have to do both. There are monies owed to TransCanada so we have to use a remission order to repay that amount. As of March 31, 2017, it was $4.8 million. We still have the current year that we have to account for. We would be looking to repay that money, and we do need to use a remission order to do so.
Going forward with this amendment, we expect to resolve this issue on a permanent basis. We would not need to use remission orders as we had to do in the past. The NPA would invoice TransCanada at the end of the year based on actuals so there shouldn’t be any overcollection.
Senator Andreychuk: Who determined the excess amount? You were estimating. Who estimated?
Ms. McKenzie Presley: The Northern Pipeline Agency estimated what amount it would require to meet the requirements of TransCanada. They have discussions with the proponent, and TransCanada might come forward to indicate they plan to renew easements or consult with stakeholders. The agency makes a determination as to what that would require.
They also have operating costs such as IMIT or salary costs and so forth. Those are all in their estimates documents. They make that determination within the budgets that they have been given.
Senator Andreychuk: The project is not really proceeding. It’s sort of on hold now but I’m aware of it.
If it’s in this sort of holding position what are the costs for the agency? What would they be incurring in coming forward?
Ms. McKenzie Presley: Very little costs right now.
Their budget is set because it’s in the Main Estimates at roughly $500,000, but they are probably projecting to spend maybe roughly half of that or $250,000, say.
It would be accommodations which they share with Natural Resources Canada at the moment. It would be salary for one and a half FTEs at this point. It would be operating costs related to creating some of the estimate documents. They just need to produce things.
It’s very little in costs that the agency would be incurring at this point. It really is to maintain federal readiness to make sure, if the proponent comes forward and wants to proceed, the government can fulfill the requirements of the act, be able to respond and ramp up on the regulatory side to support the proponent's requirements.
Senator Andreychuk: They are in a holding position, but if they were holding for two, three or four years, would there be a negotiation to say that this agency needs to be collapsed into a different format? You say it’s half a million. To me, that’s quite a bit of money just to be a holding position.
I know that they anticipate the project continuing, but as to the likelihood of it happening at some point you have to take stock. Is that built into the government’s thinking?
Ms. McKenzie Presley: Right now the government’s policy on this is that it must fulfill the requirements of the act and it must fulfill the requirements of the agreement which, as I said, is the foundation for the Canada-U.S. agreement on this project. That is where we are right now. We’re just making sure that we are in a good position.
This is a very technical amendment in terms of the broader picture, but at this point the government’s policy is that we support the agency in ensuring that it fulfills the federal responsibilities in that regard.
Senator Maltais: As I understand the act, the agency relies on the federal government. The agency’s purpose is defined as the efficient and expeditious planning and construction of the Alaska Highway Gas Pipeline project, while ensuring environmental protection and social and economic benefits for Canada.
In the case of a leak or disaster, who is responsible and who foots the bill?
Ms. McKenzie Presley: That’s a really good question. My colleague Victor Ndihokubwayo will be able to fill in.
The Northern Pipeline Act is responsible for the design, construction and regulation of the pipeline. The southern portion was built between 1980 and 1982, and once the pipeline is built it is the responsibility of National Energy Board to regulate the operations of the pipeline.
In terms of the responsibility of the Northern Pipeline Agency, it is administration of the construction of the pipeline. It doesn’t have a role vis-à-vis the operations of the pipeline.
In my view, if you’re talking about spills and so forth, the pipeline safety responsibilities would be under the National Energy Board.
The Chair: If you permit me, senator, could you take the question that was asked under advisement for clarity and give us more detail, please, on the matter because it was also a legal question.
Senator Marshall: For clarification, did I understand correctly? Could you not have refunded the money using those remission orders? Or, did I misinterpret something?
Ms. McKenzie Presley: Yes, the idea is that we would be remitting the amounts of money that have been overcollected back to TransCanada through the remission orders.
Senator Marshall: Could it have been done previously, or do you need the legislation to do it through the remission orders?
Ms. McKenzie Presley: It could have been done previously because we had the funding, but we wanted to resolve the problem on a permanent basis so we wouldn’t have to continue to use that mechanism. Budget 2017 gave us the impetus to do that.
Senator Marshall: It just seems odd. The money started coming in 15 years ago and you could have remitted it back to them. Now it’s 17 years later and I realize it accumulated over the interim.
You’re saying to them: “We are going to charge you an interest rate compounded monthly at 1.5 per cent.” It just seems unfair that you have been holding this money that you are really not entitled to and you’re not paying interest.
Mr. Ndihokubwayo: The objective of the act is to avoid a proliferation of remission orders.
Senator Marshall: In the future.
Mr. Ndihokubwayo: In the future. Budget 2016 provided the money for the remission order for the accumulated amounts, and Budget 2017 provided the authority.
Senator Marshall: You still have $4.8 million, do you not?
Mr. Ndihokubwayo: Which we will have to remit through the remission order.
Senator Marshall: It seems to me there was a vehicle there and you could have returned the money earlier but it was not done, right?
Ms. McKenzie Presley: As I said, the last time we did proceed with a remission order was 2013. Then we had real change to the operations of the agency, so in a sense, yes, if the NPA had the funding to be able to do so.
Budget 2016 did provide funding to be able to do so, $4.6 million as part of that. These actions, the returning of the money to TransCanada and the permanent solution, are kind of being done in tandem. We actually look to bring the proposal forward in one package to resolve the issue and to repay the proponent.
The Chair: This concludes consideration of Division 7. To the witnesses, would you please take the question asked by Senator Maltais under advisement and make sure to provide us with a detailed answer for clarity and for our information?
Ms. McKenzie Presley: Yes.
The Chair: Thank you very much. We will move to Division 11, the Judges Act. We will ask the officials, Adair Crosby and Anna Dekker, to come forward to make their presentations and give us comments on Division 11, and then we will proceed to questions.
Ms. Dekker, the floor is yours.
Anna Dekker, Counsel, Judicial Affairs, Courts and Tribunal Policy, Department of Justice: I am here to speak to Division 11 of Part 5 of BIA 2.
The three measures reflected in these proposed amendments would do three things. They would authorize the salary of a new associate chief justice of the Court of Queen’s Bench of Alberta, change the designation of “senior judge” to “chief justice” for the superior trial courts of the territories in the North, and change the mechanism for the payment of most annuities under the Judges Act.
I will briefly describe all three of these changes and then I’d be happy to take any questions you may have.
Funding for the position of associate chief justice position was included in Budget 2017. The salary is reflected in an amendment to proposed subsection 20(c) of the Judges Act, which would authorize the salary for an additional associate chief justice for that court.
With respect to the change in designation for senior judges, in the superior trial courts in the provinces and in the federal courts the head of the court is called a chief justice, whereas in the superior trial courts in the North the designation is a senior judge. The Judges Act currently defines this position simply as the judge with the earliest date of appointment.
The proposed amendments would align the title in the superior courts in the territories with what is equivalent in the provinces. Effectively, the proposed amendments would repeal the definition of senior judge and remove all references to this position so that from then on chief justice would be the only head of the court referred to.
A transitional amendment would also ensure that any currently serving or former judges who served as senior judges before this came into effect would not lose any of their entitlement simply because of the change in name.
In terms of annuities, currently all the annuities under the Judges Act require that an order- in-council be passed before they can be paid. However, the Governor-in-Council has no discretion in most cases on whether or not to grant them. They in fact must do so, and that is the wording.
The proposed amendments would streamline the process for payment of all non-discretionary annuities to judges as well as to their survivors and children. In essence, once the statutory conditions are met, which are defined in the Judges Act and will not change, an annuity can be paid and authority is given to pay it without having to go through the process of a grant by the Governor-in-Council.
To implement this change, the proposed amendments in the Judges Act would generally change the terminology that refers to annuities for new granting to “paid.”
That concludes my remarks. I’m happy to answer any questions you may have.
Senator Andreychuk: You said that they don’t have discretion when it’s an order-in-council in most cases. In what cases do they exercise discretion?
Ms. Dekker: There are only two cases where discretion is currently exercised and could still be divided out. One would be when a judge would be granted an annuity in the event of a permanent disability that causes him or her not to be able to fulfill the functions of his or her judicial office. The other one is in the event of national interest or for the better public administration of justice.
The discretion will remain for those two. They are very rarely used but the decision was made that discretion would be retained in those cases.
Senator Andreychuk: The Judges Act will not change on that part.
Ms. Dekker: There will be an amendment. Currently all of the annuities are under subsections 42(1)(a), (b), (c) and (d). It will be subsections 42(1)(a), (b) and (c) for the non-discretionary and then (1.1)(a) and (b) for the discretionary ones.
They will still all be under the Judges Act. It’s just dividing the section up into two parts.
Senator Andreychuk: I understand in the national interest. That’s a discretion to utilize taxpayers’ money and justify that it is a national interest to do so rather than perhaps a right of the person receiving it. That I understand, but the other one on disability, why is that not an automatic right built in?
Ms. Dekker: My understanding was that in those instances the process would still be required. For example, there would have to be medical certificates provided. The Commissioner for Federal Judicial Affairs, the one who administers all payments to judges under the Judges Act, would require those and those would still be provided to the minister.
The decision was made to maintain that process to ensure that in all cases there would be consistency across the board in that all of the correct documentation was retained since that is simply harder to define.
The other ones are straightforward math, essentially. When you have been in office for at least 15 years and your years in office and your age equal 80, you are eligible, you have the entitlement, and once you retire you have the right. It is very easy and straightforward to check the boxes and make sure they are all there and the conditions are met. It was simply a matter of possibly a bit more ambiguity in that.
Senator Andreychuk: I understood, though, that the disability and entitlement to a disability is defined. What kind of discretion are we talking about? Is it just paperwork? Did you get a medical certificate, or are you having someone determine whether they are entitled to the disability?
Ms. Dekker: I don’t have any firsthand knowledge of how this was done because, as I say, it is the commissioner’s office. My understanding of the process is that yes, there could be requests for additional medical documentation, for example, either by the Commissioner for Federal Judicial Affairs or perhaps the Minister of Justice who then would have to go forward with the recommendation to cabinet for the OIC in that case.
Senator Andreychuk: The second associate chief justice of the Queen’s Bench was added and announced by the Minister of Justice, if I recall correctly. That will be a change in the act.
Ms. Dekker: In the Judges Act, yes. The most recent appointment was actually for a chief justice of the Court of Queen’s Bench. The new associate chief justice will not be able to be appointed unless this proposed amendment is accepted, yes.
Senator Andreychuk: I still have the same qualifications. Why is it under a financial bill before us when it should have been under an amendment to the Judges Act so that we are clear?
Justice is very important for the public to understand. For judicial process to be sort of embedded in a financial document I find very strange and really not really helpful.
I’ve been up North and I know how Alberta works. I think they deserve to know that there will be a change and what it means to them. You don’t have to tell me now, but I would like to know who will actually be going North and who will be entitled to go under this. Have their duties in any way changed? Who will supervise that? Those are the kinds of things I would have asked if we had a judicial Judges Act being amended before us, which I think is the way it was done in the past.
I’m concerned that we’re embedding justice issues into a financial bill. The sum total of the financial stuff could be here, but the actual amendments and changes are pretty significant. I rest my case.
Senator Cools: The Judges Act is not a mystery. Neither is it mysterious, but it is a long way away from the purpose for which it was created many years ago. The Judges Act was created to fulfill the financial obligation of the Parliament of Canada fixing and providing the salaries of judges.
In earlier years, every time a judge was appointed there would come forth a bill for the individual judge setting the salary of the individual judge. Then, at some point in time, I think it was around 1905, they said, “We shall create a Judges Act.” There was this lovely clause in the Judges Act, which is now gone, that used to say the salaries of the judges under this act will be paid or something like that.
If you look, that clause has been changed. It is now the salaries under this act. In there you now have the judicial commissioner, the judicial council, the judicial institute and the Judicial Compensation and Benefits Commission. It’s not all that clear any more to really discern the very important principles respecting the payment of judges.
I keep hoping that at some point in time we will have an opportunity to look at this matter in a much more fulsome way. The number of salaries that are now paid under the Judges Act for large numbers of people who are not judges at all is something that we should look at, if not in this go around then in the next go around. It is a very serious matter.
The Chair: Thank you, Senator Cools.
Senator Cools: Do you have any idea how many salaries of people who are not judges are actually paid under that act now?
I’m hinting at her because she is quite nice, really.
Ms. Dekker: If I may, the only salaries that are in fact provided for under the Judges Act are the judicial salaries. They are found in sections 9 through 21 of the Judges Act.
The balance of the act provides for the annuities, entitlements, allowances and so on. As you say, it does create the Quadrennial Commission and the Canadian Judicial Council in section 26.
Senator Cools: I know the section. I looked at it some years back. We should look at that but not in this go around. I think even the judicial commissioner’s salary is in there.
The Chair: Senator Cools, the chair will take it under advisement.
Senator Cools: Absolutely.
Senator Maltais: Welcome, Ms. Dekker. Under Division 8, the third or fourth bullet on page 1 indicates that the proposed amendments would “enhance bereavement leave from the current three days with pay immediately following the death of an immediate family member to five working days.” The leave would not need to be taken in a single block, and the two additional days would be unpaid. Are they paid or not? Is it three or five days? How does it work? The way it’s written is contradictory.
I will start again. Under Part 5, Division 8, the third bullet reads as follows: “Enhance bereavement leave from the current three days with pay immediately following the death of an immediate family member to five working days.” The leave would not need to be taken in a single block. That is fine. The two additional days, however, would not be paid, so I do not understand.
The Chair: Senator Maltais, if I may, the measure applies to workers, and not the judges.
Senator Maltais: We are talking about judges, are we not? We are talking about the Canada Labour Code? My apologies.
Senator Eaton: I guess it find it upsetting or perhaps I just don’t understand. When we talk about annuities, they are paid at two-thirds of the salary annexed at the time of the judge’s resignation or removal.
If you are removed for various reasons, and we’ve seen cases lately where a judge has been stripped of being a judge, you still get their annuity. You face no penalties.
Two-thirds is what it says right here if they are removed or resign.
Ms. Dekker: In fact there has never been removal of a judge through the parliamentary process that was set up in the Constitution. What has happened in the past is that, if there has been a recommendation for removal, the judge has resigned. If he or she has the statutory entitlement and has reached the statutory age and so on, yes, the annuity must be paid.
Senator Eaton: The guy is clever enough. He sees the writing on the wall and resigns quickly. You would still pay him even if he didn't resign and you had to remove him by force or by law.
Senator Cools: A judge is not so easily removed.
Senator Eaton: If a case was brought against the judge and he was removed and did not resign, he would still get two-thirds of his annuity.
Ms. Dekker: In the current writing of the act once all of the processes for the inquiry and the judicial discipline process were reached, and if he or she were removed and had reached statutory entitlement in the way it is worded, yes, that would be paid.
Senator Marshall: How many senior judges will have their titles changed to chief justice? How many are there?
Ms. Dekker: There are three of them. The senior judge is the leader of the court for the Supreme Court of Yukon, the Supreme Court of Northwest Territories and the Nunavut Court of Justice.
Senator Marshall: My understanding is that this would not require any additional funding. The additional funding would be for the new positions.
Ms. Dekker: The only amendment being proposed today is the salary for the new associate chief justice in Alberta. That was included in Budget 2017.
The change to the designation of judge is purely to recognize that it has been requested for a long time. We have been working with our counterparts in the territories. They also have to make amendments to their acts to ensure that the title is changed in their acts, the court structure matches in the Judges Act and in the constituting legislation for their courts. They will create that position in theirs.
They will create that position in theirs. Once these amendments go through, the senior judge would be appointed a chief justice.
Senator Marshall: For the individuals who will be impacted by the title it hasn’t been controversial, has it?
Ms. Dekker: No, the opposite would be true. In fact it has been long asked for by the territories, by the courts, by the judges themselves and by the Canadian Judicial Council. Senior judges are paid the same as all chief justices. They’re members of the Canadian Judicial Council. They have identical entitlements and responsibilities in fact. This is simply recognizing it.
Senator Marshall: The consistency.
Ms. Dekker: Exactly, the consistency in recognizing their role in delivering justice in the North.
The Chair: Honourable senators, the consideration of Division 11 is completed. To the witnesses, thank you very much.
Now we will move immediately to Divisions 12 and 13, with Jim Valerio and Darryl Sprecher, who will present for clarity and for the information of senators.
For the record could identify yourselves and your titles, please?
Jim Valerio, Director, Small Business Branch, Innovation, Science and Economic Development Canada: I am here to talk about Division 12.
Darryl Sprecher, Senior Director, Expenditure Management Sector, Treasury Board of Canada Secretariat: I am Senior Director, Expenditure Management Sector, Treasury Board Secretariat.
The Chair: I have been informed that you each have a few comments to make and then we will go to questions.
Mr. Valerio, the floor is yours.
Mr. Valerio: Division 12 proposes to increase or make an amendment to the Business Development Bank of Canada Act, the BDC Act, to increase the paid-in capital limit the government can make in the BDC to implement certain policies. It’s proposed to increase the limit from what it’s currently set at, which is $3 billion, to $4.5 billion.
The reason for the proposed amendment is to allow the government to implement two Budget 2017 initiatives. The first was the venture capital catalyst initiative and the second was for investments in companies that do clean technologies.
In addition, it will also provide a bit of a buffer for future initiatives that the government might want to implement through the BDC.
The Chair: On Division 13, Mr. Sprecher, please.
Darryl Sprecher, Senior Director, Expenditure Management Sector, Treasury Board of Canada Secretariat: Good evening. I am happy to be here today to speak to clause 261, which amends subsection 32(1) of the Financial Administration Act with regard to the control of financial commitments. To give you some context for the amendment, I will say that, in June 2017, the House of Commons approved changes to the Standing Orders that move the tabling of Main Estimates from on or before March 1 to on or before April 16 for the next two supply cycles. The change in timing allows for new funding announced in the budget to be included in the Main Estimates.
When the Main Estimates were normally tabled by March 1, before the start of the new fiscal year on April 1, Parliament was asked to approve an interim supply bill to provide departments with enough funding to operate until full supply could be approved in late June.
The Financial Administration Act, or the FAA, currently constrains the department’s ability to make financial commitments such as for contracts or contribution agreements by requiring there to be sufficient authority in an appropriation or in estimates then before the House of Commons. These limits are retained in Part A and Part B of the proposed amendment. However, to begin the fiscal year 2018-19, only the interim estimates and corresponding appropriation act will be available until the complete Main Estimates are tabled, roughly two weeks into the new fiscal year.
If the government were to leave FAA as it is now, departments would not be able to reflect a full year’s value in the contracts or contributions that they sign on or just prior to April 1.
The proposed addition of Part C to subsection 32(1) of the FAA clarifies departmental financial commitment authorities for the period in between the tabling of interim estimates in February and the complete Main Estimates in April. This will be done by permitting financial commitments to be made against a limit which will be specified in the interim estimates bill.
The second proposed addition in Part D clarifies that commitments may be made against the unencumbered balance of revenues actually received by department or the amount of a department’s estimated revenues set out in estimates.
The commitment limit will be based on the forecast planned spending, including expected revenues that is known as interim estimate supply bills introduced, in other words, the forecasted Main Estimates before new budget measures are taken into account.
To conclude, I would emphasize these amendments clarify the authorities of departments. They do not add to them. Nor do they change their authorities to make payments out of the Consolidated Revenue Fund. Such payments will continue to be limited by the specific amounts set out and voted by Parliament in the appropriation acts.
Now I would be pleased to answer any questions you may have.
Senator Eaton: When you talk about venture capital in clean technologies, do I just come to you when I have a great clean technology or do you put me through a severe business test or any kind of test that you would put another company through asking for help?
Mr. Valerio: I talked about two different initiatives. One was the venture capital catalyst initiative of $400 million announced in the budget. That initiative is still currently being designed. However, it applies to provide capital for innovative companies across a multitude of sectors. Then we have the clean technology initiative which is for companies.
Budget 2017 announced the initiative as providing capital for things such as taking equity positions in companies that do clean technologies and other forms of financing for companies that do clean technologies.
These decisions are made by the two Crown corporations involved in that initiative. One is the BDC and one is EDC. These Crown corporations operate at arm’s length, so they would make the investment decisions.
Senator Eaton: Does the BDC have a lot of experience or knowledge about clean technologies?
Mr. Valerio: Yes, they do. They’re a financial Crown corporation. Their portfolio is $29 billion in terms of providing financing to SMEs across Canada. One of the sectors they do serve is clean technology, as well as a multitude of other sectors.
Senator Eaton: They have good experience.
Mr. Valerio: Yes, they do.
Senator Marshall: My first question is on the amendment to the Financial Administration Act. They used the term interim supply for many years. Why is the term interim estimates being used now? What’s the distinction?
Mr. Valerio: There will be a slight difference between the two documents. Interim supply was an appropriation act. The standing order requires estimates to be tabled.
By calling them interim estimates, we are combining what would have been interim supply with a lighter version of estimates so that we’re adhering to the requirements of the standing orders and at the same time providing the interim supply for organizations.
Senator Eaton: When did you say the interim estimates would be tabled?
Mr. Sprecher: Mid-February.
Senator Marshall: They will be tabled in mid-February.
Mr. Sprecher: Correct.
Senator Marshall: Then the main supply will be when after?
Mr. Sprecher: We don’t have an exact date but they can be tabled on or before April 16.
Senator Marshall: Is it still anticipated that we will have Supplementary Estimates (A), (B) and (C)? What's the plan?
Mr. Sprecher: We will likely have two supplementary estimates this year. There will be an (A) and a (B) but not a spring supplementary estimates. What we would have called Supplementary Estimates (B) will now be Sup (A) and then the final sups will be Sup (B).
Senator Marshall: Our current Sup (B)s will be Sup (A)s and Sup (C)s?
Mr. Sprecher: Yes, correct.
Senator Marshall: I don’t know if you’re involved in the process or not, but are the departments now gearing up?
Mr. Sprecher: Yes, they’re all aware of this. The changes were made in June so we’ve been consulting with departments and letting them know the requirements for all these processes.
Senator Marshall: Do I have time for a question to BDC?
The Chair: Yes.
Senator Marshall: For the additional funding that’s being provided, I guess the top is going up to $4.5 billion. Do you anticipate that money going out in the current fiscal year or the next fiscal year? What's the plan?
Mr. Valerio: To be clear, this is not to provide funding to the BDC. This is to increase the paid-in capital limit. That provides the government with the ability to inject additional capital for these initiatives in the future. All we’re doing is increasing the limit of the amount of capital that can be injected.
Senator Marshall: What about the injection of money for lending? When do you expect to get that?
Mr. Valerio: The Venture Capital Catalyst Initiative has still not been announced. The clean technology is still under development as well. The BDC will be developing its corporate plan, and as part of its corporate plan it will be letting us know what the capital requirements will be.
Senator Marshall: When do you expect things to start happening? Right now you’re into a planning or preparatory phase. When do you think you’ll start delivering on those two programs?
Mr. Valerio: I would expect that the BDC would probably start requiring capital injections for at least the clean technology next year, and the Venture Capital Catalyst Initiative probably in that time frame as well.
Senator Marshall: Are all these loans? Does any of the funding go out in the form of grants, or does it all have to be repaid?
Mr. Valerio: The Venture Capital Catalyst Initiative is venture capital. Those are not loans. That’s where the BDC takes an equity stake in companies and a return is provided.
Senator Marshall: Hopefully, yes.
Mr. Valerio: Hopefully. For the clean tech initiative it’s really a combination of equity positions as well as what you would call loans or quasi-equity.
Senator Marshall: What is your track record with regard to equity investments and your track record with regard to loans?
Mr. Valerio: I’ll talk about the BDC. In terms of its return on equity, last year it was 8.3 per cent. They’re mandated to provide a return on equity that exceeds the government’s 10-year cost of capital, which roughly is around 2 per cent right now.
Senator Marshall: Of that 8.3 per cent, does the money ever flow the other way to government? Do you remit dividends?
Mr. Valerio: The BDC has always paid dividends since 1995. Every year it has paid dividends.
Senator Eaton: Obviously you have your own way of operating, but it seems strange that you would come to us and ask for 1.5 billion more dollars and yet you have not done the plan. It’s sort of pie in the sky, but you have not actually put it on paper and decided where, when, how and what, but you want the money.
Mr. Valerio: I need to clarify a couple of things along those lines.
Senator Eaton: You want the credit.
Mr. Valerio: No. We’re asking for the capability for paid-in capital.
Senator Eaton: It is the same thing. Why would you ask for the capability before you draw up plans? What if after doing your plans you said we want the capability for $7 billion or we only need $4 billion? What made you decide on a capability of $4.5 billion?
Mr. Valerio: Budget 2017 was pretty clear in terms of the Venture Capital Catalyst Initiative. There was a commitment to inject $400 million for that initiative. For the clean tech initiative Budget 2017 was pretty clear. It was $1.4 billion to be divided between the BDC and the EDC. Roughly, the BDC would be about half of that.
That’s where we came up with the request to increase the capabilities by $1.5 billion. That gives us the room to implement the Budget 2017 initiatives to be able to inject the capital as it is required. It also gives a bit of room for the future.
Just to give you a bit of perspective, right now paid-in capital to BDC is roughly sitting at around $2.5 billion. With these two initiatives you’re looking at a requirement to add another billion dollars.
If we do the math, that leaves about $900 million to $1 billion worth of room for future initiatives that the government might decide to want to implement through the BDC.
Senator Forest: I understand that the $1.5-billion increase will eventually be used for capital to support clean energy projects under the new economy. Did BDC not already provide for those kinds of projects in its portfolio?
Mr. Valerio: The BDC currently provides venture capital. It’s venture capital portfolio right now is around $1.1 billion. It also provides other types of financing products.
As I said, the BDC portfolio is $29 billion. The BDC is a bank. As a bank we want to ensure, if there is a downturn in the economy, that it has the capital required or it doesn’t require bailouts or it won’t be in financial distress. For investments like venture capital, which are deemed to be high risk, generally speaking, the capital adequacy ratios we use require that we inject a dollar worth of paid-in capital for every dollar the BDC will invest in terms of venture capital.
Senator Forest: Indeed, these sectors are hugely important for a world-class economy in the 21st century. Under the government’s ambitious $120-billion infrastructure program, set out in its recovery plan, it earmarked several billions specifically for clean energy projects. How do you align BDC’s efforts with the infrastructure program? Both are major economic levers for the Government of Canada, whose coffers are filled by Canadians.
Mr. Valerio: The infrastructure file is very different from BDC’s mandate. BDC’s mandate is to serve and to provide support for Canadian small and medium size enterprises. It’s a different class of projects that would be funded through the BDC.
Again, the BDC doesn’t provide grants. It’s all about providing loans and taking equity positions in companies. Again, it’s for small and medium size enterprises as opposed to what I suspect would fall under infrastructure. It would be a very different type of project.
Senator Forest: That would mean that a BDC client could not leverage the benefits of both, in other words, not only a BDC loan, but also infrastructure program funding.
Mr. Valerio: I can’t answer that question. I apologize, I don’t know enough about the infrastructure project. I can certainly research that and come back to the committee.
The Chair: On that, Mr. Valerio, could you please verify that, give us some clarity on it, and send it to the clerk of our committee?
Mr. Valerio: I will.
The Chair: Honourable senators, we recognize that consideration of Divisions 12 and 13 is completed. To the officials, thank you very much for sharing your comments and providing information for clarity.
Honourable senators, we will move to Divisions 8, 9 and 10. We will ask the officials to come forward, please.
For your information, as we’re preparing for the officials, the last division of Bill C-63 will be Part 3 and Part 4. Basically, Part 3 and Part 4 are grouped together.
Senator Pratte, we are going to examine divisions 8, 9 and 10, which are all directly linked to the Canada Labour Code.
The last two will be the Excise Act, Part 3, and the federal-provincial arrangements for cannabis, Part 4.
Perhaps we could conclude this evening, honourable senators, by considering Division 8, Canada Labour Code, and Divisions 9 and 10. Then we will bring the officials on Parts 3 and 4 tomorrow.
Therefore, I would ask the officials for Division 8, Canada Labour Code, to present themselves as well as those for Divisions 9 and 10. At that point each and every division will have a spokesperson to make comments, and questions will follow.
I will start first by Division 8, the Canada Labour Code. Will the officials please identify themselves and make their presentations?
Tony Giles, Assistant Deputy Minister, Policy, Dispute Resolution and International Affairs, Labour Program, Employment and Social Development Canada: I have two colleagues with me, and I would ask them to introduce themselves as well.
Réal Gagnon, Senior Policy Analyst, Labour Program, Employment and Social Development Canada: Good evening. My name is Réal Gagnon, and I am from the Strategic Policy and Legislative Reform Division of the Labour Program.
Sharif Sadek, Policy Analyst, Labour Program, Employment and Social Development Canada: Good evening.
Mr. Giles: I will be speaking to both Division 8 and Division 9.
The Chair: On Division 10?
Stephen Fertuck, Acting Director General, External and Trade Policy Branch, Innovation, Science and Economic Development Canada: I will speak to Division 10.
Melanie Hill, Special Advisor, Strategy and Innovation Policy Sector, Innovation, Science and Economic Development Canada: As will I.
Mr. Fertuck: Melanie Hill will be providing the explanation of Part 5, Division 10.
Joyce Henry, Director General, Office of Energy Efficiency, Natural Resources Canada: I am also here on Division 10.
The Chair: Will the spokesperson for Division 8 please make your presentation?
Mr. Giles: Part 5, Division 8, is all about promoting flexibility in the workplace for the benefit of employees and employers. It responds to a key and growing concern of Canadians that has been registered in survey after survey in recent years about helping them define better ways to balance the pressures they experience on the job and the pressures they experience in their personal lives such as family pressures and so on. It responded at the same time obviously to a commitment the government made in Budget 2017 to bring this legislation forward.
Before I describe the legislation, I would just like to take a minute or two to tell you to whom it will apply. The Canada Labour Code applies to a certain set of industries that fall under the constitutional authority of the federal government. That includes banks and telecommunication companies like Vidéotron or Rogers. It applies to interprovincial and international transport, so all of the airlines in the country, most of the train systems, the ports, the bridges that cross any border and ferries. It applies to interprovincial and international trucking. It applies to most Crown corporations, so Canada Post, the CBC, and so on and so forth.
It does not apply to the federal public service, which is a separate legal regime. It doesn’t apply to industries under provincial jurisdiction such as manufacturing, the service sector and so on.
Division 8 does three broad things. First, it introduces a right to request flexible work arrangements. By flexible work arrangements, we mean people who would like different types of hours, different types of schedules, or a different type of location of work. It obliges employers who don’t agree with the request to either explain it or come up with an alternative for the employees.
The fundamental policy aim here is to nudge employers and employees into a dialogue about flexibility. It’s not to impose in a heavy-handed way any kind of one size fits all. It’s meant to promote the sort of communication that will lead to the sort of arrangements that will simplify people’s lives.
The second set of changes in Division 8 are about leaves. Here, the proposition is to introduce three new unpaid leaves for employees. The first is family responsibility leave of up to three days in a calendar year. The second is victims of family violence leave of up to 10 calendar days in a year. The third is a leave for traditional Aboriginal practices of up to five days in a calendar year.
In addition, Division 8 proposes adding to the existing three paid days of bereavement leave two additional unpaid days and allowing employees to take their bereavement leave in either one period or two periods, again to facilitate flexibility, travel and so on.
Third, Division 8 proposes is a set of more minor or technical changes in a number of rules in the federal labour standards that would again give employers and employees more flexibility. There are changes being proposed around how hours of work are set, how overtime is regulated, how vacations are taken and how general holidays can be switched. They also streamline some procedures for making future changes in hours of work through regulations.
The last thing I would say about Division 8 is that all of these proposals come out of an extensive consultation process with employers, employees, groups that are specialists in the area of work-life balance, NGOs that represent people in the caregiving industry and so on. Fundamentally the policy object is to balance the needs of employees with the needs of employers. Those kinds of provisions are built in throughout the division.
Would you like me to go on to Division 9? It will be quicker.
The Chair: Yes, please.
Mr. Giles: Division 9 responds to the Budget 2017 commitment on the part of the government to further limit the use of unpaid interns in the federal jurisdiction.
To explain the mechanics of the proposal, I have to go back to 2015 very briefly. In 2015, legislation was passed to limit the use of unpaid interns. It allowed two exceptions. The first exception was a student in a recognized educational program who was required to do an internship. In those cases it was permitted that they be unpaid. They were receiving an academic credit. The second exemption was a six-part test that. If a person met that test, they could be an unpaid intern. One of the criteria, for example, was that it couldn’t be longer than four months.
Those provisions aren’t yet in force because there was a regulation-making process that involved consultations with stakeholders that didn’t conclude. More recently, the government took a second look at those provisions and decided the first exemption allowing a student in a program that required an internship could stay, but the second exemption that allowed others under certain conditions was going too far.
The proposal here is to eliminate that second exemption, further limiting the use of unpaid interns to only that one category of students. Thank you.
The Chair: On Division 10, please.
Ms. Hill: The Canadian Free Trade Agreement, the CFTA, came into force on July 4, 2017. It’s the successor to the Agreement on Internal Trade. The CFTA commits federal, provincial and territorial governments to a comprehensive set of rules that will help to achieve a modern and competitive economic union for all Canadians.
In order for the Government of Canada to implement certain aspects of the CFTA, associated legislative changes are needed. As such, Division 10 of Part 5 enacts the Canadian free trade agreement implementation act. It is based heavily upon the implementing legislation for the agreement on internal trade. The nature of its provisions are mostly administrative. The act would establish the responsible CFTA minister, facilitate dispute settlement, permit the award of monetary penalties, allow the appointment of committee members and panellists for dispute, and authorize federal funding for intergovernmental CFTA secretariat. Given that the CFTA replaces the AIT, the Agreement on Internal Trade, the Canadian free trade agreement implementation act would also repeal the agreement on Agreement on Internal Trade Implementation Act.
In order to further demonstrate federal leadership on internal trade, Division 10 of Part 5 makes three amendments to the Energy Efficiency Act, the EEA. First, the EEA would be amended to provide the Minister of Natural Resources with the authority to make technical or administrative changes to existing Governor-in-Council regulations. These changes must be for the purpose of maintaining harmonization with another jurisdiction.
Second, the EEA would be amended to provide the Governor-in-Council with the authority to incorporate by reference technical standards documents for the purpose of harmonizing with another jurisdiction.
Third, section 26 of the EEA would be repealed. This requirement to pre-publish regulations in Canada Gazette Part I is duplicative of a Treasury Board directive.
These changes to the EEA will provide new tools that will allow the Government of Canada to create consistency in standards across the country and ensure Canada is aligned with other key trading jurisdictions.
There are also some consequential amendments. These include consequential amendments to the Financial Administration Act, the Department of Public Works and Government Services Act, and the Procurement Ombudsman Regulations by replacing references to the Agreement on Internal Trade with references to the new CFTA instead.
This division would also repeal the Timber Marking Act, the TMA. The TMA is an outdated federal law from 1870 that applies to only three provinces: Ontario, Quebec and New Brunswick. It mandates that anyone floating timber on rivers in those provinces must mark the logs and register that mark. As such it’s de facto discriminatory, making it contrary to the non-discriminatory treatment obligation under the CTFA.
A formal consultation on the repeal of the TMA was held, and all stakeholders who provided comments expressed support for the proposed repeal and did not anticipate any negative impact as a result.
Division 10 of Part 5 will be deemed to have come into force on July 1, 2017, to coincide with the coming into force of the CFTA, providing continuity.
To conclude, the proposed legislative changes contained in Division 10 of Part 5 are not controversial, given that any substantive changes pertaining directly to the CFTA were accepted by provinces and territories during the course of negotiations or, in the case of the EEA amendments, were the subject of consultations in which industry stakeholders as well as provinces were highly supportive.
Senator Marshall: I will start with Mr. Giles.
I find it odd that these amendments will apply to federally regulated organizations but do not even apply to the federal public service. I am speaking from memory, but I think there were amendments either in last year’s budget or the budget before. It was the extension of maternity leave to 18 months. I think it was the same. It applied to federally regulated organizations.
Why does it not apply? It’s like the federal government is saying, “It’s going to apply to you, you and you but not to me.” Why is it organized like that?
Mr. Giles: Labour relations at the federal level have for decades been organized under two separate pieces of legislation. The Canada Labour Code applies to what is called the private sector, including Crown corporations. The Federal Public Sector Labour Relations and Employment Board Act applies to the public service.
The original logic of that goes back to the late 1960s. The original labour legislation in the country didn’t cover the public sector at all. It was only in the 1960s and early 1970s that public servants in the federal government and the provinces began to be covered. The thinking at the time was that they needed a different regime of labour relations because of the unique character of public servants bargaining with the government itself. That is the reason for two types of legislation.
Typically there is a high degree of correspondence between the two. Because of the high level of collective bargaining or coverage of collective agreements in the public sector, there is a far fewer number of non-unionized employees, whereas in the private sector there is a much larger number of non-unionized employees. That’s why the Canada Labour Code that covers them is developed the way it is.
There is no corresponding labour standards for public servants because 80-some-odd per cent of them are covered by collective agreements.
Senator Marshall: What is the long-term plan for this? It is to federally regulated organizations, but what percentage of workers in Canada fall under a federally regulated organization? What percentage of workers will be covered by this new legislation?
Mr. Giles: The percentage is between 6 and 8 per cent. It is about 900,000 employees who work for approximately 18,000 companies in Canada.
Senator Marshall: I missed the percentage.
Mr. Giles: The percentage of employees covered is 8 per cent.
Senator Marshall: If it is only going to cover 8 per cent what is the long-term plan? How will you pick up the other 92 per cent?
Mr. Giles: That comes under provincial jurisdiction.
In the case of flexible work arrangements, for example, the Minister of Employment, Workforce Development and Labour has already started a dialogue with her provincial colleagues, not to put pressure on them but to demonstrate what the federal government is doing.
Ontario is moving in the same direction. There is a bit of a tradition in Canada of when one jurisdiction innovates, the others watch a little while. If it seems to be working then they get in line and follow.
Senator Marshall: Is it the intention that this would eventually move into small businesses and you would expect to see all workers covered by this type of legislation?
Mr. Giles: I think it would be the aspiration. I can’t say it’s the intention because the federal government has no authority to spread that beyond its own constitutional jurisdiction, but it’s fair to say the federal government hopes very much that the provinces will do the same thing.
Senator Marshall: When you are talking about the unpaid internships, do they cover all organizations or only federally regulated ones?
Mr. Giles: That’s only federally regulated as well. Many of the provinces have their own sets of rules around internships. They are not exactly what we’re proposing. Some are similar and some are different, but most of them have moved in one way or another to address the issue.
Senator Marshall: The plan, I would think, would be that you are almost like a role model. Hopefully, everybody else will catch on and fall into line.
Mr. Giles: I don’t know how many provinces might be listening tonight, but in some ways we like to show leadership in the country on these issues.
Senator Pratte: I’m looking at subsection 174(1) overtime pay or time off and circumstances where an employee may refuse to work overtime and the exceptions.
I’m just wondering about the cases where employees may refuse, for instance, if they have taken reasonable steps to ensure that there is no other way to carry out their family responsibility during the period of the overtime. The exceptions, of course, is when there is a threat to life, a threat of damage or loss of property.
I’m just wondering in what sort of legal circumstance the employee would find himself or herself when the employee has tried to find some other way to carry out the family responsibility but could not find, for instance, someone to take care of a child and at the same time the employer finds that there is a threat to life.
There is a quagmire there. What happens to the employee? He or she has a child to take care of and no one can take of the child, and the employer asks the employee to do overtime because there is a threat to damage of property. What happens legally? What can the employee do?
Mr. Giles: I would have to start by saying, if that unusual confluence of events happened, in most cases the workplaces would find a practical solution to it and it would not be an issue.
In perhaps a very small number of cases or in this particular case, if the employer could demonstrate there was an actual threat to life if it was air traffic controllers working for Nav Canada, for example, and they just had to bring the planes in, then the employer would ultimately have the right to say, “I’m sorry, but you must stay here and work.” One would hope that most wise employers and the unions they work with would find solutions to those cases.
Senator Pratte: I was looking through the bill at the sections on cases where an employee is on vacation, interrupts the vacation to take sick leave, for instance, and then resumes the vacation. It refers to subsection 239(1.1), for instance, which already exists in the act. I was simply struck by one fact. It is already in the act, but I wanted additional explanation of it.
Currently, in the Canada Labour Code, if an employee takes sick leave, comes back and requires different work conditions because of his illness and so on, the employer may assign the employee to a different position because of his condition. It is “may assign,” not “shall assign” or “must assign.” Isn’t that a bit weak as a requirement? The employer may assign, so it’s a choice by the employer even though the condition of the employee may require it.
Mr. Giles: I guess I would distinguish a number of different possibilities.
If the employee came back and was suffering some sort of a condition that could be considered a disability, then under human rights legislation the employer has to accommodate him, right? It would be one of those rare issues where it was not actually a disability but something else.
The use of the word “may” in that provision, and it appears elsewhere in the code in different sections, is again what I referred to earlier as trying to find a balance between providing a certain set of rights but also providing employers with a degree of latitude to manage their business. It’s a constant difficulty to find exactly that right balance.
As I said earlier, in most cases practically it is found. The law is really just there as a backstop in case reasoned decisions can’t be reached. We don’t get very many complaints under that particular provision.
Senator Eaton: What kind of financial impact do you think these changes will have?
Mr. Giles: We’ve actually studied that because every time we make a change in labour standards we sit down and do an analysis of what will be the impact on employers. None of these suggest any kind of significant cost to employers for two reasons.
First, there is a large number of employees under federal jurisdiction who are unionized and covered by collective agreements that set standards way higher than we are proposing to bring these up to. Those employers will not be affected at all.
The interesting question that we found is: What about the unpaid interns? Will that create a problem? We did a survey of federal employers in 2015 and found that of the 10,000 interns they had in 2015, the vast majority or 8,000 some-odd were already paid. The number of unpaid interns is actually quite small.
Then I remember the minister saying, “What about the others?” We did a calculation and found that if an employer currently using an unpaid intern wished to still have an intern but pay him or her for an internship of typically three or four months, the cost to the employer would be$6,000 to $8,000 which, for most employers in the federal jurisdiction, is not very significant.
Senator Eaton: May I ask a question to which they can send a written answer?
The Chair: Please do.
Senator Eaton: How competitive are our labour codes with the rest of the G7 countries? Are we in advance, are we in the middle or are we rearguard?
Mr. Giles: How long do we have to answer the question?
The Chair: Can we, Mr. Giles, take it under advisement and send us in writing, please?
Mr. Giles: Yes, I would, only if I could ask the senator one question. What do you mean by competitive?
Senator Eaton: Is this making Canada more competitive as a jurisdiction to set up a business or is it making us less competitive? Do other G7 countries have these same flexibilities built into their labour code?
Mr. Giles: Okay.
The Chair: Is that more clarity for the question?
Mr. Giles: Yes.
Senator Forest: I think these are important amendments. I am especially concerned about the internship issue. I did an eight-month internship in Rimouski, and I can tell you that it had a huge impact on my career path, having spent 40 years there. That internship was part of my university education.
People usually do internships to gain skills and experience, all while under supervision. I see that one of the six criteria exempts an employer from having to pay an intern in cases where the employer supervises the work of the intern. When I read that, my impression is that it automatically prevents interns from being paid. Since the purpose of an internship is for the intern to gain skills and experience, the employer necessarily has to supervise the intern. As I see it, that criterion renders the amendment meaningless.
Mr. Fertuck: The six criteria you are referring to are the six criteria the proposed amendments would remove from the act. It is the exception that is based on the six criteria, including that the intern be properly supervised. The proposed amendments would do away with that aspect.
Senator Forest: I was completely mistaken. I misinterpreted what you said in French. Therefore, internships are exempt from the application in terms of the six criteria. The French translation did not accurately render the meaning of the amendment.
Senator Andreychuk: I just wanted to follow up. You enumerated the kinds of companies that are federally regulated. I did take up with the minister my concern about small and medium size businesses and their difficulty. Of course, a lot of it is provincial.
How many of the federally regulated would be classed as small or medium? All of the ones you pointed out were large. We tend to see the federally regulated, but how small are some?
Mr. Giles: I don’t have the figures at my fingertips, but I will say this: Most of the 18,000 employers in the federal jurisdiction are in fact small and medium businesses. They employ only a very small proportion of the employees because as you can imagine the banks, airlines and so on account for most. The vast majority of small and medium size organizations fall into the trucking sector because that is the one federal sector predominantly characterized by smaller organizations.
There is a range of others in other sectors like radio stations, for example. A lot of local radio stations would be small businesses.
If you want a precise breakdown, we can easily send it to you by industry so that you could see in which industries they fall.
Senator Andreychuk: I would appreciate that. When you talk about flexibility and coming to terms, it’s very much dependent on a company’s capability to be flexible as well as the employee. One would hope they would have discussed all of these things.
Generally I find that small businesses are even more accommodating because they know their employees so well, but the law is the law when it’s passed. That gives me great concern that it will not be left to the relationship in a small or medium company. It is going to be mandated.
I’ve made my comments to the minister, and I will not repeat it at this late hour.
Mr. Giles: If I may be allowed to say one thing because I did hear your comment yesterday and reflected on it afterward. I recall that part of the consultations on this involved some round tables by the previous minister. I attended one in Winnipeg where a variety of organizations were around the table. The smaller organizations said exactly what you just did. They said, “We see fewer problems with this because we are already pretty flexible. We all know each other. We know the pressures on each other’s lives, and we chip in and switch back and forth.”
It was the larger organizations at the table, perhaps because as you get larger you get more impersonal and so on, that had a few more qualms than the smaller ones.
Senator Andreychuk: Just in implementation, though, once you put a law in it changes the dynamics. I made my point.
The Chair: Honourable senators, I have a few items of information, and then we will adjourn.
Foremost, as chair and on behalf of the committee, I would like to thank all of the officials who testified tonight and yesterday and those whom we will meet again tomorrow since the committee will continue its study on Bill C-63.
To the officials at this table this evening, thank you very much, and you can pass on the message. Thank you for your expertise. Thank you for your clarity, and thank you also for the professionalism you have demonstrated as always.
Honourable senators, Part 3 and Part 4 will be completed tomorrow. The steering committee would like to recommend to senators this evening that for Part 3 and Part 4 officials will be made available to us tomorrow between 10:15 and 11:15 a.m., if possible, in room 705, Victoria building. This will be the Excise Act and the federal-provincial fiscal arrangements for cannabis.
Tomorrow morning, we commence in room 2, Victoria building between eight and ten o’clock. Then, at ten o’clock, we will move to room 705 to receive the officials for Part 3 and Part 4.
Do we have an agreement, honourable senators, or a consensus?
Hon. Senators: Agreed.
The Chair: To the officials, thank you.
(The committee adjourned.)