THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Wednesday, November 28, 2018
The Standing Senate Committee on National Finance met this day at 1:45 p.m. to study the subject matter of all of Bill C-86, A second Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures (topic: Part 4 — Various Measures — Divisions 1, 2, 9, 14, 17, 18).
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: I welcome you to this meeting of the Standing Senate Committee on National Finance. I also welcome all those who are with us in the room and viewers across the country who may be watching on television or online.
My name is Percy Mockler, senator from New Brunswick and chair of the committee.
Also, as a reminder to those watching the committee, our hearings are open to the public and also available online at sencanada.ca.
[Translation]
I will now ask the senators to kindly introduce themselves, starting on my left.
[English]
Senator Boehm: Peter Boehm, Ontario.
[Translation]
Senator Pratte: André Pratte from Quebec.
[English]
Senator M. Deacon: Marty Deacon, Ontario.
Senator Neufeld: Richard Neufeld, British Columbia.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
Senator Andreychuk: Raynell Andreychuk, Saskatchewan.
[Translation]
The Chair: I would now like to introduce Ms. Chantal Cardinal, who is our clerk today. She is replacing our usual clerk, Gaëtane Lemay. We thank you for being here with us. I also want to introduce the committee analysts, Alex Smith and Shaowei Pu, who together support the work of the committee.
[English]
Today, honourable senators and the viewing public, we continue our consideration of the subject matter of Bill C-86, which we started yesterday with officials from the Department of Finance and other departments.
Bill C-86, is an Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures. It is what we call a budget implementation act. This type of legislation is squarely in line with the National Finance Committee’s mandate from the Senate of Canada.
Honourable senators, let’s resume our study where we left off yesterday.
We were about to start Part 4. You have your binders and the information. We will commence Part 4. As you know, the committee was referred only some divisions of Part 4. The other divisions have been sent to other Senate committees for study.
We will start with Division 1, which pertains to Customs Tariff Simplification. To go over the measures we welcome Scott Winter, Director, Trade and Tariff Policy, International Trade Policy Division, International Trade and Finance Branch, Department of Finance Canada.
[Translation]
We also welcome Ms. Diane Kelloway, Statistical Analyst, International Trade Policy Division, International Trade and Finance Branch.
[English]
Division 1/Section 1, the title of the division is “Customs Tariff Simplification.” I will ask Mr. Winter to make some comments. Then we will proceed with questions following the comments and clarification of the Customs Tariff Simplification Division 1.
[Translation]
Mr. Winter, you have the floor.
[English]
Scott Winter, Director, Trade and Tariff Policy, International Trade Policy Division, Department of Finance Canada: Thank you, chair, and members of the committee for welcoming us to speak to the Customs Tariff Simplification measure, which is contained in clauses 69 through 126 of the Budget Implementation Act.
This measure includes several structural simplifications and other technical amendments to Canada’s tariff regime to ease administrative burden and reduce red tape and compliance costs for Canadian businesses and the Canada Border Services Agency.
The measure was announced in Budget 2018 and constitutes the government’s response to the Auditor General’s recommendation in the spring 2017 audit of customs duties to review and simplify Canada’s tariff regime.
There are three broad categories of amendments contained in the measure. The first and most substantive consists of the elimination of several redundant tariff items, the purpose of which is to facilitate classification and administration for importers and the CBSA. As a result, this measure reduces the overall number of tariff items in the Schedule to the Customs Tariff by just over 6 per cent — that is 490 tariff items — significantly reducing the scope for classification errors and the need for corrections, et cetera.
Second, the measure includes several amendments to clarify the policy intent of certain provisions and to approve administrative predictability for importers and the CBSA.
Finally, the third category of changes are those of a purely housekeeping nature. These would relate to changes such as aligning language discrepancies between the French and English versions of the legislation or updating tariff item numbering to reflect past changes.
Since the amendments themselves do not affect the rates of duties on imported goods, this measure is revenue neutral and will have no effect on ongoing or future trade negotiations for the Government of Canada. The amendments themselves would take effect on January 1, 2019. Thank you.
The Chair: Thank you. Honourable senators, we have received the information. Are there any questions?
Senator Marshall: Thank you for your presentation. Do any of the proposed changes result in additional revenues for the government?
Mr. Winter: No, they do not. This is purely a structural simplification of the tariff. Effectively where we have had scope for classification of a product in three different places, that is no longer necessary. There is now one place to classify the good, simply to improve predictability and streamline processes for both importers and the CBSA.
Senator Marshall: Thank you.
Senator Andreychuk: When you say it’s simplifying from three sources, could you give us an example?
Mr. Winter: Broadly speaking, tariff classification is standardized at the international level through the World Customs Organization’s harmonized system at what’s called the six-digit subheading level. Beyond that, individual countries have the ability to introduce greater specificity in their classification system at, for example, the eight-digit level, to meet their own economic or trade policy objectives.
A simple example at the international level, there may be a six-digit classification for widgets. For whatever reason in Canada, we may determine that blue widgets should be subject to a rate of duty of 10 per cent and red widgets should be duty-free.
For whatever reason in Canada in recent years we’ve had blue, red and yellow widgets at a greater level of specificity. Over the last number of years in Canada we have unilaterally eliminated tariff rates on a broad range of products, primarily to support manufacturing competitiveness in Canada. Since all of those blue, yellow and red widgets are now duty-free, we no longer require that level of specificity in the law. We’ve rolled it back up to the level of widget, which makes it easier and more predictable for importers and reduces the scope for errors at the border.
Senator Andreychuk: You said it’s revenue neutral. It’s also subject-matter neutral in the sense it doesn’t change anyone’s position who is importing or exporting.
Mr. Winter: That is correct.
Senator Pratte: I noticed the new tariffs — I understand that’s what’s in the bill, the new tariffs as they will stand from now on? This is a big bill, but about 200 pages are simply tariff lines.
Mr. Winter: Yes.
Senator Pratte: These are the new tariff lines, I understand?
Mr. Winter: Yes. The act both repeals the existing redundant tariff items. The schedule introduces the new replacement items. It is very lengthy in nature. This is just a function of for each of the tariff items we need to specify the preferential rates of duties that would apply for each of our respective free trade partners, which makes it, as you said, a very lengthy bill. In terms of content, as we’ve discussed, it’s substantively neutral.
Senator Pratte: To what extent is this a simplification from what exists now?
Mr. Winter: Right now in the tariff we have 7,582 eight-digit tariff items. As a result of the amendments, we are reducing this to 7,092 tariff items as of January 1, 2019.
The primary benefit is it reduces the scope for importers to misclassify their goods, whether knowingly or unknowingly, by saying, the blue widget versus the red widget. It also reduces the need for CBSA to deploy the appropriate resources to validate those tariff classifications that are really no longer necessary at that level of specificity.
Senator Pratte: Is this a constant process, something you do regularly to simplify tariff lines?
Mr. Winter: We have undertaken a proactive tariff policy to support specific policy objectives over the past number of years. We’ve supported various business sectors such as elimination of tariffs on machinery and equipment, the elimination of tariff rates on imported production inputs, agri-food processing inputs; we’ve eliminated tariffs for consumers.
This type of simplification is a snapshot at this point in time. As a general rule, we always make our best efforts to assess where these efficiencies can be made and where the opportunity presents itself to open the legislation, and we aim to do so.
Senator Pratte: Thank you.
Senator Boehm: Mr. Winter, in bureaucracies we’re always looking for ways to save and provide savings to the Canadian taxpayer. The projection would be, as I understand it and following on Senator Pratte’s question, the administrative costs at CBSA should probably be reduced.
Is this a realistic assumption or are we looking at a long lag time before this would occur?
Mr. Winter: As I mentioned, this will be implemented as of January 1. The need for the CBSA to deploy specific efforts to validate each of the individual digit items that are no longer in the law will not be needed as of that time.
Senator Boehm: Do you project there would be some savings in terms of administrative costs?
Mr. Winter: Not at a substantive level. It is on the margins. As I said, these are all items that were already duty-free for the large part that we are eliminating. Where the CBSA typically deploys its enforcement efforts now are around goods with higher duty rates or where there may be greater incentives for circumvention.
Senator Boehm: Thank you.
The Chair: Honourable senators, this concludes tab 1, Division 1. We will now move to tab 2, entitled “Canada Pension Plan.” I would ask the witness to come forward, Marianna Giordano, Director, CPP Policy and Legislation.
Thank you very much for being here. I have been informed you have a few comments and then we will proceed with questions, please.
Marianna Giordano, Director, CPP Policy and Legislation, Employment and Social Development Canada: Thank you, chair.
Today I’ll talk to you about clauses 127 to 129 which provide for a minor technical amendment to the Canada Pension Plan. This amendment will modify the calculation of the child-rearing drop in with respect to certain cases.
Further to the CPP enhancement, five improvements were made to the CPP, including the child-rearing drop in. The child rearing drop in was introduced in Budget Implementation Act, 2018, No. 1 to increase the enhancement portion of CPP for parents who stop working or reduce their participation in the workforce to take care of a child under the age of 7.
This technical amendment will allow for the proration of the drop-in amount in rare cases where it does not apply to a full year. This would be the case when a person’s contributory period begins or ends during a year in which a drop in is applied. These exceptional cases include situations in which an individual reaches age 18 in the year the drop-in would apply, or dies, or reaches age 70, or begins their CPP retirement pension in the year of the drop in. I’m happy to answer any questions.
Senator Marshall: What does “drop in” mean?
Ms. Giordano: When we did the CPP enhancement, we enhanced the CPP to accrue one fortieth for every year the person contributes. In the base CPP, we add what we call child-rearing dropouts. We allow people to drop out years of lower net earnings. The enhancement wasn’t structured in the same way. After we came back with BIA, 2018, No. 1, we put in drop ins. That means we will drop in a credit for those years people reduce their participation in the workforce to take care of children. The credit is equal to their five-year earnings average prior to having children. That reflects their earnings at that time.
Senator Marshall: Would that apply to both males and females?
Ms. Giordano: Yes, it does.
Senator Marshall: Would somebody have to apply for this or is it automatically done?
Ms. Giordano: This will be automatically done. When the person applies for a benefit, they will indicate they have children. According to their earnings, we will apply this to them.
Senator Marshall: When they apply for what benefit?
Ms. Giordano: For any benefit.
Senator Marshall: Any benefit within government?
Ms. Giordano: Within the CPP, the Canada Pension Plan. This is within the Canada Pension Plan, the calculation of the benefits.
Senator Marshall: Would you apply for a benefit if you’re on mat leave? This is what it’s for mostly, right?
Ms. Giordano: The Canada Pension Plan is a retirement pension plan but it has other benefits such as disability, survivors, death benefit. Most of the benefits are based on your contributions to the plan and your earnings.
In the base CPP, it’s an average of your earnings. We take 25 per cent of your average and that gives you your pension. Now, with the enhanced plan, we will have you contribute to the CPP and each year of contribution will count as one fortieth. We will take your best 40 years of contribution to the enhancement and add this to the base. If you have zero years of earnings, it will diminish your benefit.
Senator Marshall: For somebody on mat leave for a year — I don’t know if I’m using the right terminology — are you saying that automatically the CPP will be calculated as an average of the previous five years and it will be dropped into their record?
Ms. Giordano: Yes. For the enhancement portion, somebody who is on mat leave and doesn’t work, EI is not a pensionable earning. They do not contribute. For that period they will take the average five years of their previous earnings and we will drop that.
Senator Marshall: How do you know they’re on mat leave?
Ms. Giordano: They will tell us they had children. We will look at their earnings and we will say, you had a child who is under aged seven. From 2020 to 2025, those five years, your earnings were lower than your average. Therefore, we will drop in your average. If your earnings were higher than your average, we will not drop in your average because you’re better off with your earnings.
Senator Marshall: Is there an estimated cost to this?
Ms. Giordano: This specific proposal is only to tweak the proration. The drop-in was already approved in BIA, 2018, No. 1. This is to tweak the proration in the year your contributory period starts and ends, which is prorated. We will drop in the amount that reflects the period in which you were eligible to contribute.
Senator Marshall: Thank you.
The Chair: Any other questions? If not, we will move to tab 9, which will be Division 9 under the title “Canadian gender budgeting act.” We have Mark Hulett, Senior Advisor, Spending Reviews and Expenditure Policy. Thank you for being here.
Mr. Hulett, you have some comments and then we will proceed for questions.
Mark Hulett, Senior Advisor, Spending Reviews and Expenditure Policy, Treasury Board of Canada Secretariat: Thank you, Mr. Chair.
Just a quick clarification, with apologies. My colleague from the Department of Finance, Ms. McDermott, was unable to attend. I am representing the Treasury Board of Canada Secretariat. I’m happy, however, to speak on her behalf, although the Department of Finance is the lead on this particular part of the budget implementation bill.
You will note that proposed section 5 pertains to the President of the Treasury Board. This particular division enacts the Canadian gender budgeting act. It has two primary purposes, the first of which is to set out the government’s policy of promoting gender equality and inclusiveness by taking gender and diversity into consideration in the budget process.
The second primary purpose is to establish reporting requirements relating to the consideration of gender equality and diversity with respect to new announced budget measures, tax expenditures and existing Government of Canada expenditure programs.
I’m happy to take any questions.
The Chair: Thank you. Any questions from senators?
Senator Neufeld: Are the reporting requirements public reporting requirements or just internal reporting?
Mr. Hulett: Senator Neufeld, those would be public. You may have noticed in Budget 2018 and the more recent Fiscal Economic Statement, both of those documents contained what we would refer to as a gender budget analysis related to a number of measures, but not all of the measures.
This would be an enhanced reporting requirement to now touch on not only new budget measures but also tax expenditures and existing government spending. These would be made public.
Senator Neufeld: Thank you.
Senator Marshall: When would this become effective?
Mr. Hulett: My understanding is this would become effective upon Royal Assent. As I just mentioned, we have seen some initial steps taken both in terms of Budget 2018, earlier this year, and more recently the fiscal economic statement just a few weeks ago.
Senator Marshall: Is there a separate branch or division or group of people within the government that would be responsible for this?
Mr. Hulett: As outlined in the legislation, it would be the responsibility of the Minister of Finance with respect to the budget measures and tax expenditures, and then the responsibility of the President of the Treasury Board with respect to reporting on existing spending.
Senator Marshall: Would you know whether there will be additional staff hired?
Mr. Hulett: That is not the intent, no.
Senator Marshall: Thank you.
Senator Klyne: Thank you for your attendance this afternoon.
I have two questions. What type of consultations have taken place with the unions, employers, non-union employees? And, how were those concerns, if any, or ideas adopted or reflected in any changes?
Mr. Hulett: I’m not aware of any consultations, but nor would I necessarily be aware of the need at this time. This is to provide additional information in the context of the budget. As you would know, when announced, now what we will see going forward, where appropriate and possible, is additional information presented with respect to these impacts on gender or —
Senator Klyne: I’ll ask it another way, then. What has been contemplated in terms of collective bargaining agreements that already exist?
Mr. Hulett: I’m not aware of any impact or future consultations.
The Chair: Thank you.
[Translation]
Senator Forest: Regarding clause 83, which requires that we update our pay equity plan every five years, there was a court decision on May 10, 2018, stipulating that adjustments had to be retroactive. Do I understand that with your amendment, adjustments will not be retroactive?
[English]
Mr. Hulett: Apologies, senator: I’m not sure this pertains to this particular part.
[Translation]
The Chair: That would be another division.
Senator Forest: I am one section ahead of you, Mr. Chair.
The Chair: That’s right.
[English]
Senator Eaton: In what way would “promoting the principle of gender equality and greater inclusiveness could be part of the annual federal budget support” support economic growth?
Mr. Hulett: I can’t speak necessarily for the government on that particular aspect. They have made it clear it’s a part of their policy. They see this as an important aspect of Canada’s long-term economic growth and prosperity.
Senator Eaton: You can’t give me examples of how it’s going to do this? Or is this just lovely words, pie in the sky, the world is unfolding the way we see fit?
Mr. Hulett: I’m afraid I’m not in a position to answer that question, senator. I’m sure we could come back to you on that if you would like.
Senator Eaton: Perhaps this is another not very nice question: What role will the minister for women and gender equality play in helping federal departments?
Mr. Hulett: As stated in section 2 of the act, there is a role envisioned for the minister. There are some expertise and best practices we hope to draw on from the minister and her soon-to-be department, presumably.
Senator Eaton: Yes. Would she be in charge of trying to integrate gender and diversity consideration into budgetary policies?
Mr. Hulett: Into the processes, and in terms of supporting departments and helping them to build their capacity around this particular issue.
Senator Eaton: Thank you.
The Chair: Therefore, no further questions. This concludes tab 9, Division 9, Canadian gender budget act.
We will move to tab 14, Division 14, pay equity. Joining us, the officials will be, from Employment and Social Development Canada, Lori Straznicky, Executive Director, Pay Equity Task Team, Labour Program.
[Translation]
From the same department, we also welcome Bruce Kennedy, Manager, Pay Equity Task Team, Labour Program.
[English]
Treasury Board of Canada, Renée Caron, Senior Director, Pay Equity, Compensation and Labour Relations Sector.
[Translation]
Also from the Treasury Board of Canada Secretariat, we welcome Jérôme Mercier, Director, Compensation Costing and Research Expenditure Management Sector.
[English]
We also have for Division 14, pay equity, from Public Services and Procurement Canada, Marie-Eve Gagné, Policy Analyst, Portfolio Affairs, and Charles Bernard, Director General, Portfolio Affairs.
Ms. Straznicky, please make your comments. We will follow with questions.
Lori Straznicky, Executive Director, Pay Equity Task Team, Labour Program, Employment and Social Development Canada: Thank you. Senators, I’ll start by giving you a quick summary of the purpose of this division. This division introduces a new proactive pay equity legislation. It also repeals the Public Sector Equitable Compensation Act and amends both the Canadian Human Rights Act and the Parliamentary Employment and Staff Relations Act.
The legislation and the proposed amendments are intended to create a proactive pay equity regime that ensures equal compensation for work of equal value for employees in female-predominant jobs in federally regulated workplaces.
I’ll give you a very high-level overview of how the pay equity act will work. In terms of its application, the act will apply to all federally regulated employers with 10 or more employees, including those in the federal private sector, the federal public service, as well as the Prime Minister’s and minister’s offices. In addition, the regime will apply to all parliamentary workplaces through amendments to the Parliamentary Employment and Staff Relations Act. Individuals in workplaces with fewer than 10 employees would remain covered under the Canadian Human Rights Act complaints-based regime.
In terms of the process the pay equity act sets out, there are several key elements. The first is related to the employers’ and employees’ obligations. There are different requirements for employers of different sizes.
There are requirements for small employers with 10 to 99 employees as well as others for large employers with 100 or more employees.
Regardless of their size, all employers are required to develop a single pay equity plan within three years from the coming into force of the legislation or from becoming subject to the act. This plan would set out certain information, such as the following: It would set out the job classes identified in the workplace; it would set out the gender predominance of those job classes, established using a 60 per cent threshold for both male- and female-predominant job classes; it would set out the value of work of those job classes based on an assessment of skill, responsibility, effort and working conditions; and it would set out the compensation associated with each job class using a total compensation approach.
The plan would also include the results of the comparison of the compensation of female- and male-predominant job classes of similar value using an equal line or equal average method. It would set out those female-predominant job classes that would require an increase in compensation, as well as when those increases in compensation would be due, and provide information on dispute resolution procedures available to employees.
In terms of how this plan would be developed, in large employers and those with any unionized employees, regardless of their size, they would be required to develop this pay equity plan through a joint committee. There would be employer and employee representatives on this committee, with two-thirds being employee representatives and 50 per cent being women.
For small employers with no unionized employees, the plan would be developed through an employer-led process.
Regardless of how the plan is developed, all employees will be given an opportunity to comment on the plan before it is finalized. Employers will have three to five years, depending on their size, to phase in any increases in compensation that have been identified, so long as those payments are at least 1 per cent of their annual payroll. Employers will be required to review their plans at least every five years, in order to identify and close any pay gaps that may have emerged. Employers will also be required to provide a short annual statement to the pay equity commissioner each year to ensure there is sufficient oversight.
In terms of the application to minister’s offices and the Prime Minister’s Office, exempt staff working in those offices will be covered in a way that recognizes the unique features of that environment.
Moving to how the act will be enforced, there will be robust and independent oversight by a pay equity commissioner who will be appointed by the Governor-in-Council to the Canadian Human Rights Commission. This commissioner will administer and enforce the act through a range of compliance and enforcement tools that would include administrative monetary penalties.
There will be appeals provided for certain decisions or orders of the pay equity commission to the Canadian Human Rights Tribunal that would be made available to workplace parties. The act provides for the creation of a pay equity unit that would consist of officers and employees of the Canadian Human Rights Commission who would support the pay equity commissioner in fulling filling her or his duties under the Pay Equity Act.
There is also provision in the act for the creation of a pay equity division within the CHRC, the Canadian Human Rights Commission, over which the pay equity commissioner would preside, to address complaints of discriminatory practices related to pay equity and federally regulated workplaces with fewer than 10 employees.
Finally, the act provides for three additional members with knowledge and experience in pay equity matters to be appointed to the Canadian Human Rights Tribunal.
In terms of amendments to the Parliamentary Employment and Staff Relations Act, there will be the creation of a new part to the PESRA that would provide that the Pay Equity Act applies to all parliamentary employers and employees in a manner that will respect parliamentary privilege. There will also be oversight by the pay equity commissioner who will have the authority to conduct compliance audits and investigations of parliamentary employers, issue compliance orders and notices of contraventions to deal with any complaints. However, the pay equity commissioner must provide notice to the speakers before entering any place under the authority of a parliamentary employer. The sanction for non-compliance with decisions or orders of the pay equity commissioner would be the tabling by the Speaker in the house.
Appeals for decisions or orders of the pay equity commissioner are to be made to the Federal Public Sector Labour Relations and Employment Board as opposed to the Canadian Human Rights Tribunal.
That’s the summary of Division 14 of the bill. If anyone has any questions, we would be happy to answer them.
The Chair: Thank you. We will go to senators for questions.
Senator Eaton: Because you have done a lot of research before this legislation, how many complaints do you anticipate getting the first year?
Ms. Straznicky: In the first year of the regime coming into force, complaints that could be brought to the pay equity commissioner are anticipated to be relatively low, based on the numbers we examined out of Ontario and Quebec. One difference, when we talk about complaints, is workplace parties will be able to bring requests for assistance with notices of dispute. That would allow the pay equity commissioner to assist them more through the mediation than complaint resolution approach.
Senator Eaton: Have you done an economic analysis of this? Do you have any idea what it will cost employers?
Ms. Straznicky: In terms of employers in the private sector, it’s difficult to anticipate what the financial impact would be, given that we don’t have access to their compensation systems. Additionally, until employers have undertaken the exercise of going through the pay equity analysis, identifying whether there are female- or male-predominant classes and whether gaps exist, it’s difficult to project or know what type of impact there will be.
Senator Eaton: Now onto something you should know well: What about the public service?
Ms. Straznicky: I will ask my colleague to answer.
Jérôme Mercier, Director, Compensation Costing and Research, Expenditure Management Sector, Treasury Board of Canada Secretariat: In line with what Lori was saying, the proposed legislation sets out a clear process to follow for employers. For the Government of Canada, we’re a large unionized employer, it means we will have to develop pay equity plans and do so jointly with employer representatives with a view to identify gaps, measure them and take action to close them. Until this is done, it is too early to identify with any certainty what those gaps are.
Senator Eaton: I would have thought you would be leading by example.
Mr. Mercier: This legislation is a significant departure from the complaints-based system we have at the moment. It involves a systemic assessment of an employer’s pay structure from a gender perspective.
Senator Eaton: I will ask a last question. Other senators want to ask questions. How long do you think it will take you and the public service — say the legislation is passed before Christmas, which is part of the budget bill, do you anticipate doing this within a year or 18 months?
Renée Caron, Senior Director, Pay Equity, Compensation and Labour Relations Sector, Treasury Board of Canada Secretariat: The public service will be the largest employer covered by this legislation. We have multiple bargaining agents. If we are talking about the core public administration, we have in the order of 200,000 employees to whom this will apply. This will take some time to get it done, to work jointly with our labour counterparts and make sure we get it right.
The legislation provides for a three-year window for us to develop a pay equity plan. We’re hopeful we can do it within that time frame. The legislation allows for employers and, I believe, for employer representatives to apply or request from the pay equity commissioner an extension of time if there were a legitimate need to take more time for the parties to work through developing the plan. That is a contingency out there.
Senator Eaton: Thank you very much.
Senator Pratte: Hello again.
I have a couple of questions to relay concerns expressed by different people and groups regarding the wording of the bill. For instance, my understanding is certain groups of employees are not included in this and would not be protected by this, for example, because of the casual and seasonal nature of the work. Would you please explain why these employees who would probably be amongst the more vulnerable are not protected by this new legislation?
Ms. Straznicky: The act applies to all employees. It would apply to full-time, part-time, casual, seasonal, temporary employees, with the single exception being students engaged in a work program or who are working simply during their summer break.
In terms of the coverage, those employees would be covered and be part of the analysis. The act provides a very limited exemption for the calculation of compensation for employees who would be part-time, casual or seasonal if there is a benefit they would not receive because of the nature of their position. It’s simply related to the calculation of compensation.
Senator Pratte: Would you care to give me an example of how that would work?
Ms. Straznicky: I can do my best. If you have a job class and within that job class you have a job where you have a full-time employee who receives an hourly wage and also receives an employer contribution to an RRSP plan. Then you have a seasonal or part-time employee who receives an hourly wage, but because of the nature of their position they are not entitled to participate in that RRSP-matching plan.
When you look at the compensation, the full-time employee’s compensation with the hourly wage plus that benefit would be higher than the part-time employee’s. If there is the need to adjust them, then let’s say the full-time is making $15 plus $2, so $17; the part-time is making $13, plus zero, $13. If you need to adjust both of those by $2, you would not go from $17 up by $2 for the part-time. It would be that same base salary plus the $2.
It’s just in that narrow area where because of the nature of their position they’re not entitled to a certain benefit that there is an exemption but they’re covered under the whole bill.
Senator Pratte: Thank you. For non-unionized, small workplaces, my understanding is the process would then be employer-driven. There would not be a pay equity committee in these cases. I know the employer would have to post the plan and employees would have the opportunity to comment on the plan, but there wouldn’t be a committee.
Why did you make that choice? Would it not be possible to have committees even in these small, non-unionized workplaces?
Ms. Straznicky: You’re correct, that for those small, non-unionized workplaces they aren’t required to establish a committee. They are able to voluntarily establish a committee should they so choose.
In terms of what we heard from employers and other stakeholders, there is a need for recognition of the different size of employers in the federal jurisdiction. The bill provides some flexibility to those smaller employers to allow them to undertake a process in their workplace that would have less of a burden on them.
Senator Pratte: Thank you. Final point, if I may, as far as establishing these new pay equity committees, the bill says the employer must make all reasonable efforts to establish such a committee. Some stakeholders believe this is not a high enough bar, that efforts “all reasonable efforts” could be replaced by the requirement the employer “negotiate in good faith,” for instance, or other language.
Ms. Straznicky: In terms of the “all reasonable efforts,” it is a standard contained in other pieces of legislation. It is a known standard. It is a legal standard we know. When the employer is ultimately responsible for finalizing the pay equity plan and making any adjustments, the standard recognizes there may be situations where the process can be thwarted.
If the employer in good faith has tried to make a committee but there are other issues with employee representatives appointing people to the committee that the committee itself cannot be struck despite the efforts made by the employer. This allows for flexibility.
There are safeguards in place in the legislation to ensure that if an employer is attempting to demonstrate they have made all reasonable efforts, they have to do so to the pay equity commissioner and the pay equity commissioner would then need to authorize the employer to proceed without the committee.
Senator Marshall: Could you explain the phrase in clause 2 — I think there might have been a bit of discussion over in the House of Commons on it — “while taking into account the diverse needs of employers”?
Ms. Straznicky: Yes. The purpose clause is there as a provision that sets out the objectives of the act. It is not providing any substantive rights, nor is it creating a loophole for employers to undermine any right to pay equity their employees have. That phrase, “the diverse needs of employers,” is intended to represent the different processes that a small employer versus a large employer would undertake in terms of coming up with a pay equity plan; that is doing it in a joint process versus having the employer-led process. That is what the diverse needs of employers in that purpose section reflects.
Senator Marshall: That phrase is still in the legislation, is it?
Ms. Straznicky: Yes, it is.
Senator Marshall: The pay equity commissioner sounds like it’s an officer of Parliament. Some people refer to it as an agent of Parliament. Am I reading that correctly?
Ms. Straznicky: No. The commissioner is a deputy commissioner, appointed by the Governor-in-Council, given the full powers, duties and functions under the bill to both administer and enforce the act. The commissioner has the ability to report into Parliament but is not to be an agent of Parliament.
Senator Marshall: But reports directly to Parliament?
Ms. Straznicky: That’s correct, reports directly to Parliament.
Senator Marshall: Why was there a decision to have a statutory review conducted within 10 years? Usually it’s 5 years.
Ms. Straznicky: I would have to come back to you with specifics on the 10 versus 5, if there are any.
Senator Marshall: Has there been any estimate on the cost of implementing this legislation? I know it also relates to the private sector but would you have any costs, for example, within government?
Ms. Straznicky: I can quickly speak to the cost. In the fall economic statement there was funding allocated to support the pay equity commissioner over the next six years, as well as funding to support the Canadian Human Rights Tribunal, and then funding was given to the labour program at ESDC to support start-up costs to get the commission and the unit running.
Senator Marshall: To implement the pay equity, it can’t be achieved through reducing salaries — salaries have to be increased.
There wouldn’t be an estimate of the cost to increase salaries in the public service of any anticipated amount?
Ms. Straznicky: I’d have to turn to my colleagues to answer that question.
Mr. Mercier: Again, the legislation will set out a process. The government will have to do this jointly with union representatives. By doing so, we’ll be developing pay equity plans to identify gaps, measure them and take action to close them.
At this point, until this is completed, it’s too early to point to any gaps or any costs with any certainty.
Senator Marshall: The increases can be phased in?
Mr. Mercier: Yes, in line with the provisions for employers of more than 100 employees.
Senator Marshall: Thank you.
[Translation]
Senator Forest: I’ll go back to my question; I was a little bit ahead of things. According to clause 83, there would be an update every five years. However, the pay equity plan does not contain a provision on retroactivity. The situation is the same in Quebec; however, according to a Superior Court decision handed down on May 10, 2018 — which is relatively new — adjustments must be retroactive. Why did you not take this decision from the highest court on the subject into account?
[English]
Ms. Straznicky: We reviewed and considered the decision. The legislation requires that when the update is done, there will be retroactive payments made to close any gaps identified as having emerged.
The specifics in terms of when the gaps will have emerged will be set out as part of the regulatory process in regulations. That process will be carried out through the normal regulatory development phase, with full consultations with stakeholders in advance of the regulations being brought into force.
[Translation]
Senator Forest: If I understand correctly, the spirit of the act leans toward retroactivity of salary adjustments when the plan is reviewed, but the regulations do not allow you to do so currently; have I decoded your comments correctly?
[English]
Ms. Straznicky: I’m going to go to section 83.
[Translation]
Bruce Kennedy, Manager, Pay Equity Task Team, Labour Program, Employment and Social Development Canada: This would instead be in clause 88, paragraph 2. It refers to retroactivity. Under the act, lump sums will be applied if there are discrepancies when the plan is reviewed. The way which those discrepancies are calculated and the method to determine when they appeared will have to be prescribed in the regulations.
Senator Forest: What will be the basis for calculating the discrepancies?
Mr. Kennedy: The discrepancies will be calculated on the same basis as the initial plan, that is to say when the plan is reviewed. Five years after putting the initial plan in place, a similar process will have to be established to determine if the differences have reappeared in the five previous years.
Senator Forest: But that is not in clause 88 at this time?
Mr. Kennedy: I don’t remember the number of the clause, but you can find the fact that the process will have to be reapplied, as it was applied in the beginning. In clause 88, paragraph 2, with regard to lump sums, this will be prescribed by regulations.
Senator Forest: When the plan comes up for review.
Mr. Kennedy: Exactly. Lump sums that have been identified will be due under the regulations.
Senator Forest: So the details have yet to be finalized.
Mr. Kennedy: Precisely.
[English]
Senator Neufeld: Thanks to all of you for being here.
It says the pay equity will apply to federally regulated public and private sector employers. I understand the public. Give me some idea of the private sector employers that would be under this pay equity plan.
Ms. Straznicky: In the private sector, the main areas where we see a heavy concentration of female employees are the banking sector, telecommunications and broadcasting, postal service and pipelines. Those are some examples of areas where we know there is a large concentration of female workers.
Additionally, other types of workplaces under the federal jurisdiction are airlines, interprovincial transport, rail lines and grains. These are the general industries we would see in the federal private sector.
Senator Neufeld: You would encapsulate almost everything, I guess, when you talk about that. Pipelines, hydro generation and all of those kinds of things would be encapsulated in this.
Ms. Straznicky: The definition of an employer in this act for the private sector relates back to what is considered to be a federal work undertaking or business under the Canada Labour Code. There is an enumeration there of the industries that would be captured by the federal authority under the Constitution Act.
There are going to be a large number of industries that have a national significance, like those I mentioned, such as our railways and airlines. When we get into matters of a provincial nature, those types of businesses will not be covered by the act. It’s approximately 8 per cent of the Canadian workforce.
Senator Neufeld: That was going to be my next question. Regarding the 10 or fewer employees, can you explain to me again quickly how they get covered?
Ms. Straznicky: Currently, all employees in the federal jurisdiction are covered under the Canadian Human Rights Act. The act provides for a complaints-based system. Employees would bear the burden of having to bring forward complaints on their own if they feel they’re not receiving equal pay for work of equal value.
The new regime applies to those employers with 10 or more employees. Small workforces with one to nine employees, for example, would remain covered under the Canadian Human Rights Act.
Senator Neufeld: Because there are so many people covered — I’m not having a problem with that — where do you start? With pay equity, obviously, someone is going to expect that, at a certain time, they’re going to get the same pay as another person. You can’t do everybody all at once, I wouldn’t think. You’ve already said you hope to get it done within three years.
Does the pay equity start when this comes into force? Or does pay equity start three years from now? How do you manage that so people are getting what they should be getting? It seems to me it will be relatively difficult to do.
Ms. Straznicky: One of the important aspects is the right to equal pay for work of equal value exists and has existed since 1977. In this approach now, when we look at when this act receives Royal Assent, let’s say at the end of this year, we go forward one year, coming into force is one year after and it is one year before employers start to identify those gaps. That right remains.
The process required to determine the job classes that are typically women’s work job classes, which ones need an adjustment and setting out when those adjustments are to be made will start three years after the legislation comes into force.
Senator Neufeld: Thank you.
[Translation]
Senator Moncion: What measures will be taken to educate employers as to their obligations under this new legislation?
[English]
Ms. Straznicky: One of the roles of the pay equity commissioner is to do with education and awareness. In the lead-up to the regime coming into force, materials are being developed, education materials, guidance materials and support tools for employers, so when the legislation is in force they will have that information available to assist with understanding their rights and obligations.
Then on a go-forward basis, once the pay equity commissioner is appointed and the legislation is in force, the pay equity commissioner has an ongoing role in terms of assisting the parties with understanding their rights in addition to his or her role in enforcing the act.
[Translation]
The Chair: Do you have another question?
Senator Moncion: No, that is all.
[English]
Senator M. Deacon: Thank you for being here today. I tried to go through the Public Sector Equitable Compensation Act to see the gaps and changes. That was pretty futile for me. I was trying to see some of the significant changes and what the trending might have been and the feedback was when you went through the consultation process.
Most of my questions have been asked. I have two things. When you did what I assume was a deep and wide consultation process, were there one or two pieces that really lingered as the predominant items of feedback that you’ve addressed, and you fully addressed and you addressed well? I will wait for the second question until that has been responded to.
Ms. Straznicky: On the consultations, yes, we did undertake broad consultations with our stakeholders in terms of the employer and employee representatives, unions, and additionally with experts and quality advocates nationally. We received, on the whole, broad support for the principle of pay equity. We received differing needs from different employers as well as what would be expected from employee reps and advocacy stakeholders.
In terms of what we reflected in the legislation from what we heard, employers told us they needed flexibility. We have a jurisdiction where we have small employers from small trucking companies that maybe have 15 to 20 employees all the way up to large employers, including the federal public service, who have different resources and abilities to do this work and are also operating in different environments with their unions, some with one union, some with none, some with many. In terms of what the legislation has done, it’s taken that feedback and processed it in a way to make a meaningful scheme for everybody, that flexibility for those employers.
Senator M. Deacon: You feel that instead of one-size-fits-all, built within this is the opportunity for people to respect the customizing based on the organizational piece with what they need to do? Do you feel like that’s in here to a degree?
Ms. Straznicky: It’s in there and it also gives a role for unions and employers to work together in creating a joint process in these larger workplaces where we have a lot of unionization.
It also allows for employers in smaller organizations to work with their employees and customize it to suit them if they feel we maybe aren’t at the threshold where we would do the process through a joint committee, but it works for us. The legislation allows flexibility for those workplaces where it would work for them even if they had 60 employees to go ahead and do a joint process and follow through that way.
Senator M. Deacon: Thank you. One example you cited is a question about the role of the commissioner. One of the examples was the aviation field mentioned in Senator Neufeld’s answer.
I wonder, then, the roles and responsibilities of who’s accountable for what. In areas where we might see roles are traditionally held by males, perhaps pilots, and we might see roles traditionally more held by females, perhaps the supports to a pilot, will the commissioner have any role in trying to push or encourage an organization to work at that systemic issue, or will that responsibility and role still fall within the company or organization?
Ms. Straznicky: I think it’s an important question getting at the systemic nature of it and the change that we would also want to see. This measure is one piece of a number of measures to try to address the gender wage gap and reduce it.
I don’t want to call it a “power,” but one ability the pay equity commissioner has is to undertake research on systemic issues and report to Parliament on those issues going forward. There is a role for the commissioner going forward in that regard.
Senator Klyne: Thank you. With regard to the pay equity commissioner’s office or the successful operation of that office, what resources, in terms of budget and number of employees, are being estimated? Is it anticipated there will be branches or satellites throughout the country?
Ms. Straznicky: I jotted them down because there were numbers from last week.
In terms of the funding that was announced for the Canadian Human Rights Commission, the pay equity commissioner will be appointed as one position to the Canadian Human Rights Commission, and $15 million over six years has been announced to be provided to the Canadian Human Rights Commission to fund the role of the pay equity commissioner but also the pay equity unit that would need to be staffed in order to support the commissioner.
If we’re just talking about the commission, there are additional funds allocated to the Canadian Human Rights Tribunal — another $8 million in order to support the appointment of three additional members.
Senator Klyne: That’s $23 million?
Ms. Straznicky: Yes. I could have started with the full number. The full number is $26.6 million that was allocated. The final $3 million is to allow the labour program at ESDC to start the materials that I was just mentioning in terms of developing education and training materials and identifying and supporting the appointment of the pay equity commissioner.
Senator Klyne: Does the Canadian Human Rights Commission have branches throughout the country?
Ms. Straznicky: I would have to come back to you in terms of the national reach of the Canadian Human Rights Commission.
Senator Klyne: Thank you.
Senator Pratte: I want to go back to the issue of retroactivity because, frankly, I’m not sure I understand how this would work. Once a plan has been agreed to, obviously the compensation of some female employees will be increased once the gap is identified, if a gap is identified. At that point, is there any retroactivity for the first pay equity plan?
Ms. Straznicky: After you’ve done the three years, you develop the plan and then —
Senator Pratte: That’s correct.
Ms. Straznicky: Once the plan is done and the gaps have been identified at that three-year mark when it’s posted, then the payments become due the day after the posting, and they are on a go-forward basis. They’re due the day after and then, depending on employer size, small employers would have up to five years to phase in payments if it’s 1 per cent or more of their annual payroll.
And large employers would have three years to phase in any adjustments. The same qualifications. It would have to be more than one per cent of their payroll.
Senator Pratte: When you’re talking about payments, you are talking salary increases?
Ms. Straznicky: That’s right.
Senator Pratte: They would have no retroactive character at all at the moment of the first plan?
Ms. Straznicky: That’s right.
Senator Pratte: I did hear concerns from stakeholders that they believe, like you said earlier, pay equity has been understood to be a human right in Canada since 1977. Therefore, it’s unfair and there is no way to take into account the fact that a gap may have existed for a long time before it’s first identified following processes established under this act.
Ms. Straznicky: In shifting to this new proactive regime and putting the burden on to employers to now have to examine their compensation practices, identify which job classes exist in their workplace, and then assign values to and compare them, those gaps are identified at that three-year mark or whenever employers and joint committees, if it’s joint committees, finish that process, and that the regime requires them to obtain and then maintain pay equity from that point forward.
Senator Pratte: Thank you.
Senator Eaton: Ladies and gentlemen, can you come up with a template to help employers come up with a point system to evaluate positions, because it can be quite subjective, I would think?
Ms. Straznicky: I think that is another excellent question on the broad role of the pay equity commissioner and the type of education materials and guidance and the role of the commissioner in assisting the parties. That it is not simply bringing a new regime into place and then handing it over to say “please figure it out for yourself.”
Senator Eaton: You might not know where to start.
Ms. Straznicky: Exactly. The education role for the pay equity commissioner is contemplated as an important role to do precisely that type of work.
Senator Eaton: Who will name the commissioner? Is this a federal appointment, an order-in-council appointment?
Ms. Straznicky: It is.
Senator Eaton: Thank you very much.
[Translation]
Senator Forest: Thank you for those explanations. I feel there is a serious will to put in place a legislative framework that will allow us to put pay equity in place. It’s an objective we all share.
With regard to clause 20, which requires unanimity when there is a vote by employee representatives on one element of the policy or another, I find that quite stringent. If there is no unanimity, the employer decides. It’s a bit like putting a knife to people’s throats. Quebec requires a majority. Why are we demanding unanimity here? These are matters of principles and values. This seems rather burdensome and it risks favouring the employer, who would see the decision revert back to him. I don’t understand why the bar is being set so high. Unanimity means 100 per cent, and that does not happen often.
[English]
Ms. Straznicky: Thank you for that question. I appreciate that Quebec has a different approach. In considering the approaches in the two provinces that have proactive pay equity, Quebec and Ontario as well as recommendations from the bills and the task force report, in looking at how to best bring this in. There was consideration given to those smaller voices on these joint committees, so unrepresented non-unionized employees who would have a representative on a joint committee amongst larger bargaining agents or smaller bargaining agents who would be on a committee with larger bargaining agents. The intention was to ensure that all employee representatives have an equal voice on that committee, and to encourage a collaboration amongst union side partners.
[Translation]
Senator Forest: So, we have the wording in clause 20 referring to specific conditions where there are small units that could be subsumed into larger units. Would it not be wise to indicate that in those specific cases, unanimity is required, but in larger organizations where there are also smaller units, a simple majority or two-thirds vote would be required?
[English]
Ms. Straznicky: I think the way Quebec has done it demonstrates there is another way out there. In going back to the discussion in the bills and task force report, there was a discussion around challenges faced there. The approach here does not prohibit if there are some issues where there are disagreements between large unions or in cases not like the one I just described from seeking a way to resolve it as between themselves in order to come up with a unanimous vote.
[Translation]
Senator Forest: In the case of mixed units where there is a disparity among representatives, my only worry is that this will slide too easily into the employer’s court. It’s a comment. Thank you.
[English]
Senator Klyne: I thought I had a question but might have this sorted this out. Does the CHRC supersede, say, the Saskatchewan human rights?
Ms. Straznicky: No.
Senator Klyne: They are not federal. Okay.
Then I started wondering whether all national carriers, as opposed to regional carriers of airlines, all incorporated federally.
Ms. Straznicky: Any airline is a federal undertaking. They would be part of the federal regime.
Senator Klyne: If they tried to institute their own pay equity plan and you didn’t quite align with the guidelines of this legislation, would there be some penalty?
Ms. Straznicky: If a regional airline tried to?
Senator Klyne: Say a national airline, not a regional airline.
Ms. Straznicky: Once the legislation comes into force, regardless of what an employer will have already done in their own workplace to establish pay equity, they will still need to follow the process set out and be compliant with the legislation.
Senator Klyne: You consulted with airlines?
Ms. Straznicky: In terms of our —
Senator Klyne: As an example.
Ms. Straznicky: As an example, absolutely, with our federal jurisdiction private sector stakeholders, yes.
Senator Klyne: Okay. Thanks.
Senator Marshall: Can you clarify again whom this applies to? Does it apply to the federal public service? I thought they didn’t fit into that category of federally regulated?
Ms. Straznicky: You’re correct on both of those points. Yes, this does apply to the federal public service. Typically, when we talk about the federal jurisdiction in terms of labour standards, for example, the federal public service is not covered under that portion of the Canada Labour Code.
Senator Marshall: But it is in this legislation?
Ms. Straznicky: But it is in this legislation.
The Chair: You prompted a question. There is no doubt we have a lot of stakeholders vis-à-vis posing and asking questions and sending different requests to your department on pay equity.
Can you clarify and bring to the table additional information on the following question: The Canadian Human Rights Tribunal has a number of concerns with the pay equity as a stakeholder and with the Pay Equity Act that would be enacted by Bill C-86, as it would be the appeal body for decisions rendered by the pay equity commissioner. Are you aware of the tribunal’s concerns? How do you respond to those concerns?
Ms. Straznicky: I am not aware of the tribunal’s concerns in relation to the Pay Equity Act. However, I would be happy to receive the concerns and undertake to speak to them.
The Chair: Okay. Thank you very much for the record.
Honourable senators, this concludes tab 14, pay equity.
[Translation]
We thank the officials from the different departments.
[English]
Now we will move to tab 17, division 17 entitled, International Financial Assistance.
[Translation]
In this division, there are two subsections: A and B.
[English]
Subtab A of tab 17, subdivision A entitled: Amendments to Certain Acts.
[Translation]
We will ask the next officials to introduce themselves.
[English]
From Global Affairs Canada, we welcome Mhairi Peterson, Director, International Assistance Enveloppe Management, and Deirdre Kent, Director General, International Assistance Policy.
We also have, from Finance Canada, Nicole Giles, Director, ITF, Assistant Deputy Minister’s Office.
[Translation]
From the same department, we also have Ms. Louisa Pang, Director, International Finance and Development Division.
[English]
We also have Mr. Zachary Edwards, Junior Analyst/Economist, International Finance and Development Division.
I have been informed there will be comments. Please, we will hear your comments to be followed by questions from the senators.
[Translation]
You have the floor, madam.
[English]
Nicole Giles, Director, Assistant Deputy Minister’s Office, International Trade and Finance Branch, Department of Finance Canada:
My name is Nicole Giles. I’m Director General for International Finance and Development at Finance Canada. Thank you very much, chair and senators, for having us here today.
We’ll start with tab A which relates to reporting on amendments to the Bretton Woods, the EBRD and the ODAAA act, that’s clauses 654 through 658.
Budget 2018 announced that Canada would be enhancing its international assistance reporting which is currently based on different historical legislative requirements which result in Canada reporting on its international assistance levels through several different means, multiple reports at different dates with different scopes.
The first component of Division 17 proposes legislative amendments to three existing acts to align reporting timelines. First, the Bretton Woods and Related Agreements Act; second, the European Bank for Reconstruction and Development Agreement Act, both of which are under the responsibility of the Minister of Finance; and third, the Official Development Assistance Accountability Act, which falls under the responsibility of the Minister of International Development.
The goal is to align timelines to allow for one consolidated report explaining clearly international assistance activities to Parliament and Canadians.
The amendment to the ODAAA act includes repealing the outdated definition of official development assistance currently in the act, which is the old 2008 OECD definition, and amends the act to allow for official development assistance to be defined and updated in regulations so it can be kept current within internationally agreed definitions.
For the committee’s awareness, during the parliamentary committee stage an amendment was adopted which clarified that the definition of official development assistance must take into account the most recent definition from the OECD development assistance committee rulings.
I’ll turn to my Global Affairs colleagues.
Deirdre Kent, Director General, International Assistance Policy, Global Affairs Canada: Thank you. The second component of Division 17 is new legislation titled: “International Financial Assistance” — yes. Mr. Chair, if you’ll permit, we have other colleagues who would be best-placed to speak to the International Financial Assistance Act. They would come after the questions related to the presentation just made.
The Chair: This will be following your subsection A. We are now in subsection A, your comments are appropriate for the officials in subsection B. We are on subsection A. The subsection A is amendments to certain acts.
[Translation]
We will only be asking questions about subsection A; afterwards, we will discuss subsection B.
[English]
Ms. Kent: Thank you, Mr. Chair.
The Chair: Thank you. Now to questions.
Senator Marshall: I don’t know now if I’m in the right section. I’ll ask the question. The sovereign loans program, it says the minister — and the minister is not the Minister of Finance, it’s the Minister of Foreign Affairs or the Minister for International Development. It says: “The minister can make loans to a foreign state or to any person or entity.” I thought it was odd that someone other than the Minister of Finance was going to make a loan. But it says “subject to regulations.” Are those regulations in effect now?
Ms. Giles: Chair, that question pertains to section B, would you like us to answer that now or would you like us to wait?
Senator Marshall: I suspect I was out of sequence, but —
The Chair: The chair would entertain what we could do is ask the official for section B to make their presentation, and you will have questions on both at the same time.
Ms. Giles: I have a short opening statement prepared for section B. Would you like me to make that opening statement prior to answering the question from the senator?
The Chair: Yes, let’s do then both sections at the same time and if you can, give comments so this would help senators in their questions of subsection A and subsection B at the same time.
Ms. Giles: Certainly.
The Chair: The other officials available are Chantal Larocque, Deputy Director, Development Finance.
[Translation]
We will hear from Ms. Michelle Kaminski, Director, Office of Innovative Finance, Grants and Contributions Management.
[English]
Mr. Ryan Clark, Director, Office of the Assistant Deputy Minister for Global Issues and Development.
[Translation]
From Status of Women Canada, we have Danielle Bélanger, Director, GBA Plus and Strategic Policy, Policy and External Relations Directorate.
This is division 18. And the last one to speak would be Mr. Ryan Clark.
[English]
Who will make comments on section B?
Ms. Giles: I have a short opening statement to make, chair.
The Chair: Yes, please. Then we will proceed with sections A and B for questions.
Ms. Giles: Wonderful.
The Chair: Thank you, madam.
Ms. Giles: The second component of Division 17 is new legislation entitled: “The International Financial Assistance Act,” which covers clauses 659 through 660.
This legislation is to allow for the implementation of a Budget 2018 commitment to provide $1.5 billion over five years to support innovation in Canada’s international assistance through the creation of two new programs. First, the International Assistance Innovation Program, the IAIP; and second, the Sovereign Loans Program.
To provide a bit more context, there is an international consensus that global development needs overwhelmingly exceed the amount of official development assistance which is available. To help fill this financing gap, the international community needs to invest in mobilizing new resources of financing, particularly private sector resources. Global Affairs Canada’s authorities were designed at a time when the international focus was on grants and contributions programming. Other G-7 countries and international development partners have been using a variety of tools, including international development finance institutions, sovereign loans and guarantees, and blended finances as part of their development tool kit. It is proposed through this legislation that Canada also expand its tool kit.
While these tools are tried and true in other countries, their deployment as consolidated programs will be new for the Government of Canada. A pilot approach is being taken to enable an assessment of the effectiveness of the programs after five years. The legislation includes high-level authorities being sought after and if the legislation is approved, regulations would be developed to provide more precision on the boundaries of the program, including eligibility criteria, terms and conditions that can be used, amongst others.
The Minister of Finance, as part of the Financial Administration Act, is tasked with ensuring the prudent fiscal management for the Government of Canada. As outlined in the legislation, the regulations that would be developed afterwards and approved by the governor in counsel will provide that certain transactions, or classes of transactions, will require consultation with or the approval of the Minister of Finance.
I’ll turn to my Global Affairs colleague.
Ryan Clark, Director, Office of the Assistant Deputy Minister for Global Issues and Development, Global Affairs Canada: As outlined in Budget 2018, new approaches and tools are central to supporting innovation in Canada’s international assistance and to deliver on Canada’s new Feminist International Assistance Policy. To provide support to the new policy, the government allocated in Budget 2018 $1.5 billion over five years starting in fiscal year 2018-19, and $492.7 million per year ongoing thereafter to establish two new programs, the International Assistance Innovation Program and the Sovereign Loans Program.
[Translation]
In order to support the execution of the two new programs, the Minister of Foreign Affairs and the Minister of International Development need new legislative powers, notably to grant loans to eligible developing countries, to any level of government, as well as to persons or entities, on condition that those loans be guaranteed by the government of the foreign state that will benefit from the loan; and also to provide financial guarantees to ensure a partial execution of an agreement, in cases where the main contracting party does not do so, which would allow us to trigger related investments.
[English]
Acquire, hold and dispose of equity; ownership of a stock or any other security representing an ownership interest; to catalyze investments and preserve the value of Canada’s interest; charge fees to issue guarantees and interest on the loans they make, in the context of the two new programs.
The IFA act also provides the authority for equity to be acquired, held and sold in the context of Global Affairs Canada’s climate change repayable contribution programming to preserve the value of Canada’s assets. Overall, by supporting innovation and enabling a broader range of development partnerships, including with the private sector, these new financial tools will allow Global Affairs Canada to use Canadian official development assistance more strategically and to mobilize additional resources in support of sustainable development.
Ms. Giles: If you agree, we could answer the remaining portion of the senator’s question.
The Chair: Absolutely. Senators will ask questions on both.
Senator Marshall: Your remarks did partially answer my question. I thought it was quite unusual a minister other than the Minister of Finance could make a loan or issue a guarantee. You said the regulations aren’t prepared yet. They aren’t ready. You were saying it will be subject to discussions with the Minister of Finance or the approval. Can loans be made or guarantees issued before the regulations come into effect?
Ms. Giles: The regulations will need to be in place before loans could be made under the new Sovereign Loans Program. There are other ministers who currently have the authority to hold equity and to make equity investments or loans beyond the Minister of Finance. This includes the Minister of Innovation, Science and Economic Development, the Minister of Transport. There are also certain Crown corporations that have the authority to do so, most notably the Export Development Canada. Perhaps less well-known, National Research Council of Canada and a smattering of Crown corporations. There is some precedent for this.
Senator Marshall: Yes, but with some of those organizations it is difficult to get the information. I find if it all goes through the Minister of Finance, there is a greater likelihood of getting the information we’re looking for.
The regulations have to be in place before the loans or guarantees are issued?
Ms. Giles: That is correct. The reporting which would be done as part of the Sovereign Loans Program would be included as part of the international assistance reporting discussed in tab A of Division 17.
Senator Marshall: Thank you very much.
Senator Pratte: I was surprised sovereign loans were not already part of our official assistance package or tools. Are there presently no sovereign loans made by Canada to developing states at all?
Ms. Giles: In the past there have been some ad hoc sovereign loans issued, most recently by the Minister of Finance. There was a loan given to Ukraine several years ago. Those have been ad hoc loan decisions and measures that have been taken.
What is being proposed through this program is to adopt a clear set of parameters and to take a comprehensive approach to ensure there is a broader set of tools available and assistance that can be provided for countries in the spectrum of developing countries which have advanced beyond being least developed and have different needs which could be met by a broader range of Canada’s tools. Mr. Clark will be working on that program and can speak about the specifics.
Mr. Clark: I think Nicole has explained it well. Any existing loans we have made to sovereign states were done in an ad hoc manner and done to meet acute needs under specific circumstances. Now we will have the opportunity to plan through a program the type of criteria we would use to evaluate any future sovereign loans. Most importantly, how to support any such loans with Canadian knowledge and support we have on the ground in some of these countries. Particularly through our development programs, through knowledge of the country and the sector and through our diplomatic platform in these countries. It’s a more robust way of programming a sovereign loan rather than having to react and issue.
Senator Pratte: Thank you. On the reporting of Canada’s development assistance, I understand from some stakeholders they appreciated the fact they would have early numbers. I understand the act provided that figures had to be provided and published to Parliament in the first six months of the year. Is that correct? Now it will be a year. I understood some stakeholders appreciated the fact they would have these early statistics and not only — yes?
Ms. Kent: The new legislation will result in a single report in March, at the end of the following fiscal year, and allow greater visibility on all of Canada’s international assistance.
Currently, under the Official Development Assistance Accountability Act, an initial report comes at the end of September. The most recent report for 2017-2018 was tabled at the end of September in Parliament. That is based on preliminary figures.
It takes all countries, including Canada, a certain amount of time after the end of the fiscal year to pull the numbers together.
The report in September is based only on preliminary figures. Under the newly revised legislation, the report would be based on full, complete numbers.
The department is still planning to make available those preliminary numbers at the end of September. It is not part of the legislation. It would be possible for the department to continue to annually present that preliminary data at the end of September and then do the fuller report with results and activities under the legislation together with the other reports by the end of March.
Senator Pratte: The early figures wouldn’t necessarily be part of a full-fledged report even in September. If some organization is interested in foreign aid and wanted preliminary figures, these would be available?
Ms. Kent: We would make the figures available broadly, not on an as-requested basis.
Senator Pratte: Okay. Thank you.
Senator Eaton: Did I understand you correctly when you said $1.5 billion under the Financial Assistance Act for programs for the sovereign loans?
Mr. Clark: Yes, that’s correct. Sorry, senator, there are two separate programs that were announced. The International Assistance Innovation Program, which includes $873.4 million, and the Sovereign Loans Program, which comprises $626.6 million.
Senator Eaton: Last year, I asked this question when it was also in the budget under Global Affairs. Can you give some an idea of some of the programs the money is going to go towards? For instance, last year right after the budget I remember something about Canada’s Feminist International Assistance Policy. When I asked the Global Affairs representatives at the Senate Finance Committee if he could give me some examples, he could not.
Do you have examples today you could give the committee of where this money is going to and what kind of programs you will be looking to support?
Mr. Clark: Yes, I can, senator. We’re looking through how exactly to be making strategic decisions around allocations of funding for these programs. While we still need to go to the Treasury Board to determine how the programs are to be run, we are thinking through how we could be deploying these new mechanisms in these new programs.
For the sovereign loan program, as you have mentioned, it would be quite straightforward. It is a loan to country X, whatever that developing country might be. We will be looking to support things in their budget to support their overall development. For example, it could be a loan to the Ministry of Education in the education sector. If Canada, for example, had a long-standing history of support and knowledge of the education sector in the developing country, then we knew that country was looking for additional support outside of the regular grants and contributions we make to other organizations operating in the education sector and they had the right levels of indebtedness, if they were in good economic standing, et cetera, we would then —
Senator Eaton: I guess what I don’t understand is, while you’re reading off some interesting banker’s criteria for giving people loans, how do you get the figure when you don’t have the programs? If I go to the grocery store, I have my list and I also know how much I can spend. You seem to have the figure you want but you don’t know the programs you’re going to support.
Mr. Clark: We know the policy we have to support, senator, and that’s the Feminist International Assistance Policy, which —
Senator Eaton: Give me an example. Last year, Global Affairs could not give us one example of one program to support Canada’s feminist international assistance. They could not come up with one program.
Mr. Clark: These are two programs being designed to support that policy.
Senator Eaton: I don’t mean to badger you, but I find it stunning in a year’s time you still don’t have a program you can give me that this money is going towards.
Mr. Clark: We need our legislation in place and then we need the subsequent regulation that will allow us —
Senator Eaton: Last year, it was in the budget, Canada’s Feminist International Assistance Program, and they couldn’t give us an idea of the program.
Mr. Clark: I’m here today to speak on the two programs in Budget 2018 and not on the Feminist International Assistance Policy.
Senator Eaton: When you appear before us in June, which you probably will, or in late spring, do you think you will have an idea of the programs? We find it frustrating so many times there is a line item with a big amount of money next to it, but nobody can explain what the programs are or where the money is going.
Mr. Clark: I can appreciate that frustration. There are two programs that have been announced as part of this, the Sovereign Loans Program and the International Assistance Innovation Program.
Senator Eaton: Which says absolutely nothing.
Mr. Clark: On the Sovereign Loans Program, I was attempting to describe to you how we could issue a sovereign loan to a country where we have existing relationships. That’s the Sovereign Loans Program. On the International Assistance Innovation Program, there we will be looking to deploy new mechanisms where we could issue guarantees.
Senator Eaton: You’ve been telling me that for a year. I’m sorry. I will ask the same question the next time you appear before us.
The Chair: We will have the opportunity to ask additional questions. Mr. Clark, if you are here, you have a preview of one of the questions we will be asking.
Mr. Clark: If I could add one more comment, in parallel to working on the legislation, the regulations and our submission to the Treasury Board, we are building a pipeline of potential ideas. We are looking at where we currently work, the sectors we work in, the partners we work with and new partners we will work with. We are doing this broad scan.
Senator Eaton: I’m not accusing you of not working. This time last year I asked the same question and was given the same answer. I want to know when you will have an answer as to what programs this money is going to finance. That’s all. I hope you have it the next time you appear here.
The Chair: No further comments? Thank you.
Senator Boehm: It’s always a pleasure to have former colleagues at the table. I’m in a different role now.
I wanted to pick up on what Senator Eaton just said. I think it would be very useful, chair, at another appearance to give us a bit of a survol of the Feminist International Assistance Policy, what is multilateral, what is potentially a sovereign loan and what is bilateral with countries and how that dial is being turned? I think that would help us all to understand where we’re going.
I have some specific questions. The sovereign loans generally, as Senator Pratte said, other countries have used them and other international development entities have, as well. In our experience, this is something relatively new. The stakeholder community is not at one with the concept of sovereign loans. They see that as a bit retrograde in terms of where international assistance development policy is going, as discussed at the development assistance committee of the OECD and the like.
I wonder if any of you have a comment on that? Then I have a few follow-ups.
Ms. Giles: Thank you, senator. I can start from the Finance Canada perspective.
One of the things observed is there is a risk of a gap of financing by ensuring the grants and contributions are going to the least-developed countries and to the countries that require international humanitarian assistance where that’s the right type of tool to use.
There is a host of countries approaching or are in middle-income country status where the finance ministry received those requests. Where there is a demand for concessional financing so those countries can start to invest in their own programs and not be relying upon grants and contributions. They want to be making that transition.
The Sovereign Loans Program is partially a response to that. That’s something G7 colleagues have already been responding to.
For example, in 2016, Japan provided 50 per cent of its official development assistance through loans, France at 28 per cent and Germany at 18 per cent. The U.K. was at 6 per cent.
It’s projected Canada would be providing 3 per cent of its official development assistance through loans by 2020 to 2023 under the proposed pilot. It is an attempt to respond to the requests the Department of Finance has been seeing and has been hearing in international forums from other finance ministries. On the particulars of the program, Ryan?
Mr. Clark: Given that Canada has been predominantly focused on grants and contributions through all of our official development assistance over 40 years, it’s not surprising there are different aspects of the development community that question any diversification away from or within that traditional pool of funds. It’s not surprising to hear people are asking questions. That’s fundamentally a good thing.
Senator Boehm: Do we have a default scenario? If a country defaults on a sovereign loan, do we have a plan? Do we just write it off?
Mr. Clark: We will be provisioning accordingly for any loans we issue.
Ms. Giles: Going to Senator Eaton’s question, we don’t want to get ahead of the regulations and the Governor-in-Council determinations. The expectation is the sovereign loans program will be adopting a number of parameters that will minimize the exposure risk to the Government of Canada. For example, restricting eligibility to select middle-income countries without signs of debt distress, establishing a single country exposure limit to ensure those protections are placed.
As well, there is a very well-established system to promote official debt recovery through the Paris Club. There is a very robust system in place internationally to ensure debt sustainability and transparency through the IMF and the World Bank. Loans through the program, as anticipated, would only be made in line with the current perspective of the IMF and World Bank on a country’s debt levels and their sustainability.
As opposed to perhaps public perceptions of how the debt sustainability and transparency is managed, there is a very robust international system in place.
Internally within the Government of Canada, there is an international exposure management committee shared by the OCG. They go through an annual provisioning exercise where they look at existing loans, whether they need to be adjusted so they’re accurately reported in the Public Accounts and the provisioning can be adjusted so we don’t ever face a cliff in terms of the decision-making.
Senator Boehm: Thank you. I have one more question, if I may, chair. I know we’ll come back to this.
We have a new Feminist International Assistance Policy. We are looking at sovereign loans. We have a new international development finance institution. How are you ensuring alignment in terms of policy?
Ms. Kent: The question is about alignment of these tools to the Feminist International Assistance Policy.
Senator Boehm: That’s right.
Ms. Kent: The parameters of the Feminist International Assistance Policy apply to all of Canada’s international assistance, whether it’s flowing through Global Affairs, through FinDev or Finance. All of our international assistance is bound by that. In fact, the consolidated reporting that will come under the ODAAA will allow Parliament to see a consolidated reporting of how what we’re spending is aligned with the Feminist International Assistance Policy. Aside from internal measures in terms of programming approvals and alignment, officials and ministers will be confirming the alignment with the policy. Parliament will also have that report.
Perhaps in the interests of transparency, I would encourage senators respectfully to look at the last ODAAA report tabled in September. It addresses some of the earlier questions about the types of programming, in very concrete terms, being funded from Canada’s international assistance envelope under specific action areas, under the feminist policy, by country and by the different departments that are spending international assistance.
Senator Boehm: Thank you.
The Chair: Honourable senators, when I look at tab 17, we’ve given it quite a fair amount of time for questions and answers. However, I’m ready to grant an additional five minutes in the event we agree or have a consensus around the table that tab 17 will be completed and accepted. If not, we will need to bring back all the officials next week. The chair will consider giving an additional five minutes to senators to conclude questions on tab 17.
Is there agreement around the table?
Hon. Senators: Agreed.
The Chair: Then the chair will recognize one question from Senator Andreychuk and one question from Senator Forest.
Senator Andreychuk: I’ll make my question a global one. We’re talking about sovereign funds. We’ve given money to other states previously. Those loans have not been paid and we’ve had to write them off. I’ve been around for decades. This is not a new concept. It’s being packaged in a modern way. I think that would be fair to say.
My concern is everything will be in regulations. That concerns me. What criteria are you going to use to judge those countries you’re going to give a loan to? You’re talking about the Bretton Woods. I want to know whether the Breton Woods is being assessed. We’re always reviewing it.
Second, the majority of loans to the countries we may be giving money to are also getting extreme loans from China. The debt overload from these countries is going to be phenomenal. Are we factoring that in? It seems that all my questions — I hope you can answer some of them — are going to be somewhere embedded in the regulations. That’s what we’re struggling with. We want to know how the government is making its choices. We will not see it until the regulations. I trust we will get to see them and can comment on them.
Ms. Giles: There was not as sustainable an approach, perhaps, taken by the international community to loan sustainability previously as there is now. I think it’s fair to say there have been a lot of lessons learned and now there are much more robust measures, including ongoing monitoring by the Breton Woods institutions, notably the IMF and the World Bank, in terms of continuing to assess the debt sustainability, the public financial management, the domestic resource mobilization of countries.
Our expectation is, without getting ahead of the Governor-in-Council and decisions made there, the parameters adopted would be aimed at ensuring sustainability and not having a situation where countries are being put under or given the option to put themselves under undue debt pressure.
Eligibility would be restricted to select middle-income countries without signs of debt distress. In a World Bank context, perhaps the IBRD-eligible countries would be limiting single-country exposure. There would be an in-depth analysis done in terms of the debt exposure of a given country and their ability to repay from a holistic perspective. That would, of course, take into account the full range of loans a country would be holding, which would include loans from other sovereign countries, including potentially China.
[Translation]
Senator Forest: There are three new programs. The refundable contribution program that concerns climate change interests me. I expect the objective is to provide financial support to projects that would reduce greenhouse gases.
[English]
Michelle Kaminski, Director, Office of Innovate Finance, Grants and Contributions Management, Global Affairs Canada: Thank you. The purpose of including that programming under this legislation for the climate change programming is to protect the value of the Government of Canada’s asset. To date we have an operational portfolio of $1.4 billion of what’s called “unconditionally repayable contributions” that have been made to support climate-friendly investments in developing countries.
While we provide this funding, and the funding can only be used to support debt and debt-like products that cannot be converted into equity, we know at times such investments will become distressed. To preserve the value of the asset, they may need to be converted into equity.
The purpose of including that in this legislation is to protect the government’s assets that are working already to support climate-friendly investments.
[Translation]
Senator Forest: That explains why you call this a refundable contribution rather than a loan.
[English]
Ms. Kaminski: We’ve put together tables looking to see one or the other. Quite frankly, they’re very similar.
Loans are legislative authorities. Unconditionally repayable contributions are transfer payments. There are different parameters guiding both. In effect, the repayable contributions are like loans receivable or portfolio investments. Because we are doing them in support of climate change using concessional finance, all of them are concessional. It’s splitting hairs.
The Chair: Thank you, honourable senators.
(The committee adjourned.)