THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Tuesday, March 10, 2020
The Standing Senate Committee on National Finance met this day at 8:30 a.m. to study the Supplementary Estimates (B) for the fiscal year ending March 31, 2020.
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: Honourable senators, my name is Percy Mockler, a senator from New Brunswick and chair of the committee.
I wish to welcome all of those who are with us in the room and viewers across the country who may be watching on television or online. As a reminder to those watching, the committee hearings are open to the public and also available online at sencanada.ca.
[Translation]
I would now like to ask senators to introduce themselves.
Senator Forest: Éric Forest, senator from the Gulf Division in Quebec.
[English]
Senator Tannas: Scott Tannas from Alberta.
Senator Stewart Olsen: Carolyn Stewart Olsen, New Brunswick.
Senator M. Deacon: Marty Deacon, Ontario. Good morning.
Senator Boehm: Peter Boehm, Ontario.
Senator Smith: Larry Smith, Quebec.
Senator Duncan: Good morning. Pat Duncan from Yukon.
Senator Loffreda: Good morning. Tony Loffreda from Montreal.
Senator Klyne: Good morning. Marty Klyne, Saskatchewan.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
[Translation]
The Chair: I would also like to introduce Maxime Fortin, the clerk of the committee and our analysts, Alex Smith and Shaowei Pu, who team up to support the work of the Standing Senate Committee on National Finance.
[English]
Honourable senators and members of the viewing public, the mandate of this committee is to examine matters relating to federal estimates generally as well as government finance.
Today, honourable senators and the viewing public, we begin our consideration of the expenditures set out in the Supplementary Estimates (B) for the fiscal year ending March 31, 2020, which were referred to this committee on February 25, 2020, by the Senate of Canada.
For the first part of the meeting, the Treasury Board of Canada Secretariat will give us an overview of the entire Supplementary Estimates (B) as well as of their funding requests.
We welcome Karen Cahill, Assistant Secretary and Chief Financial Officer. She is accompanied by Glenn Purves, Assistant Secretary, Expenditure Management Sector; and Marcia Santiago, Executive Director, Expenditure Strategies and Estimates. Welcome to the three of you, and thank you for accepting our invitation to be here at National Finance.
Mr. Purves, I have been informed that the floor is yours for a presentation, to be followed by questions from the senators.
[Translation]
You have the floor.
[English]
Glenn Purves, Assistant Secretary, Expenditure Management Sector, Treasury Board of Canada Secretariat: Good morning, senators.
[Translation]
Thank you for inviting us to appear and talk to you about the business of supply. I will provide a brief presentation including an overview of the supply cycle and timelines, a look at these supplementary estimates and the major spending items, and next steps related to Supplementary Estimates (B) and the Main Estimates. Once I have completed my presentation, I would be pleased to answer any questions you may have.
[English]
We have a second slide here. We always provide this slide just as a reminder to senators about the steps in the supply process.
Before appearing in estimates, funding requests secure a Treasury Board approval, and estimates may be tabled in each of three supply periods set out in the House of Commons standing orders. The estimates are tabled in advance of the related appropriation bills to allow for study by parliamentarians.
As part of this study of estimates, the Treasury Board president and TBS officials appear in front of committees, such as today, to discuss the estimates for the government as a whole, in addition to TBS’s own spending plans. Other ministers and departmental officials may appear before committees responsible for the review of their respective estimates.
On the last allotted opposition day in the supply period, appropriation bills are introduced and voted on in the House. The bills are subsequently voted on in the Senate. Appropriation bills come into force upon Royal Assent. In addition, the Governor General signs a warrant authorizing expenditures from the Consolidated Revenue Fund.
[Translation]
Slide 3 shows the supply cycle diagram, which illustrates the different steps to be taken in the supply process in each period of a typical year. Right now, we are in a very busy period in the supply cycle with the tabling of the last supplementary estimates for 2019-20 and the tabling of the Main Estimates and departmental plans for 2020-21. Given the election date and the reduced member of sitting days in December, the 2018-19 departmental results reports were actually tabled on February 26, 2020.
[English]
Slide 4, giving a tree-top perspective, shows the $5.6 billion total amount of budgetary estimates being presented in Supplementary Estimates (B). Of this amount, $3.8 billion for 61 organizations requires approval through an appropriation act. The next slide will show the largest funding proposals that are part of this $3.8 billion. The remaining amount, $1.8 billion, relates to forecasts under existing statutory authorities. You’ll recall a couple of years ago we started showing the statutory information alongside the voted to provide a complete picture. This includes $950 million for the Federation of Canadian Municipalities for the Green Municipal Fund, $345 million for grants under the Dairy Direct Payment Program, and $110 million for the Climate Action Incentive Fund.
For slide 5, these estimates highlight eight items that are seeking voted authorities of $125 million or more, and together they account for just under 75% of the funds you’ll be asked to approve in the appropriation bill. They include $919 million for forgiveness of comprehensive land claims negotiation loans; $588 million for First Nations Child and Family Services; $487 million in capital investments to support Strong, Secure, Engaged forces; $232 million for health and social education services and support for First Nations children; $180 million for the annual write-off of unrecoverable debts for the Canadian student loans — the write-off relates to over 33,000 loans; $150 million to reimburse First Nations and service providers for on-reserve emergency response and recovery; $148 million in payments to claimants, reimbursement of legal fees and other required activities under the Heyder and Beattie class actions final settlement agreement; and $128 million to support National Defence’s overseas operations.
Finally, senators, I’d like to give you a heads-up on oncoming appropriation bills. I’m on slide 6 here. There will be two tabled in March. One is to approve estimates expenditures presented in the Supplementary Estimates (B), and the other is to provide interim supply for the 2021 fiscal year. Departments will request a portion of the funding shown in the Main Estimates based on their cash requirements until the end of June. The turnaround time on these bills may be quite short, as normal and as Royal Assent is needed before the end of the fiscal year. In June, the full supply bill will be tabled, and this will cover the remainder of the funds presented in Main Estimates. If there’s a spring supplementary estimates, an appropriation bill for that 2021 fiscal year, Supplementary Estimates (A), would be introduced at the same time, in that June period.
With that, perhaps I’ll open the floor to any questions that we can answer on your behalf.
The Chair: Thank you.
Senator Marshall: I have a question on the centralized votes. The PBO had mentioned in his report that they have increased significantly. I was wondering why. But before you answer, the impression I got when I read his report — although he doesn’t say so — is that Treasury Board doesn’t have confidence in the line departments so the centralized votes are being used more before the money is sent out to the government departments. Can you briefly explain why the centralized votes have increased?
Mr. Purves: Sure. If you’re referring to the PBO’s report on Supplementary Estimates (B) —
Senator Marshall: That’s correct.
Mr. Purves: They were talking about a specific central vote called vote 10. This is for government-wide initiatives, strategic management initiatives, that take place. This is a vote and a tool that’s existed for many, many years for Treasury Board. It’s intended to provide for a situation where Treasury Board reviews an item and approves an item but the actual distribution of funds to specific votes has not been established yet, and the time frame between establishing that and the need for the payments is very tight.
When you look at what’s been supported through that central vote — things such as the Indigenous Early Learning and Childcare Framework, things such as funding to compensate current and former employees in the core public administration for damages related to the Phoenix pay system, modernization of the program and administrative services, export diversification strategy —
Senator Marshall: I didn’t need you to list them. I’m just curious, because when you read that and you see that the usage has increased, you get the impression that there’s a reluctance to put the money out there in the departments. As a follow-up question, Treasury Board has an oversight role with regard to the government departments?
Mr. Purves: Right.
Senator Marshall: Are the financial systems in the departments robust enough? That’s the impression I am getting. I’ll give you National Defence as an example. I think they have about 300 capital projects. Is Treasury Board satisfied that they have a system robust enough that they are accumulating both the financial information and progress with regard to the projects? Is there a concern in Treasury Board with regard to at least some of the departments?
Mr. Purves: This is nothing to do with any confidence in the systems of other departments and so forth. We actually have amazing financial systems in various departments to be able to track financial information. We work collaboratively with the CFOs and so forth.
These are circumstances where an initiative spans many departments and the initiative is very important from a strategic management standpoint, but the specific amounts to be allocated to each vote in each department have not been defined yet because there are outstanding issues pertaining to identifying how much is required specifically for each vote. These are items that are taken to Treasury Board, they get the authority of Treasury Board and they are placed in the central vote, and then when they’re allocated from the central vote to the specific departments, that information is revealed through our reporting on allocations from central votes.
Senator Marshall: Let’s jump to the departmental results reports that were probably released last week or the week before. Who has responsibility for that? Where does Treasury Board’s involvement start and stop? I haven’t looked at them all. I’ve looked at National Defence as an example, or started to, and some of the performance indicators. For some of the results they’re reporting on, if somebody was looking at them, they are thinking, “That’s not right.” They’re reporting 100%, or they are 100% satisfied that they met performance indicators. When you see what’s out there in the media, you wonder what’s the connection.
Who is responsible for the departmental reports? What is Treasury Board’s involvement?
Mr. Purves: Treasury Board is part of the broader estimates reform. Treasury Board put in place a policy on results in 2017 that set out departmental results’ frameworks that identified and allowed departments to actually put in place the core responsibilities that they’re responsible for, the objectives under these and the indicators that they’re going to map against these core responsibilities.
As part of that framework, the government introduced the departmental plans that set out what are the plans that are going to be undertaken relative to these indicators, and then the departmental results reports that actually report on those indicators. The ones that you’re referring to, senator, are the first vintage of departmental results reports coming under the policy on results.
There’s a whole host of different indicators that are available to Canadians and parliamentarians, including on GC InfoBase, where you can get information about the indicator and the rationale for the indicator and why it’s calibrated the way it is.
Senator Marshall: But you look at it, you see what’s going on in the media and you hear all of these military leaders expressing opinions on the security of the country, and then you pick up the Department of National Defence’s Departmental Results Report — for example, Canada’s Arctic sovereignty is preserved and safeguarded. The target is 100%. Their actual result is 100%. But if you read what our military leaders are saying, you wonder what’s the connection. It’s not correct.
Who is looking at the quality of the information?
Mr. Purves: We set out guidance for departments that complete these departmental plans and the departmental results reports. But a lot of that is set out in the policy on results.
Senator Marshall: It’s very misleading.
Mr. Purves: Actually, could I just answer a follow-up to Senator Marshall?
On the initial part about vote 10, there are circumstances like LGBT and the Phoenix damages where claims have to be made in order to draw the funds, so there’s not that line of sight specifically on which departments all those claims are going to be made from. To allocate prematurely funds from a central vote or just directly into those departmental votes without having that line of sight would be premature. That’s what vote 10 was really conceived to do.
In terms of the amounts and so forth, I should point out that it had gone up, but in the latest Main Estimates that we’ve tabled, it now sits at about $31 million.
[Translation]
Senator Forest: My first question is about the pilot project, which seems like a really good idea, and which aims to better coordinate the tabling of the Main Estimates with the budget. Based on what we see here, do you intend to abandon this pilot project that has been under way for two years? I’d like to know your motivation for that, because it seems to me that, in a fiscal year, there is a logical link, a direct link between the Main Estimates and the budget. I do not understand why you would want to abandon the pilot project.
Mr. Purves: Thank you for your question, senator. If I may, I will answer in English.
Senator Forest: No problem.
[English]
Mr. Purves: There are many aspects and many parts to the estimates reform. I think the one you’re talking about pertains to the timing. You’ll recall a couple of years ago there was an all-party decision taken in the House to make a temporary change to the standing orders for two years to allow for the tabling of the Main Estimates to occur not by March 1 but by April 16. This permitted, once the budget was tabled, the inclusion of the budget items in the Main Estimates.
There were two steps done as part of that pilot. The first year we had that central vote in Treasury Board central votes, vote 40, and it included all the funding for the budget measures for the next fiscal year. The year after, there was a tabled report by the House committee that’s charged with reviewing Treasury Board, and the Main Estimates were adjusted to reflect some of the initiatives and recommendations from that committee and broke out the budget implementation votes by specific department so that it allowed for that transparency by department.
I should point out that the undertaking was a two-year commitment. It was always a two-year pilot. It was always expected to sunset. From that vantage point, the consideration of the timing and whether you go back to that is something that ultimately is a decision of the House because it would require, again, a change to the standing orders to help facilitate that. But it is something that the government did provide a response to, in terms of the House, in June of 2019, I believe, as well as how it actually set out in the Main Estimates.
Beyond the timing, there are a lot of initiatives that have been done as part of estimates reform. Recall that there was the reconciliation of the accrual accounting with the cash accounting that was included in the estimates as well as the budget. We hope to continue that kind of reconciliation between the budget and the estimates.
The policy on results was part of that estimates reform as well. As I mentioned to Senator Marshall, the first vintage of that policy in terms of the departmental results reports have come out.
We have propped up — and I’ve said this in many committee appearances — GC InfoBase. It’s a remarkable source of information on spending, FTEs and results that provides a breakdown right to the indicator — if you’re interested in the results side — but also down to specific programs on how much is being spent in the government.
We now publish information pertaining to frozen allotments to central votes and spending by purpose online to accompany our supplementary estimates. We’re doing open data so that if researchers want to take the Main Estimates information and then Excel format and use it for research, they can do that historically. There’s a whole host of initiatives that are continuing.
With respect to the timing question, it is a question of whether parliamentarians want to continue it because it would take a change to the standing orders.
[Translation]
Senator Forest: Based on my experience as a manager, if we go back to the old method, we will be considering three supplementary estimates. In terms of accountability, when managers need to plan their budget year, currently they need to plan for two of them, that is, the Main Estimates and, a few months later, Supplementary Estimates (A), Supplementary Estimates (B) in the fall and Supplementary Estimates (C) in early winter. So, in my view, the latitude surrounding these supplementary estimates encourages a certain laxity in budget planning. As I see it, having only two supplementary estimates would improve transparency and the thought process in assessing our expenditure needs during the fiscal year.
[English]
Mr. Purves: It’s true that under the pilot we only had two supplementary estimates, so two supply periods that followed the tabling of the Main Estimates.
I would say that, as with any pilots, there are pros and cons, and members in the House have identified the pros and cons from their vantage point, and certainly, in terms of consideration of future innovations with respect to estimates and the supply process, we’re always interested in learning the views from parliamentarians in both houses to be able to understand how we can better refine the process going forward.
Senator M. Deacon: Thank you for being here today, and, in particular, thanks for the slide decks. It’s very helpful ahead of time.
My question and my wonder is with respect to the unrecoverable debts for Canada student loans at $180.4 million. You did describe that this is approximately 33,000 or 34,000 loans, hence 33,000 or 34,000 potential students. It’s part of a much more complex issue and challenge right now for our young people.
I’m trying to get a sense of trends on this. I did try before I came in. Is this number, this estimate, continuing to rise? Are we finding ways to be able to stabilize it? I would like to know more about this because it’s something that we continue to talk and hear about, but we need to do better at. I’m trying to understand the last three to five years. I did look for those numbers — truly I did — and I could only find one year back. That’s why I’m trying to get a sense of trending.
Mr. Purves: The amount that is cited, I believe it’s 180 million. If you look historically, it’s kind of in a means. There have been years where it has been about 160 million; there are years where it has been in the 200 millions.
The stock of student loans is in the 34 billion range. There’s always a provision that’s taken from a fiscal standpoint and from an accrual standpoint to recognize that there’s always going to be a bit of a loss in terms of a loans portfolio. When there are non-performing loans, they shift over to the CRA for about six years. At the end of six years, where there are efforts to collect and so forth, if they are non-performing at the end of six years, then we have to take this through in terms of Main Estimates and recognize it. That is really what that is. That’s why we do it on an annual basis.
From a policy standpoint, over the last few years, there have been some changes in terms of how the loans have been structured as well as moving more toward grants and so forth. I think it was Budget 2016 that actually cited some changes to the program.
The only thing I would table with you is that there’s always a bit of a lag in terms of seeing trends and movements on that front in terms of the write-offs and so forth. I would imagine that over time you would see some change due to some of these policy initiatives.
Senator M. Deacon: I’m thinking about process at the same time, so the loans, the grants, some of the changes in structure and reporting, all of those pieces. When we look at this being 2019-20, where might we start to see this conversation, the impact of improved process on reduced unpayables, basically? Do you think it would be by 2023-24? Or we don’t even know that?
Mr. Purves: To be quite frank, I’m not close enough to that question. I think ESDC would have a better line of sight in terms of being able to answer that question. We could certainly refer that question to ESDC.
Senator M. Deacon: Thank you. You have talked about $180 million on $34 billion. I haven’t done the percentage on that. I was also looking at the percentage of that number, which you have explained is fluctuating over time. I think that’s fine for now. We’ll carry on later.
Senator Stewart Olsen: Thank you very much for being with us today. I’m always hesitant to put bureaucrats on the spot because I think the process of these estimates is formulated by a political process, is it not? So each department politically puts their best wish forward, and then it’s approved.
This is what Canadians have limited understanding about. We get to you and to the Treasury Board, but there are all of the steps that people go through to actually get this money, and supplementary estimates is in addition to the budgeted-for items. Perhaps the process needs to be more clearly looked at. Perhaps we should be questioning the ministers of the various departments who have requested these additional funds. You have to scramble, when it comes to Treasury Board, to figuring out how to get that money. Each department does their estimates and says, “Oh, we have this program; let’s move forward with this.”
I’m not particularly saying any government, because it could be of any ilk, but I think we are losing sight of fiduciary responsibility in all of this. It’s not the fault of the bureaucrats; it’s a fault, I think, of our system that perhaps needs a review.
I’m sorry to put you on the spot, but I do want some input from you on how difficult this whole thing is to manage within your budgetary guidelines or then come forward with asks for more money where the House of Commons kind of blindly says, “Okay, we’ll look at this briefly” and then, “Yes, okay.” Can you just elaborate on that a little bit? This is not an attack on Treasury Board; it’s just a sincere request for information.
Mr. Purves: Thank you for the question, senator. Maybe I’ll take a step back on that because there is a conflation between the budget and the estimates. They do serve separate purposes, in many respects.
When we think of Main Estimates, that’s the bulk of spending that the government requires in order to operate. That bulk of spending is on a voted basis. We tabled Main Estimates last week. The amount of voted spending is about $125 billion. The amount of statutory spending is $175 billion. Of the $125 billion, there have been many Treasury Board decisions and trips to Parliament in the past that have touched on many aspects in that amount. That is a cascading accumulation of government programming that’s on the basis of Treasury Board decisions in the past. Parliament, of course, approves this on a year-by-year basis. That’s what is being presented to you there.
The supplementary estimates typically bring in new decisions and new initiatives that have come along, either through the budget or on an off-cycle basis, or in the Fall Economic Statement, for instance. Once it goes through Treasury Board, it is on the next boat to Parliament through the supplementary estimates. We provide some detail in terms of what all those initiatives are within each departmental sheet, so there is transparency with respect to what parliamentarians are being asked to approve through that process. That’s the amount that is added to the Main Estimates and that is established at the beginning of the year.
Senator Stewart Olsen: I understand the process, so could you come back to the actual oversight question?
Mr. Purves: When we look through the budget, it’s basically new initiatives that are approved and nominated for approval, either statutory or future voted items that will be coming to Parliament once they receive the approvals and they go through Treasury Board now that we are beyond the pilot.
In terms of the oversight, when you look at it — policy decisions, source of funds, Treasury Board approval and then parliamentary approval at the end to approve the funds — what we try to do is provide as much transparency in these documents as possible so that you are able to see the big picture. In other words, you can look at a department like ESDC and you can see what was approved last year, what was approved for Main Estimates and how much up-to authorities are being asked for in terms of these supplementary estimates. Then it’s up to the parliamentarians to decide how to approve that.
Ultimately, at the end of the day, the actual spending then gets recorded and reported through the annual financial report and the public accounts, both on an accrual and a cash basis.
So the systems are in place to provide that kind of oversight. I think what we want to do is make sure that parliamentarians have as much transparency and have as much information as they need in order to make the decisions they need to make.
Senator Stewart Olsen: I have one more follow-up question. You have your budget, which is your supposed line in the sand. Then you have all departments coming and saying, “We really need this. We want this new program.” Who then says “yea” or “nay” to all of this money? Is there no cap to how much the government will spend above the voted-on budget?
This is where I think people don’t understand. Who fights that? Does Treasury Board then say, “Minister, we don’t have this money; we’ll have to go to sups”? And where is the rational judgment in what the country can spend and what is a nice idea for a program?
Mr. Purves: Treasury Board will review this spending and opine on the budget implementation aspects. It will look at it from the standpoint of the challenges of implementation and so forth. Once there is a decision through Treasury Board, then it’s put forward for supplementary estimates or into mains, depending on the time of year. There are natural checks and balances on the government’s side pertaining to that.
I would point out that when there are amounts proposed in a budget and there are new initiatives and so forth, this is above and beyond the Main Estimates. This, of course, would involve potentially going back for new funding to Parliament, unless a department can actually identify resources internally to be able to use for that purpose.
There are strong linkages and checks and balances between Department of Finance and us in terms of looking through and the oversight in terms of the system, and there are the checks and balances in terms of cabinet committees and so forth that review policy proposals but also proposals for new funding.
Senator Stewart Olsen: You do understand that Canadians think the budget is what’s being spent, and then there is all of these other things that come in. The chair is signalling that my time is up, but that’s what I’m trying to point out to you.
Mr. Purves: Can I add one last point?
The Chair: Yes, Mr. Purves.
Mr. Purves: In a way, that’s why there is a budget and a Fall Economic Statement, because there are so many different things that would impact the fiscal track on an accrual basis, including the state of the economy, interest rates, price of oil and all these things. There are a lot of things that factor into new initiatives and new policy spending and so forth.
Senator Loffreda: Good morning and thank you for your presentation.
Coming off International Women’s Day, I want to congratulate the government on the Women Entrepreneurship Strategy.
[Translation]
I am just curious how these amounts are allotted. Is it by population, by province, or by program? If it is by program, how are the programs determined?
[English]
Senator Deacon briefly touched on my second question, and maybe you can elaborate. Being a banker, it’s of interest when I look at figure 3.2 where there is a steep curve on the loan write-offs year after year. If I do the math, I think we are around 5% on the write-offs, which is in line with the U.S. I think the U.S. historically is below 9% or 10% of the number of total loans granted. Just elaborate on that. Why is that curve so steep on the loan write-offs? You did mention that there is a grant program also. I always used to kid, as a banker, we would make loans not grants. That is kind of worrisome when I look at that. Is the percentage steady year after year?
Mr. Purves: Thank you for the question.
Maybe I’ll start off with the second question. In terms of the loan write-offs, the aggregate amount of student loans has been about $34 billion, as I mentioned. The amount of the write-off has been kind of steady between $160 million to $220 million, in that range, depending on the year and depending on the vintage, so we haven’t seen that much of a variance there with respect to the amounts of the write-off. Again, this is something that we bring forward in the last supplementary estimates of every year for parliamentary consideration. It’s something that what we could do is we could perhaps next year have a better visual to be able to walk parliamentarians through the historical trend of this. We could actually talk to our ESDC partners on that, just to see if there is additional information that could be provided.
I think ESDC is here tomorrow, are they not? We could call the CFO and mention you are very interested in that issue. They would have a better line of sight on that just in terms of talking about provision rates and so forth. A lot of that is determined by Department of Finance in consultation with ESDC because it is a fiscal construct.
Senator Loffreda: On the Women Entrepreneurship question.
Mr. Purves: Could you repeat the question, sorry.
Senator Loffreda: Yes. First, congratulations. It’s a great program.
Mr. Purves: Yes, thank you.
Senator Loffreda: How do you determine the amounts? How are they allocated per province? Is it by population or by programs? How are the programs determined?
Marcia Santiago, Executive Director, Expenditure Strategies and Estimates, Treasury Board of Canada Secretariat: As Mr. Purves said, departments individually would have a better line of sight on how they make decisions in terms of the allocation of their programs. The Entrepreneurship Strategy is a horizontal program, which means that it is administered by several departments, and they tend not to be very big amounts that are administered in the regional development agencies. If it would be of interest to the committee, we could get a sampling.
Senator Loffreda: I think it’s $2 billion and how will it be allocated across Canada.
Ms. Santiago: In these supplementary estimates, we are showing $11 million.
Senator Loffreda: We’re less, yes.
The Chair: Mr. Purves and Ms. Santiago, can you please provide the information to the clerk?
Mr. Purves: I’m happy to, yes, absolutely. Thank you.
Senator Smith: I have more of a generic question. When was the decision made to revert back to the old process? How did the Treasury Board arrive at its decision? Going back to when Senator Marshall asked that question earlier, how did you track the success and shortcomings of this experiment?
I have to just revert for two seconds. Scott Brison at the time called this meeting and there was about 200 to 300 people there: staff, senators, MPs, et cetera. This new way of doing things was going to be a fantastic opportunity. He didn’t talk really about the test of two years being as important as the change and changing the philosophy, becoming more effective, et cetera. Two years in this business, in this environment, is like a flash in the pan.
Can you give us two or three points of how the decision was made to just can the program and go back to the old way? What’s been learned from this about transparency? Really, what has been learned? Or are you going to study matters at this particular time and come back to us in another year or two with the results? I’m not trying to be a smart aleck.
Mr. Purves: No, it’s fine.
Senator Smith: I’m trying to understand being accurate and precise and the challenge with the size of the government.
Mr. Purves: Aas I mentioned to Senator Forest, estimates reform is a very broad thing, and it included a whole host of transparency. There is a continuation of that in terms of when we publish online the estimates document and all of the supplemental information that you receive to be able to actually go in and see how the central votes are working and what’s being distributed from it so that you can actually ask the precise questions. I would note, and I have been in my position for about a year and a half, that the level of precision that people can ask questions about central votes is far greater now than in the past. The type of information that we are able to put out through GC InfoBase is immense. If people actually go on and use it, they could actually hard code and fine tune and answer precise questions they have about particular government spending. It is a very useful tool, very much like USA Spending, to be able to actually breakdown program spending and to provide that historical perspective and so forth.
Specifically in terms of that aspect that you are talking about, which is the timing issue and the movement, suspending the standing orders by two years and moving the date that we can table Main Estimates, instead of it being tabled in February and moving it to April, that was an all-party agreement in order to temporarily do that. It was always stated that it would be for two years. Ultimately, decisions to proceed and go back are things that are not just a government decision but an all-party decision that would be required to do that.
In terms of the level of transparency, the type of allocations that we were making from the budget implementation votes and in terms of further innovations and so forth, we always think through these initiatives. Certainly, as I mentioned, there are pros and cons to it. To be fair, when you look at the report of the Standing Committee on Government Operations and Estimates in the House, there were a number of pros and cons. The government did attempt to respond to many of them in the Main Estimates for 2019-20. Then, of course, we have the election and we are where we are. We, as officials and the government, would have to respond to the Standing Orders as they exist. That requires the tabling of the Main Estimates by March 1.
Senator Smith: If there are two main things that come out of this exercise as accomplishments, what would they be?
Mr. Purves: As an official, the big one is the level of transparency we have on the information. In fact, I would say, at this juncture, we almost have so much information out there that, it’s a question of us needing to work more with parliamentarians and Canadians to help them navigate through it. There is a lot of information available. Transparency is a big factor.
The second is, as with any pilot, it’s always useful to take lessons from the pilot. That’s something that I think will continue. We did have a different form of including Main Estimates going forward. We are back to where we were in 2017, before we embarked, just with respect to the timing aspect and the fact that we have Main Estimates that are tabled before a budget and supplementary estimates, three periods. We will continue to ensure that you have all the information that you need in order to make those decisions.
Senator Klyne: Thank you to our panel for your presentations and answers and all the hard work.
My question has three parts but revolves around the realm of transfers. I’m wondering what the total budget is for transfers to various organizations for innovative approaches to reduce greenhouse gas emissions in government operations. Of that, how much has been spent to date? I see from the Treasury Board Secretariat that Environment shows $135,000 but, in the Department of National Defence, I see from Treasury Board Secretariat $2.3 million. I’m assuming there is more and that there is a total budget. Just in that regard, on the results side, in terms of value for money, to date, is there any measurable success with this initiative?
Mr. Purves: Specifically on that initiative and on the second initiative pertaining to the results to date, that’s something that I believe Fisheries and Oceans would have to answer.
Your first question is an intriguing one in the sense that you asked for effectively a thematic lens of spending. If I can clarify your question, you are asking, looking at the different programs, how much has been spent?
Senator Klyne: In that regard, in terms of the transfers to “various organizations for innovative approaches to reduce greenhouse gas emissions in government”— that’s how the transfers are described — I’m wondering what that total budget is.
Karen Cahill, Assistant Secretary and Chief Financial Officer, Treasury Board of Canada Secretariat: I’ll take the question. Thank you, senator. We have in TBS, Supplementary Estimates (B), an amount of $4.8 million to be transferred from the central greening fund to various departments for innovative projects in regard to reducing GHGs. There are a number of departments and projects involved. We have projects under DND. We have projects under PSPC. For example, in PSPC, they want to have a cooling system for plants in areas that will produce a lot of CO2. That is one of the projects. Under DND, as you know, DND has a number of housing projects under their purview. One of those projects is to make the housing projects more efficient with respect to greenhouse gas emissions. Those are only two projects, but I could mention many other projects. Different departments have been submitting projects. Based on certain criteria, the funding was transferred to them from the central fund.
Senator Klyne: You said the total was $4.8 million?
Ms. Cahill: Yes.
Senator Klyne: To date, are there any measurable successes?
Ms. Cahill: I would need to follow up on that. Those are new initiatives, of course. At this moment, it’s very difficult to measure success, but I’m committing to following up on this question.
Senator Marshall: This is a general question. It’s March 10. We are looking at the funding for the rest of the fiscal year, so three weeks. The government is going to spend $3.8 billion in the next three weeks. Has any of that money been spent already?
Mr. Purves: It would depend on a department-by-department basis as to whether they have decided to advance funding from their own funding. You have to keep in mind that these authorities that are being sought are “up to” amounts. They get an authority up to $3.8 billion.
Senator Marshall: The money hasn’t received parliamentary approval yet. It’s not a forgone conclusion that parliamentary approval will be received. None of that money should have been spent.
Mr. Purves: Again, a lot of this has to do with “up to” amounts. For a department, if it’s a top-up to an existing program, they have authority to be able to spend for that program. There is an expectation that they are going to need an extra amount, and it may be that they expect to receive the amount and they are able to make payments at the end of March in order to facilitate that. Often grants and contributions are disbursed once there is Royal Assent for this type of spending.
Senator Marshall: To go back to my original question, have any cheques gone out relating to this $3.8 billion?
Mr. Purves: Again, you would have to identify whether there is a portion of that spending that the department has been able to fund internally to deal with existing programs.
Senator Marshall: I must say I find that a problem, but thank you for your explanation.
The Chair: Could you provide, Mr. Purves, a graph?
Mr. Purves: I can provide just a response to the committee on that, if that’s helpful.
The Chair: Yes, please do, through the clerk. Thank you.
[Translation]
Senator Forest: My question is along the same lines as my colleague’s.
Look, there are 21 days left in this fiscal year. If we did not approve the additional funding in Supplementary Estimates (B), and possibly (C) as well, are there any expenditures related to tenders or suppliers? What would happen? Something about this issue seems wrong.
We have 21 days and we have to approve this additional funding, but have the funds already been allocated and spent? If we decided not to approve the funding, what would happen? Would the government fall? Something in this budget process, in terms of the logical sequence, is hard for the average person to understand.
[English]
Mr. Purves: If I can just clarify, this system of approving the last supplementary estimates at the end of March has been going on for a long time. A department might be able to enter into a commitment under section 32 for something, but the actual payment could not be made until Parliament approves and provides Royal Assent. A lot of spending is done at the very end of the year, and transfers made and so forth, on the basis of that final Royal Assent of supplementary estimates. If you’re a CFO, you’re always managing on that basis and you’re not managing ahead of parliamentary authority. They would be risk-managing without parliamentary authority if they did that. There’s a distinction between a commitment and the actual payment.
The Chair: Can you provide the information, Mr. Purves?
Mr. Purves: Sure, I’m happy to.
Senator Loffreda: Just to clarify on the student loans: Like I said, the concern was the graph, the steep curve. The write-off is 0.6% of the nominal dollar amount of the total loan balances granted. To calculate exactly the 180 million on 34 billion is 0.6%, which is a little higher than regular bank loans. I want clarification, and maybe you can answer me in the future. Why the steep curve, and how is it being managed? What measures are we taking to keep the write-offs in line with where they should be? And 0.6 is fine. In banking, we would say between 30 and 50 basis points is where we want it to be. They are students, but just to make sure it’s being managed properly and how we’re taking a look at it going forward. Because taking a look at figure 3.2, that steep curve is a highlight.
Mr. Purves: Again, a lot of that has to do with the policy calibration of the program itself. ESDC, I believe, is testifying tomorrow. We’ll refer the question to them so they’re prepared to answer your question.
The Chair: Honourable senators, thank you very much.
To TBS, thank you for providing sincere answers. We will be watching very closely the additional information you will provide to the clerk. We appreciate that.
Honourable senators, we will move to the second part of the meeting as we continue our study of Supplementary Estimates (B).
[Translation]
We now welcome the Parliamentary Budget Officer, Mr. Yves Giroux.
[English]
He is accompanied by the Director General, Costing and Budgetary Analysis, Jason Jacques. Thank you very much for accepting our invitation to answer questions from the senators.
As you know, we have a common denominator for the Canadian taxpayer, and that is transparency, accountability and predictability.
Mr. Giroux, you have the floor for a short presentation.
[Translation]
Yves Giroux, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: Honourable senators, thank you for inviting us to appear before you today. It is an invitation I would be hard pressed to decline, as it would be highly inappropriate. I am very pleased to be here, and I would never dare decline such an invitation.
Thank you for giving us the opportunity to meet with your committee for the first time in this Parliament. We look forward to continuing to work closely with your committee during the Forty-third Parliament.
We are pleased to be here today to discuss our report on the Supplementary Estimates (B) 2019-20, which was published at the end of February. With me today I have Jason Jacques, Director General of Costing and Budget Analysis in my office. He is the éminence grise behind the supplementary estimates and Main Estimates in my office.
The supplementary estimates tabled on February 18 in the House of Commons outline an additional $5.6 billion in budgetary authorities: $3.8 billion in spending which requires Parliament’s approval and $1.8 billion for which legislative permission already exists.
The total proposed year-to-date budgetary authorities, including these supplementary estimates, are $312 billion, which represents a $21.8 billion, or 7.5%, increase over the 2018-19 estimates to date.
[English]
Major spending items in these estimates include $919 million to the Department of Crown-Indigenous Relations and Northern Affairs for loan forgiveness and reimbursement for comprehensive land claim negotiations; $487 million to the Department of National Defence for funding capital investment as part of the department’s policy, Strong, Secure, Engaged; $180 million to ESDC to write off unrecoverable debts for Canada student loans, which you questioned Treasury Board Secretariat sector officials about; and $950 million in statutory authorities to the Department of Natural Resources for the Green Municipal Fund.
These will be the last under the temporary change to Standing Order 81, which took effect in 2018-19 and aimed to better align the estimates process with the budget. As of the next fiscal year that will start on April 1, the original process will be reintroduced, meaning that the Main Estimates will be tabled prior to the budget. This will also likely bring back the need for three supplementary estimates — in the spring, fall and winter.
As a result of these changes, all budget items will be required to go through — hopefully all of them — detailed scrutiny by the Treasury Board committee of ministers, chaired by the President of the Treasury Board, prior to the funding being sought from Parliament. At the same time, this may mean a longer delay between the announcement of new initiatives and their implementation, as the earliest opportunity to receive approval for the funds will be in the spring Supplementary Estimates (A).
Although our report notes that the 2018-19 departmental results reports had not yet been presented to Parliament prior to the tabling of the supplementary estimates, the President of the Treasury Board tabled the departmental results reports in the House of Commons on February 26, 2020 — which I’m sure is pure coincidence — the day we released our report.
In accordance with the PBO’s legislative mandate to provide impartial, independent analysis to help parliamentarians fulfill their constitutional role, which consists of holding government accountable, my office will continue to prepare reports and analyses of the estimates of the government and of the budget, in addition to other pertinent federal government documents relating to the nation’s finances or economy.
My office recently released our annual assessment of Canada’s long-term fiscal sustainability at the national and provincial levels. We plan to publish a report on the 2020-21 Main Estimates in the coming days.
With that, I will leave you plenty of time to ask questions. Jason and I will be pleased to answer any of the questions you may have at this time.
The Chair: Thank you very much, Mr. Giroux.
Senator Marshall: Thank you very much for being here today. My questions relate to section 3.2 of your report on Supplementary Estimates (B) about National Defence. My first question is, when you did your review, were you able to get a listing of the projects that comprise the $487 million? Do you know exactly what projects that money is going to be spent on?
Jason Jacques, Director General, Costing and Budgetary Analysis, Office of the Parliamentary Budget Officer: Yes, we do. As you may recall, approximately two years ago you asked a very similar question at this committee. Very shortly after that, National Defence invited us over for a meeting, and they agreed to fulfill our long outstanding information request to give us a detailed breakdown of all of the projects that comprised the June 2017 announcement with respect to Strong, Secure, Engaged.
There’s a lot of water under the bridge. We’re now almost three years into it. We have filed an updated information request to ask for an update with respect to where the spending stands because, of course, there have been many and significant policy changes. For instance, as part of Strong, Secure, Engaged, there was never anticipation to buy the used Australian jets. We anticipate that we should be receiving updated information likely within the next two months and preparing a report hopefully very quickly after that.
Senator Marshall: I can remember it was two years ago that you were looking for something similar. I didn’t get what I was looking for, so I’m glad you received what you were looking for.
However, you indicated they’re going to give you the information within the next couple of months. I would think that the department would have a system over there whereby they list off all of their capital projects and that they would have all the financial information in there, like costs to date and how much is budgeted for this year and information on the schedules, but you’re saying you have to wait a couple of months?
Mr. Jacques: That’s correct. As a former auditor general, you would think that. As a chief financial officer, I would think that. The information certainly exists within National Defence. It’s simply going to take them some time to collate it for us.
Senator Marshall: It’s somewhere in the department, so they have to gather it and collate it. Okay.
In your report, you indicated you’re going to issue a report when you get the information from the Department of National Defence, and you’re going to issue a report on the capital projects, which I’m very much looking forward to. Is there any time frame there? Can you give us any indication as to a time frame?
Mr. Giroux: As Jason mentioned, we are waiting for information from the Department of National Defence. Once we get that, it’s highly dependent on the quality of the information we get. If we get an Excel spreadsheet that’s very complicated, it will take us more time, but if we get nice, neat, complete set of data that is easy to understand, then it will be easier for us to draft a report. If I were a betting man, I’d say it will take us some time to go through the data we’ll get.
Senator Marshall: And analyze it, okay.
My last question on National Defence is this: The departmental results were released last week or the week before. I’m just starting to go through them now. Do you look at those results? Do you do any work with them?
Mr. Giroux: We use these to a certain extent to inform our fiscal forecasts, but we don’t look at them with the same lens that an auditor would, for example, so this is looking back at past performances.
To be very frank, these are results that have been imposed by officials on officials, so they’re not super useful, the reach or the attainments of the targets that the departments have imposed on themselves. A bit more work needs to be done to determine whether a department has really achieved the results that it was aiming to achieve.
The example you gave in the earlier session about defending Canada’s Arctic sovereignty is highly subjective, relying on the Departmental Results Report to determine whether Canada is really asserting its sovereignty in the Arctic. The DRR is probably not the best way to find that information.
Senator Marshall: So you don’t look at the quality of the results?
Mr. Giroux: No, we don’t. The financial information is useful for us, but the results themselves are not that useful for us.
Senator Marshall: Thank you.
[Translation]
Senator Forest: Thank you for being with us. I would like to come back to the budget cycle. Given the pilot project two years ago, I don’t understand the motivation for going back to three supplementary estimates. When we look at what is happening, based on your analysis, there is an increase of $21.8 billion, for a total of $312 billion, so that’s a 7.5% increase over 2018-19. Given the current deficit, were any targets set in the budget cycle for drawing up the Main Estimates?
For example, can we assume that, in this budget, regardless of department, the target this year is a 2% increase for cost of living? Are the results compared to the budget year? It seems too easy to me to say that we prepare a budget, but we then have three opportunities to get additional funding. Our accountability as managers seems very watered down to me because we have three opportunities to do that. Last year, one department forgot to include $658 million. Let me tell you, if I had managed my municipality that way, I wouldn’t have been mayor for long.
Are there clear objectives given to managers for this fiscal year? Is there any follow-up? For the everyday Canadian, it looks like, at some point, money is no object; if we’re short of money, we will go get more.
Mr. Giroux: I admit, that is a huge question. In my opinion, the directive comes from the top. So, regardless of whether there are two or three main and supplementary estimates, if the tone set by cabinet is that it’s most important to achieve certain public policy objectives with little attention paid to the impact on the deficit, public servants will respond to those incentives and behaviours by trying to achieve the policy objectives, and they will ask for as much money as that takes. If, on the other hand, the objective coming from the top is that the public purse needs to be managed very tightly and there is a surplus target to meet, public servants will behave in a way that meets those objectives.
It’s important to remember that, contrary to popular belief and based on my experience, public servants are rarely autonomous entities acting independently of political power, except where there is an obvious separation of powers. In general, however, public servants respond to the objectives and instructions of their political masters.
Therefore, whether Supplementary Estimates (B) and (C) exist or not, public servants will do the bidding of the department they serve.
Senator Forest: It’s a fine balance between sound management of public funds and austerity.
Mr. Giroux: Exactly. However, if there are additional supplementary estimates, meaning Supplementary Estimates (C), that’s one more opportunity to ask for funding at the last minute to achieve objectives or fund programs that cost more than expected. But if there are none, the result is much tighter management, because there will be no other opportunity to request funding.
Senator Forest: Do you think we should maintain the pilot project rather than going back to the old method, which gives us three supplementary estimates?
Mr. Giroux: I think the pilot project was good, but it wasn’t all good. It made sense in that it forced better alignment between the supplementary estimates and the Main Estimates, while giving the government the flexibility to table a late budget. The window of opportunity to include many budget items in the Main Estimates closes. With a budget at the end of March and Main Estimates in April, it’s not possible to include all these items in the Main Estimates. So we end up with the same issue, that is, we could not include the majority of budget items in the Main Estimates, and parliamentarians are again being asked to vote on something without seeing the budget initiatives in the Main Estimates.
The pilot project is good, and it would be desirable to renew it if the government could commit to an early budget so that most if not all of the items in the budget would be included in the Main Estimates; it would therefore be much easier for parliamentarians, members of Parliament and senators, to see that they are voting on a proposal that encompasses all, or almost all, government initiatives. There would be a very close match between the government’s budget, which is essentially a statement of good intentions, and the expenditures voted on in the Main Estimates.
On the other hand, if a late budget is tabled and it closely resembles the Main Estimates, essentially the Main Estimates status quo is maintained, and budget initiatives are presented in Supplementary Estimates (A), (B) or (C). Parliamentarians can go to the Main Estimates to find such and such initiative put forward in the budget, but it will be in Supplementary Estimates (A) or (B), for example, which makes it very difficult for you to reconcile, and for us as well.
Senator Forest: My last question is about infrastructure. It’s tempting to ignore the rehabilitation and maintenance of our infrastructure. I am just looking at federally owned ports and wharves, many of which are in disastrous condition. According to National Defence’s financial data, 1.4% should be set aside right now for infrastructure upgrades. Does the actual deficit take into account the challenge we face with respect to the federally owned infrastructure deficit?
Mr. Giroux: Deficit and debt include an accounting provision for the presence of assets. Therefore, assets are considered, especially when considering net debt, which is reduced by the value of the government’s assets. The depreciation in value of those assets is also taken into account. Ports, for example, depreciate year after year, unless a significant investment is made to maintain them. As far as I know, the debt and the deficit do not really account for the actual condition of the assets, for their real value, as much as accounting methods will allow. I will let Mr. Jacques add something.
Mr. Jacques: No.
Mr. Giroux: He is an accountant and I am just an economist, that is my perspective. So the actual condition of the government’s assets is not necessarily reflected in the deficit and debt.
[English]
Senator Downe: My concerns today are information that may be missing for parliamentarians when we consider the financial expenditures of the government. I have two questions. My first question is on write-offs as a general category. My second question will be on collection.
I was reading the public accounts 2018-19, and ministers under the Financial Administration Act have authority under section 25 and 155 through Treasury Board regulations to write off large sums of money, and other acts of parliamentary, such as bankruptcy, give individual ministers the right.
When I was going through public accounts, I was struck by the fact that the Minister of National Revenue wrote off, forgave or waived interest or administration charges in over 1.5 million cases for a total of over $4 billion. The four general categories I’m interested in — bankruptcy I think speaks it for itself — but the Financial Administration Act was a large sum, Excise Tax Act and the Income Tax Act. I’m just wondering who follows up on these write-offs, the waiving of debt obligation, to make sure that they are actually legit and that there are not opportunities to actually collect some of this money. It’s a significant amount of money for one minister. Granted, it’s a large department that deals with a lot of money, but it is over $4 billion. Are you following up on that? Is anyone following up on that?
Mr. Giroux: Based on my experience, there are follow-ups internally at the CRA. Having worked there, I also have qualities, I assure you. I not only worked at the CRA. So there are internal controls within the CRA as well as internal audits and evaluations. That may not reassure you as much as it should or could, but the Auditor General also spends quite a lot of time in the CRA. I think it’s their most important client, so much so that they know each other on a first-name basis. The AG spends so much time at the CRA. But we don’t follow that. That’s exposed. That’s write-offs. We don’t follow the level of write-offs or the individual transactions. It’s not directly part of our mandate.
To the preamble to your question and the fact that ministers have the power to write off debts, it is indeed the case and it has led to some significant write-offs, especially when it came to assistance to the automobile sector where write-offs were in the hundreds of millions for individual companies. That’s an area where ministers can enter into loan agreements with companies. One minister can authorize a write-off, which can seem a bit inconsistent with the fact that a minister may need to seek parliamentary approval to spend a million or a million and a half but can on his or her own device write off a billion dollars. It’s a bit of a dichotomy there.
Senator Downe: My second question is about collection. We met a couple of weeks ago to talk about progress or lack thereof on the tax gap analysis, which is what the Canada Revenue Agency should be doing. A host of other countries around the world do it currently: United Kingdom, United States, Turkey, and the list goes on and on.
Canada Revenue Agency has refused to do an overall tax gap analysis for years. As we all know, the tax gap analysis does two things. It tells you how much the agency is collecting and how much it should be collecting, and the difference Canadians should know. Second, it measures how efficient your agency is, which is another reason the CRA may not want to do it, in my opinion.
We have been working on this for a number of years. Canada Revenue Agency has refused to give the information required by the PBO to track that tax gap for Canadians even though it’s in your mandate to get this information. In my opinion, they should be either taken to court or forced to do this by the government.
Could you give my colleagues an update on this issue and, through them, the Canadian public on where we are on this important matter?
Mr. Giroux: The issue of the tax gap is, as you mentioned, an important issue to ensure that Canadians and parliamentarians have an idea as to the efficiency of the tax collector, whether they are going after all the individuals and corporations that should be paying tax, whether they are efficient at collecting taxes and where they should be directing their efforts.
Legislation prohibits the sharing of individual taxpayer information from CRA to my office. It’s something that is quite clear in legislation. We have done some workarounds around that. We have discussed with CRA the provision of anonymized tax information. There still remain some concerns on the part of CRA with respect to anonymized data or tax records that could lead to the identification of specific taxpayers, notably corporations, which would, in CRA’s opinion, lead to a breach of confidentiality provisions.
To avoid these issues or to get the data we need for the assessment of the tax gap, we went through Statistics Canada. They have access to all the tax records. We have some of our employees go to StatsCan and access records without identifiers. Due to data manipulation, they need to be able to assess, to the best of our capacity, the tax gap. That’s how we were able to issue a report last June. The work continues, because that was the first kick at that huge can. We are continuing to go through StatsCan to get access to tax data.
That being said, it would probably be much easier if we had access to individual, not identifiable, tax data, and if we have access to tax records without CRA fearing they were breaching legislation or without us fearing that we would go to jail because we accidentally could identify that a certain corporation is engaged in whatever tax behaviour, legal or not. That’s why, as part of our report on the election proposals costing — how it went, we published a report — we recommended a couple of legislative amendments, one of which would allow us to have access to tax data.
That being said, we don’t need to have individual tax records with identifiers such as dates of birth, social insurance numbers. But when it comes to corporations notably, it’s very useful to know whether it’s one, two, three, five or ten corporations that are engaged in certain types of behaviour. But CRA, in all its desire to protect confidentiality of taxpayer information, will not disclose anything to us if there are fewer than a certain number of tax records that fall in a category by fear that we would indirectly be able to identify them.
So the proposal is there to grant us access to anonymized tax data. It’s up to parliamentarians to decide whether they want to bring this forward and allow us to have access to that type of information.
Senator Downe: Thank you for that detailed answer. Obviously it’s complex, and no one is suggesting an individual taxpayer’s information be disclosed. However, it’s complex in other countries as well, all of which do it. It seems to me that CRA is putting up roadblocks to that end.
Are you concerned, when we look at all these spending commitments and priorities, that the government is running a massive deficit because it is not collecting taxes that are simply hidden overseas by Canadians, an amount that I don’t know, the Canadian public doesn’t know, and you don’t know because of the CRA?
We have an illustration of the degree of the problem with the Canada Revenue Agency, I would argue, on the Panama Papers. This April will be the fourth anniversary of the Panama Papers disclosure. There were at least 600 Canadians disclosed in the Panama Papers.
Chair, as you know, it’s not illegal to have an account overseas. It is, however, illegal not to declare the proceeds from those accounts.
Countries around the world that also had citizens disclosed in the Panama Papers have been able to recover $1.2 billion. The Canada Revenue Agency talks about identifying money. They may have identified millions of dollars, but they haven’t collected a cent four years later this April. We have all these countries that have put an effort into collecting. Iceland, which has a population of 350,000, collected $25 million; Canada has collected zero. Is that not an indication of a major problem? Are you looking at that in any of your reports or studies?
Mr. Giroux: I am convinced, senator, having worked both at the CRA and been PBO for a year and a half now, that there are hundreds of millions, if not billions, of dollars in taxes that go undeclared, unreported and that escape Canadian tax authorities, probably on an annual basis due to the international transactions that take place.
We are an open economy with lots of trading partners, which is a good thing, but it also means that we have to have an open banking system and financial transactions have to be easy with countries abroad. The flip side of that is that some people take advantage of the openness of the Canadian economy and financial system to hide money abroad, and it makes it difficult to track all of that money.
Successive governments have developed tools to track transfers of money abroad, but I’m sure there are still significant amounts that are escaping the Canadian FISC.
Senator Duncan: Thank you for your presentation and for your work.
The largest item you have highlighted, of course, is Crown-Indigenous Relations and Northern Affairs Canada’s forgiveness of outstanding land claim negotiation loans. I will be asking for more detail from the Crown-Indigenous Relations folks who are presenting to us, but I would also like to ask you, as you have highlighted it, if you have done an in-depth analysis of the $919 million.
For example, when the Government of Canada loaned Yukon First Nations monies to negotiate land claims, they also charged interest on those loans. Is there a separation of the $919 million between principal and interest, and is there a breakdown by region of the loan forgiveness?
Mr. Giroux: I haven’t done an in-depth study of these loans; maybe Jason, in all his wisdom and appetite for details, has.
Mr. Jacques: No, we have not. What we are left to work with is the data and the information in Budget 2019 on page 129. They do mention approximately 200 First Nations across the country that will benefit from this, but there is no delineation with respect to the repayment of principal versus interest.
Senator Duncan: In your wisdom and the wisdom of Senator Downe in terms of the Financial Administration Act, would that interest be buried in another department, or do we know?
Mr. Giroux: Normally it would be part of that overall amount. It would be debt and principal. Departmental officials will be in a much better position to know. Given the amounts at stake, they will probably know off the top of their heads.
Senator Duncan: Thank you very much. I look forward to asking them those questions.
I also would note that there are financial arrangements between settled First Nations and their provincial-territorial governments and this loan repayment. There are also specific questions around considering that as own-source revenue and separate from their settlement arrangements. Would that also form part of your analysis when you take a closer look at this expenditure?
Mr. Giroux: That is probably a bit too detailed for us. The short answer is no, but if there is an interest from the committee, we could certainly look at that.
Senator Duncan: Thank you. I’ll direct my questions this afternoon.
Senator M. Deacon: I think Senator Forest did highlight most of what I was going to ask. Senator Smith touched on it earlier, and maybe it’s one final look or exploration. You talked about going back to the way we’re doing business, and we did have an opportunity for a few years to try a process. It was well-advised but not perfect, I think were your terms. I’m constantly thinking about how we better align our budget, Main Estimates, learn, do better.
My question does come again to things that you step back from. You say it wasn’t perfect, but this was a key piece that helped us: the way we think, the way we report, the way we act, the way we collaborate. Was there some gain or some lessons learned from it with particular focus on how we can accelerate the implementation of government and government expenditures? Just a last chance.
Mr. Giroux: The issue of speeding up the implementation of budget initiatives was something we looked at under the pilot project. We found no strong evidence that it did speed up the implementation of budget items. Despite the fact that there was a central vote for budget items or separate votes in each department, items still needed to go through TB after appropriations were granted by Parliament. In fact, it didn’t speed up the implementation. For that part of the pilot project, we didn’t find strong evidence that it did indeed improve the speed at which budget initiatives were implemented.
Senator M. Deacon: Just before you go on, what can, should or will?
Mr. Giroux: I think honestly fixed-date budgets or budgets within fairly clear, delineated windows so that departments would know, if their initiatives make it into the budget, when to get ready. Under the current regime that give the government a lot of flexibility with respect to the budget date, departments cannot enter into agreements and cannot prepare for budget implementation because they don’t know until the day of the budget. If they are lucky, the deputy minister will find out the day before or two days before, but that’s it. Departments don’t know if their items are in the budget until the budget date.
For example, if we were to have a budget on March 24 — I have no idea, and I’m probably the last person the government will tell the budget date. Assume March 24. Departments will find out probably late in the day that they have something in the budget, and then they can start preparing for that. Whereas, if we had a budget of, say, early February, then they would be able to prepare much sooner and hit the ground running on April 1, which is usually the way budgets work, starting in the next fiscal year. The departments would be in a much better position to have initiatives ready and implementable sooner if we had earlier budgets. That’s one way.
Officials being better and more efficient is also something that would improve budget implementation or the speed at which budget initiatives get implemented. By saying that, I’m not making a lot of friends in the public sector, but it’s not part of the job description, and I have worked long enough in the public service to know this is true. Departments and public servants could be much faster at implementing budget initiatives.
Senator Klyne: Welcome, and thank you for your presentations.
My question is kind of general, but it’s around your 2020 Fiscal Sustainability Report. I’m sure a lot of front-end work went into that. Of late, we have a lot of shifting sands and slippery slopes that are right in front of us. I’m just wondering, are you doing any analysis right now about sustainability? I’m thinking about the Prairies, Alberta and Saskatchewan particularly. Their fiscal policy manœuvres are limited in terms of adjusting taxes and spending. You can get into a real dichotomy if you get into increasing taxes, which is one part of the equation, not good in an environment like that right now. If you start reducing spending, it’s probably going to get cut at the services level, and again, that’s not a welcome initiative.
Much of your report suggests that the subnationals, or the provinces, under the cloudy days, if you will, should be looking to fiscal policy. I’m wondering what the federal government is looking to with regard to fiscal policy, because we have some problems out in western Canada right now. If I understand correctly, the equalization formula is in place until 2024. Is that under review yet again, or is that where it’s going to lay? I don’t see Saskatchewan and Alberta in the have-not categories over the last few years, so I’m just wondering what the quick analysis of the day is in these fronts.
Mr. Giroux: To your point about tax issues out West, I met with finance officials from Alberta in December. We discussed the challenges of the province. They suggested that if you want to propose tax increases, they dare you to go on the street corner in Calgary and mention that and see how long you will survive. I said, okay, point taken. We moved on.
When we did the Fiscal Sustainability Report, the federal government has some room for manœuvre, but that’s looking at a 75-year period, over a very long-term horizon. The Fiscal Sustainability Report is not meant to be a prediction in any way, shape or form. It’s meant to be an indication of the health of public finances of jurisdictions in the country. We find that because over the long term the federal government’s expenditures are constrained — equalization transfers to provinces and so on, main expenditure items are constrained in legislation, as well as old age security, main transfer to persons, constrained by inflation — its finances are expected, all other things being equal, expected to be relatively healthy. Provinces’ expenditures are demand-driven, health care being the main one, with an aging population. Older people on average require more health care, so health care expenditures will be the main driver behind provinces’ misfortunes. Add to that the interplay of transfers with population growth, and relative GDP will make it so that, all other things being equal, B.C., should start receiving equalization around 2040, Manitoba will receive a declining share of equalization and so on.
We have done some sensitivity analysis in our Fiscal Sustainability Report to see what would improved productivity do or decreased productivity do, aging population even faster, younger population, and it doesn’t dramatically change the picture qualitatively. It changes the quantums of adjustments needed, but it doesn’t change the picture dramatically.
To your question on equalization, that’s a question that the Minister of Finance would be in a much better position to answer as to his intention and the government’s intentions regarding equalization after the current five-year program parameters expire. Who knows? I don’t know.
The Chair: Thank you. Honourable senators, any other questioners? If not, to the PBO, thank you very much for providing and giving us clarity. On this, we will certainly be calling you in the future again.
Honourable senators, please be reminded that our next meeting is at 2 p.m. this afternoon in room B45 of the Senate of Canada Building. I now declare the meeting adjourned.
(The committee adjourned.)