THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Tuesday, April 18, 2023
The Standing Senate Committee on National Finance met with videoconference this day at 9:01 a.m. [ET] to study the Main Estimates for the fiscal year ending March 31, 2024.
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: Honourable senators, I wish to welcome all senators as well as the viewers across the country who are watching us on sencanada.ca. I would also like to recognize and welcome to our committee this morning the MP from Edmonton West, Kelly MacAuley.
Welcome to the meeting, Mr. MacAuley.
I am Percy Mockler, senator from New Brunswick and chair of this committee.
[Translation]
I will ask the senators seated at the table this morning to introduce themselves, starting on my left.
Senator Gignac: Clément Gignac from Quebec.
Senator Loffreda: Hello. I would like to welcome the witnesses. My name is Tony Loffreda, and I am from Quebec.
[English]
Senator Duncan: Good morning, everyone. Pat Duncan, senator from Yukon. Welcome back.
Senator Smith: Larry Smith, Quebec.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
[Translation]
Senator Dagenais: Jean-Guy Dagenais from Quebec.
The Chair: Thank you, senators. I will just make a few comments. First of all, I would like to thank the vice-chair, Senator Forest, who chaired our meetings during my absence. I would also like to thank the steering committee for its efforts that enabled the Senate Committee on National Finance to carry on with its duties and workload, as per the will of the Senate of Canada.
On a personal note, I would like to say thank you to my colleagues for their good wishes, which were sent to me by email and through Senator Forest and my office. Your kind words helped me to come back as quickly as possible.
A special thank you also to staff members: the clerk, analysts, translators, pages, interpreters, stenographers, technical staff as well as our office employees. They are always here to support us so that we can fulfill the mandate conferred upon us by the Senate of Canada.
[English]
Honourable senators, we are continuing our study on the Main Estimates for the fiscal year ending March 31, 2024, which was referred to this committee on March 7, 2023, by the Senate of Canada.
We have the pleasure of welcoming today Yves Giroux, Parliamentary Budget Officer. He is accompanied by Robert Behrend, Director, Fiscal Analysis; and by Kaitlyn Vanderwees, Analyst. Thank you very much for accepting our invitation. I want to take this opportunity to also say to the PBO that every time we have asked to have you at our meeting, you have always made it possible. Thank you for that type of leadership.
It’s always very enlightening to welcome you, Mr. Giroux. Your testimony always helps us on behalf of all Canadians, regardless of where we live, to focus on four main principles: transparency, accountability, reliability and predictability.
We will now hear opening remarks from Mr. Giroux, to be followed by questions from the senators.
[Translation]
Yves Giroux, Parliamentary Budget Officer, Office of the Parliamentary Officer: Honourable senators, thank you for the invitation to appear before you today. We are pleased to be here to discuss our report titled Government’s Expenditure Plan and Main Estimates for 2023-24, which was published on March 3, 2023. With me today I have our lead analyst on the report, Kaitlyn Vanderwees, and Robert Behrend, Director, Fiscal Analysis.
The government’s Main Estimates for 2023-24 outline $432.9 billion in budgetary spending authorities. Voted authorities, which require approval by Parliament, total $198.2 billion. Statutory authorities, for which the government already has Parliament’s permission to spend, total $234.8 billion. Consistent with previous Estimates, money transferred to other levels of government, individuals and other organizations account for most of the planned spending, totally $261.4 billion.
[English]
This is followed by government operating and capital costs, which total $133.7 billion, and interest payments on the public debt, which total $37.8 billion.
Notable areas of spending in these Main Estimates include $76.6 billion for elderly benefits, which represents one in every six dollars, and $49.4 billion for the Canada Health Transfer, which represents one in every nine dollars. Professional and special services spending, which includes contracts with external consultants, will be close to $20 billion, according to these Main Estimates, which is an increase of $2.2 billion, or 13%, from last year’s Main Estimates.
Since Budget 2023 was tabled after the 2023-24 Main Estimates, these estimates do not reflect new budget measures. As such, the 2023-24 budgetary authorities will rise with these anticipated funding requests in the supplementary estimates.
In accordance with the PBO’s legislative mandate to provide impartial, independent analysis to help parliamentarians fulfill their constitutional role, which consists of holding the government accountable, my office publishes analyses of the government’s budget as well as the main and supplementary estimates. On April 13, my office published our Budget 2023: Issues for Parliamentarians report. The report is designed to assist parliamentarians in their budgetary deliberations, highlighting key issues arising from the budget, which announced $69.7 billion in new spending on a gross basis.
We would be pleased to respond to any questions you may have regarding our estimates analysis or other PBO work. Thank you.
The Chair: Thank you very much, Mr. Giroux.
We will now proceed to questions. I would like to share with senators that you will have a maximum of five minutes for the first round and three minutes for the second round.
Senator Marshall: Mr. Giroux, welcome to you and your officials.
In your opening remarks when you referenced the Main Estimates, you spoke about the budget documents and how the Main Estimates do not include the new budget initiatives. We have been studying the Main Estimates, but when we look at certain transactions, I have been going to the budget to see if there is any reference there to those transactions.
One of the transactions for Crown-Indigenous Relations and Northern Affairs Canada talked about the settlement for the Gottfriedson Band class settlement agreement. In the Main Estimates, it is there for $2.9 billion, and that’s the 2023-24 fiscal year. But when I looked at Budget 2023, the government has pushed that transaction — or at least it appears to be the same transaction — back into the 2022-23 fiscal year. A couple of years ago, there was a bit of controversy. The government reopened the books, and they pushed back a multi-billion dollar expenditure, and I expect to make sure the bottom line showed a certain result.
Are you able to provide any clarity on that transaction? Right now, it shows up in two fiscal years. It shows up in the new fiscal year, and it is almost $3 billion.
Mr. Giroux: I can probably not speak to the specifics of this transaction, but with respect to First Nations settlements and these compensations, it’s not unusual — in fact it’s quite frequent — that due to accrual accounting, these liabilities have to be booked in the year in which the liabilities are recognized — so according to the legal assessment where the liability passes a certain trigger for likelihood that the government will be held liable.
That’s often why you have the accrual accounting recognizing these liabilities in a certain year, even though it may take a couple of years for the cash amount to be disbursed. That’s probably why — in that instance as in many other instances — previous budget documents have included the liability of $2.9 billion. But there is a time difference between when the liability is recognized and accrued on the books or included in the financial statements of the government and when the cash actually has to go out, which is at the point where the Main Estimates or supplementary estimates would require the cash to make the payment to the First Nations.
Senator Marshall: We’ve seen other instances where the government is double-booking expenditures to provide themselves with some flexibility. If the $2.9 billion is actually a transaction for the old year, when we approve the Main Estimates, we will be approving $2.9 billion and providing the government flexibility to do some additional spending. Do you think that is a possible motive for seeing the transaction in both fiscal years? Because we’ve seen that before.
Mr. Giroux: On issues such as First Nation settlements, I don’t think that’s the case. I think there is some flexibility on the part of the government to recognize the liability under accrual accounting. So there is some flexibility as you alluded to with previous elements, notably on child services and family services when they booked $20 billion and reopened the books. So there is some flexibility on the part of the government as to when they book that liability. There is also some flexibility as to when they actually disburse the cash. However, I don’t think it’s the case that they double booked or counted that twice to give themselves some flexibility.
Senator Marshall: I have several questions, but my next one is this: The budget of the Department of National Defence is not showing that much of a significant increase in the Main Estimates. However, when you look at the budget, you see a number of initiatives there in the budget. But everything shows as a negative to reduce it to zero because it says that it’s provisioned in the fiscal framework.
We’ve talked before about large billion-dollar sums that show up as — it’s not specifically indicated what the money is for, but it will show up as something in the future. However, we’re not told what it is. Are you able to go back and find out? For the defence spending in the budget, we have these negative amounts that say “provisioned in the fiscal framework,” but I can’t find it in the fiscal framework. Is that something you are able to find in the fiscal framework? There is a whole page of all initiatives for the Department of National Defence, and everything is shown as “provision in the fiscal framework.” It doesn’t say where, but the net impact is zero.
Is that something you know? Can you tell us where to find it? Because it’s common not just to National Defence but to a number of other departments.
Mr. Giroux: That’s a very good question. It’s something that anybody with even the best intentions and the best knowledge could not find in budget documents. We can only reconcile where the provisions come from if and when we ask the Department of Finance and the Department of National Defence for these details. That’s because these provisions that had been made before in the fiscal framework are not easy to follow, and they’re not always very transparent and clear.
It’s totally normal that you cannot find it, because you need to have information that is much more detailed than what’s in the public documents.
Senator Marshall: Do I have any more time? I’ll wait for second round. Thank you.
[Translation]
Senator Gignac: Welcome, Mr. Giroux. It is always a pleasure to see you here in committee.
You are testifying today on the Main Estimates. I believe that we will have another opportunity to hear you on the 2023 Budget, a presentation entitled Budget 2023: Issues for Parliamentarians. I think that is an apt title, because when the time comes to analyze the government’s Estimates, the Main Estimates do not contain the expenditures that will be presented in the Supplementary Estimates. Moreover, on page 2 of your document, you state that the Main Estimates contain $10 billion less than the Estimates to date for 2022-23.
Are we able to say that this is still the case? In the last budget, I believe that figure was $13 billion higher than for the previous year. Is it a rule of thumb, i.e., that approximately 90% or 95% of total expenditures are accounted for in the Main Estimates? Going by your experience, can it fluctuate a great deal from one year to the next? What would be the reasons for this?
Mr. Giroux: First of all, in answer to your question on if we can see a difference, we can by comparing the Main Estimates that were tabled recently and the ones from last year. That’s the difference that we see. We compare things that come back from one year to the next. Obviously, the budget changes things and one of our recommendations is to have a fixed-date budget, which isn’t the case currently, to ensure that the Main Estimates that you are currently studying reflect as closely as possible the budgetary initiatives.
As to the proportion of expenditures included in the Main Estimates, i.e., 90%, that is a good rule of thumb, although there can be big fluctuations from one year to the next, especially in the case of extraordinary expenditures, as we saw during the pandemic, or when considerable changes are made to certain government initiatives, which cause an increase in certain expenditures. For example, a transfer of funds for health would increase spending in defence. There are all sorts of examples we could think of.
There isn’t a rule per se, but on average, a good 90% of expenditures do tend to be found in the Main Estimates. The others are added over the following months in Supplementary Estimates (A), (B), and (C), if need be.
Senator Gignac: In order to compare apples to apples, I consulted the government website on projected annual expenditures last night. A historical 10-year timeframe is given for the Main Estimates.
Basically, I wanted to see what expenditures looked like pre-pandemic, because we saw extraordinary expenditures during the pandemic, but not all were recurring ones. I used the year 2019-20, which was the financial year that preceded the pandemic, as a reference. I noticed that the Main Estimates ballooned from $299 billion to $432 billion. That gives us a 45% increase over four years, which averages out to a two-figure increase per year.
My question is simple: Has the government lost control of its spending? What is your opinion on this? These are huge expenditures when we talk about a 10% yearly increase on average, or an increase of 44% compared to the fiscal year that preceded the pandemic. Expenditures were very high compared to our economic growth over that four-year period.
Mr. Giroux: You raise a good point. Has the government lost control of its spending? I don’t know if it has lost control, but I can certainly confirm that spending has increased sharply.
Actually, if we were to create a forecast chart for those few years, in each budget or economic statement, we would see that changes made to expenditures contained in a statement or a budget always followed the same trajectory. For example, in 2019, 2020 or 2021, the government forecasted a particular spending trajectory for the following years when it tabled its next economic update or budget. For those same years, we would see that spending increased. What’s more, in the budget that was tabled recently, we saw that the government is expecting to spend $500 billon in two or three years. We are going to cross a big psychological threshold.
That said, has the government lost control? I believe that the government is increasing its spending consciously, so I wouldn’t go so far as to say that we have lost control. I think that it is being done to deliver on public policy priorities and that it is a conscious choice made by the government. Actually, a similar decision has been made regarding the public service, which has gained more than 60,000 employees over the past few years. I think that these are the consequences of choices that the government has made over the past few years and it is continuing to make.
Senator Gignac: On page 6 in your document, you indicate that there will be a minimum of a 5% increase over the next five years in the new Canada Health Transfer agreement. The provinces were happy to hear this, because they are on the frontlines.
We are not called upon as parliamentarians to vote on these expenditure items because statutory items, such as the Canada Health Transfer and the Old Age Security pension, are automatic and not subject to discretionary approval. They are programs that have been planned. However, you do mention that the additional $60 billion excludes $25 billion in funds that were set aside by the government for bilateral agreements with the provinces.
Will we have a say as parliamentarians on the $25 billion, or will it be the same as for the Old Age Security pension or the Canada Health Transfer, i.e., programs which are renewed automatically and don’t entail a vote?
Do you know if parliamentarians will vote on the bilateral agreements?
Mr. Giroux: I believe that the bilateral agreements will be subject to a vote or deliberations, and there could be amendments made to legislation that governs the Canada Health Transfer or changes made to the supplementary estimates as the agreements are signed. It is obvious that the two houses have to look at all expenditures and vote. Will there be a budget implementation bill or a separate bill? I don’t have the answer yet. It may be that the details have been decided but I have not been informed. However, you will, of course, have an opportunity as parliamentarians to have your say on these expenditures.
Senator Gignac: Thank you very much.
[English]
Senator Smith: Mr. Giroux, your predecessor, former Parliamentary Budget Officer, Kevin Page, testified before our Committee on Banking, Commerce and the Economy, in December 2022. He talked about the need for the federal government to commit to a five-year or longer-term human resource plan which would not only provide greater transparency about the use of public funds but also provide more information about how the public service will meet the policies of the federal government on a long-term basis.
I would like to hear your thoughts on whether the federal government should implement a long-term human resources plan, and how would it increase transparency with respect to federal spending?
Mr. Giroux: That’s an interesting question. I think that could, in and of itself, be the subject of a long study by this committee or any other committee. Whether that is a good idea, I definitely think it would be a good idea to have a long-term plan so that the government can ensure it has the right skill set in its public service and also has the capacity to deliver on its policy priorities rather than what we have seen recently, increasing the number of public servants, increasing its use of consultants and outside services, but still, in some instances, failed to deliver on services that Canadians expect.
I think that the situation we’ve seen recently, and still continue to see if you are applying for EI or other government services, it can be a bit difficult to get timely services. I think there would be a tremendous benefit in having a clear plan that looks at the needs of the government in terms of its human resources, the skill sets it needs and the combination of outside assistance, consultants and in-house services. Maybe the government has such a plan and I’m just not seeing it, or it’s an internal plan used for internal planning purposes, but I think it would help reassure us as citizens that the government knows where it’s going with its public service and what it’s doing to maximize productivity and use of these services.
Senator Smith: As an outsider listening to feedback from the various departments, it seems to be disjointed when we look at the results in terms of the expectation of results. We have certain departments forecasting that they are going to spend X-billion dollars, but they’re not going to spend it until 2026, or we don’t see the results for a long period often.
There seems to be this uncertainty about execution. With the uncertainty of execution, the public suffers. Of course, when we’re in a situation now where the Governor of the Bank of Canada is trying to stall inflation and then a former governor of another bank says there is a pedal to stop and a pedal to go, and if the pedals aren’t coordinated, we will have some difficulty.
I’m trying to understand. You have been in this environment for a period of time and probably understand it better than most people. How do we manage that so we can start to have the government held to account, be credible and able to deliver results so that Canadians will feel more secure in this environment?
Mr. Giroux: That is a very interesting question. If we had an hour or two, we could probably spend it only on that.
There are many ways to do that. You can have fixed budget days which allows the government to include its new budget spending in the mains so that departments have a better handle on what resources they’ll get before they start a fiscal year as opposed to starting the fiscal year with a level of resources they expect to get and then having top-ups to that throughout the year.
There could also be performance-based budgeting, which some countries do. When they do their budgets, they look at the performance of specific programs, and they base allocations on that. Has this program or these suites of programs met their performance target? Are they robust enough? Yes. We can consider more resources. No. Let’s tweak it to ensure additional or existing resources are well utilized.
There are several ways to do that, but the current patchwork is not playing to the advantage of departments when they have a base funding level through the mains, notably, and then they get additional resources as the year goes by — Supplementary Estimates (A), (B) or even (C), and then they have to scramble to hire to deliver on this additional program spending, which is not easy for them. It makes their job difficult. The absence of a long-term plan adds to these difficulties. There is a lot of reaction in the system.
Senator Smith: Thank you.
[Translation]
Senator Dagenais: Mr. Giroux, it is always a pleasure to see you. I would like to go back to the increase in health spending. If we take into account the new amounts that will be transferred to the provinces, the extra support for seniors and the new dental care program, do you believe that the current government has a big enough budget to do all this, or should we expect deficits to accumulate over the next few years? We know that the amount needed for the dental care plan was underestimated.
Mr. Giroux: Obviously, the government, like all governments, can always increase taxes. That’s what the government did recently when it introduced new taxation measures, like those directed at people with a higher income or the alternative minimum tax. There are ways of increasing revenue.
What we also saw in the budget is that there will be deficits for at least the next five years, and this is according to the government’s forecasts as well as our own. Does the government have the means to spend all this money? The answer is probably yes, if we are comfortable with deficits. The projected deficits are not that high given all of the expenditures, but we also have to be comfortable with possible tax increases to support part of these expenditures.
All that to say that if you want to know if the government has the means to implement these programs, I would say that it depends on your perspective. Up until now, the government has been committed to having a debt to GDP ratio that will decrease in the medium term. So this is what will happen, apart from the current fiscal year and the following one. There will be an increase in the debt to GDP ratio over the next few months and afterwards, if there are no new expenditures, the ratio will decrease progressively.
It is hard to answer the question in absolute terms, because it always depends on people’s comfort level with a deficit, and the willingness of certain people or groups to get back to a balanced budget. It also depends on how comfortable people are with spending. Essentially, you’re talking about the state’s visible place in the economy in general.
Senator Dagenais: I would now like to talk about consultancy contracts. We know that the McKinsey firm may have been awarded close to $100 million worth of contracts. The current budget promises reduced spending on consultancy services, as well as legal fees, travel, etc.
Would it be possible to know where the savings will come from? Do you believe that the government will be able to cut back on certain expenses as promised? Do you believe that we will be able to check if there are indeed cost-cutting measures in place?
Mr. Giroux: As for being able to check if cost-cutting measures have indeed been put into place, I think that it will be possible, as consultancy fees come under a budgetary item that we have been able to track over the years. Those fees have jumped from 13 or $14 billion to $20 billion, and we have been able to track them. We will probably be able to do so if the government faithfully accounts for its spending, that is to say if the government records the amounts under the right item, we will be able to see if there is truly a 15% decrease in spending.
Is it possible? I think so, given the fact that the public service’s ranks have swelled. The public service’s capacity to deliver programs has improved and the government was able to function, just a few short years ago, by spending one third less on consultants. It should be able to reduce its spending by 15% and still be able to function fairly well over the next few years. To my mind, it should not be difficult to track spending and cost-cutting, and there shouldn’t be any real impact on the performance of the federal government.
Senator Dagenais: When we ask deputy ministers and high-ranking officials about this, we are told that the current government frequently makes spending announcements that are political and aimed at pleasing voters, that they haven’t been consulted nor have their departments even been informed. These departments will have to manage new expenditures that weren’t set out in the budget and are possibly not urgent, as was the case during the pandemic. Are you able to tell us if what I call the “million dollar dance,” which seems to come out of nowhere sometimes, can have a destabilizing effect on the total budget?
Mr. Giroux: When spending goes up over many years, it can be difficult for departments and deputy ministers to manage their funding when they have to hire hundreds or thousands of extra employees. There certainly comes a time when it becomes difficult, and I would say very difficult, for certain deputy ministers to manage a federal government that is expanding, which means departments with a bigger mandate and increased resources.
I believe that most of the departments are well aware of what’s coming before any public announcement is made. Based on my experience within the public service, it is rare that a deputy minister learns through the news that he or she has received hundreds of millions in new funds. I can’t think of many occasions when deputy ministers have claimed to be surprised and that they were only made aware at the last minute of new spending. It is not at all what I saw in the public service. Usually, consultations take place before any announcement is made publicly.
Senator Dagenais: Thank you.
[English]
Senator Pate: I’m very sorry. I apologize to you, my colleagues, the clerk and also the witnesses for my delay. I tried to jam a few too many meetings in this morning before this one. I meant no disrespect, but it is disrespectful to be late. Thank you.
I wanted to pick up on some of what you have mentioned and underscored in previous meetings with us and in previous testimony. You’ve talked about the fact that your ability to conduct audits and analyses are often limited by the information that is provided to you by government departments; in particular, you have mentioned that in terms of Canada Revenue Agency, Immigration, Refugees and Citizenship Canada.
In a recent publication, you talked about the fact that less than 50% of the targets are consistently met within the same year after departmental results are analyzed. Without a full data set, how can you do these kinds of analyses? In particular, I’m interested in whether Treasury Board has shared the information you need to be able to provide these measures.
Also, I want to ask you about a recommendation you made last week in terms of the need for increased fiscal transparency from the government, particularly with respect to what we’re doing — looking at Main Estimates before a budget — and what kinds of potential difficulties does that pose, not just to you, but also to us as parliamentarians in terms of the benefits to Canadians of having the kind of budgetary process that you’re recommending versus what happens currently? I notice others have commented about this in the media as well, the challenges of this kind of approach.
Those are my first two questions. I will have a second round if I do not have a chance to ask my third question.
Mr. Giroux: Thank you, senator. That’s a lot of questions in a few seconds. I took notes. I apologize if I miss some of your questions. Please don’t hesitate to remind me if I’ve forgotten some aspects, if that’s the case.
Information access is an issue for us. Most departments collaborate very well. There are some issues that we encounter, especially when we need and seek access to information held by the Canada Revenue Agency because of the fact they’re governed by strict restrictions when it comes to sharing taxpayer information. They are very careful not to accidentally disclose information that we could attach to a specific taxpayer, be it an individual, a corporation or a trust, which is not what we’re looking for.
We’re looking for aggregate information. The CRA is very careful and nervous about giving us information that we could link to a specific person or taxpayer by using external sources. That leads to information, at times, being incomplete for our purposes. It also leads to some delays so that the CRA can ensure they provide us data that’s aggregate at a high enough level to prevent any accidental disclosure.
Legislative modifications to allow us to get that type of data without CRA being overly concerned and nervous about that would be helpful. We would never need individual taxpayer records anyway. A modification to legislation to that effect would probably relieve the CRA and would ensure they’re not afraid of breaching legislation.
TBS tends to provide us with the information we need — and I’m turning to Ms. Vanderwees, and she can disagree with me — because they don’t have the same legislative restrictions; although, there is always some nervousness when it comes to providing information to the PBO for public consumption or reports. Generally speaking, they tend to collaborate with us very well.
Your last question, if I’m correct, relates to the fact that the Main Estimates do not include budget items that are announced after the mains are tabled. I think that leads to issues for you as parliamentarians but also for Canadians who are interested in government operations.
We hear there is a budget. It’s a major communication and policy document for the government where it announces its priorities for the next year, but the Main Estimates do not include these new measures, so it makes it very difficult for you as parliamentarians and for any Canadian interested in government operations to find in the Main Estimates the changes compared to last year. It’s very difficult to figure out what new priorities the government has for the year by just looking at the Main Estimates. One needs to look at the Main Estimates and at the Supplementary Estimates (A) and (B) at least to get the full sense of government spending the year. But those Supplementary Estimates (A) and (B) tend to be tabled early in the year for Supplementary Estimates (A) and in the fall for Supplementary Estimates (B).
In a nutshell, it’s a mess. It’s very difficult for parliamentarians to figure out all that. A way around this would be fixed budget dates in a tighter window — in February, for example — so that when the Main Estimates are tabled, they present a more complete and accurate picture of the government’s spending plans for the year. That would have tremendous benefits for parliamentarians such as you.
So the mains would paint a more complete picture of government spending plans, rather than being a mishmash of mains, supplementary estimates and standalone legislation. It would be easier for you to hold the government accountable and follow government spending.
Senator Pate: There is another matter that I’m interested in. With respect to greenhouse gas impacts of the budget measures and what some countries are doing, I’m interested in examples of what other countries have undertaken that would allow us to really assess the impacts of greenhouse gas emissions in ways that we’re not imagining. I understand there are some international examples of other countries that are doing things quite differently that might allow us to better follow and measure the impacts, financially.
Mr. Giroux: That’s an interesting question.
We’ve seen successive governments in Canada introduce gender-based analysis in its budgeting. I note that some countries, notably South Korea, consider the greenhouse gas impacts of budget measures. It’s a requirement for the South Korean government to provide a greenhouse gas emissions assessment of budget proposals, especially the measures that are presented as having the potential to decrease greenhouse gas emissions. It is mandatory in South Korea for the government to conduct such an assessment.
The benefit of such a requirement is that it allows the government to focus its spending on areas that are more likely to have the greatest impacts on greenhouse gas emissions.
It also has drawbacks, because some departments tend to try to game the system by lumping together a couple of measures and focus on the ones that are likely to have the best impacts on greenhouse gas emissions. The requirement does not apply to proposals that will have a negative impact on greenhouse gas emissions — measures that will increase greenhouse gas emissions — but I think it’s a very good first step — the South Korean example — requiring an assessment of the greenhouse gas impacts of measures that are likely or presented as having a positive impact when it comes to CO2 emissions.
Senator Pate: Would it be possible to send the details of how South Korea does that so we can look at that? Thank you very much.
Mr. Giroux: Yes.
Senator Duncan: Thank you to our witnesses for appearing before us. My comments this morning will focus on your report on issues for parliamentarians.
I noted on page 1 that there is a reference to $12.8 billion in spending restraint. Then on page 2, there is “$12 billion in either revenues or spending decisions for which there are no specific details.” Then we go to page 8 and it talks about “spending reviews, aside from proposing reducing spending on consulting, other professional services and travel.”
I think there are other former finance ministers in the room who will agree with me that travel is low-hanging fruit in any budget to be cut. The unintended consequence of that, though, is that public servants who are administering programs are in the “Ottawa bubble” and don’t see the impacts of those programs or the effectiveness of the programs in the areas. It’s a big country, as you’ve heard me say before, and it’s different; one size does not fit all.
There hasn’t been a wholesale program review since the Task Force on Program Review, also known as the Nielsen task force, at least that I’m aware of. Do you have a specific recommendation for how a spending review might be undertaken by the government and how we, the Finance Committee of the Senate, might be of assistance in such a review?
Mr. Giroux: Thank you, senator.
With respect to your comment on travel, I agree with you: It’s a big country, and people need to get out of the “Ottawa bubble,” including me, which is sometimes difficult to do when we’re so focused on doing our job. But with successive governments having announced reduction in travel and travel expenditures, if we follow all of those commitments throughout the years, the Ottawa Airport should be closed by now, but it’s still open. Successive governments have made promises of reducing travel, and it happens for a while but it does not really happen.
With respect to program reviews, I would also mention the Deficit Reduction Action Plan, for 2011-12, which was a major exercise in which I was closely involved on the public service side. For a program review to have any chance of success, you have to start your review with no predetermined idea as to exactly who or what you want to cut, but you have to have a set of clear criteria from the get-go. Some of those criteria have to include value for money; what is the government trying to do, and is it achieving its results with a specific program? It is looking at performance indicators and whether the federal government is the best place to deliver on that priority, and whether it can be done through legislation or regulation as opposed to spending. Also, there is the consideration of whether the specific program has passed its best-before date.
There is a series of criteria. Communication has to be a criterion, as well as official languages and so on. You can think of a series of criteria, but whatever your own criteria are as a government, you have to list them clearly from the get-go and ensure there are clear deadlines and targets, and that you have a group of ministers or senior public servants in charge of it.
I think that you, as parliamentarians, can help in that. With the wealth of experience you have acquired in government but also outside of government — it’s very important to have a view that’s not just from within government but to also have outside expertise — you can provide guidance and criteria for the government as to what the government should keep in mind when doing a review. You can also provide a list of proposals as to where to specifically look.
You mentioned a need for public servants to go outside of the “Ottawa bubble.” One of the recommendations this committee could make would be to decentralize the operations of government so that it’s not only the Ottawa view that is taken into account when making decisions. It’s up to you as parliamentarians with the expertise and experience you have to come up with criteria or targets. You’re well placed to come up with targets as well.
Senator Duncan: Thank you.
In terms of the spending reviews, one of the things that leaped out at me is that there is no mention anywhere of a review having been undertaken of the real estate across the country. Has your office looked at whether there might be savings that occur in the real estate holdings that are now vacant or coming vacant across the country? I note that Vancouver and Calgary have taken different approaches to their empty office space. Calgary is more leaning toward using them for housing for the homeless, and Vancouver is not.
What is your sense in terms of the real estate holdings? Has your office looked at that recently?
Mr. Giroux: We have not looked at the real estate holdings of the government recently. What we know is that a consolidation is under way in the public service. We hear anecdotally from colleagues or in our discussions with departments and senior public servants that there is consolidation with hybrid work — a reduction in the footprint of the public service. It’s leading to some friction in specific areas where people tend to get together in their offices on Tuesdays and Wednesdays, and some of them find themselves with insufficient space. However, I think this can be smoothed out with small adjustments.
Consolidation is under way, but at the same time, the size of the public service is increasing. All things being equal, there would be savings, but with a growing public service that requires more office space. Two movements are going in opposite directions: hybrid work and remote working, which reduces the need for office space, and a growing public service, which goes against that.
I know it’s under way, and I know there are efforts to better utilize the government real estate holdings, but we have not looked at the numbers behind this.
Senator Loffreda: Thank you, Mr. Giroux, for being here with us this morning. Given what you have seen thus far in the Main Estimates and in government spending, do you still agree with a statement you made during a previous National Finance Committee meeting in February? I will quote you on that statement just to refresh our memories and get everybody up to date as to what you said at the time:
I recall that when we last discussed the economic forecast, some committee members described our forecast as “optimistic.” At this time, we have not completed our analysis of the next economic and budget forecasts, but if all goes as planned, we will release them in the first week of March.
I don’t have the preliminary results yet. However, over the last few weeks certain economic indicators suggest that a soft landing is still possible and that a recession is not inevitable. Therefore, it is still possible to avoid it.
You also mentioned that:
In fact, the International Monetary Fund predicts that most European Union economies will avoid a recession, with the notable exception of the United Kingdom. This suggests that a recession can still be avoided, despite the fact that many private sector economists are anticipating one. I can provide more detail once my colleagues and I have completed the necessary work on laying out our economic and fiscal forecasts.
I just got back from a meeting in Washington of the International Monetary Fund, or IMF, and the World Bank. There was a lot of discussion around recession and sustainability going forward. Given our current spending — main estimates that you’ve seen current government spending — I would like to have you follow up on those comments and any refreshing comments you can give us this morning.
Mr. Giroux: Thank you, senator. I’m glad you quoted me because I think what I said at the time still holds true for Canada. It’s reassuring when somebody quotes me from more than two months ago, and events have not proven me wrong. Thank you for that. We released, as I mentioned at the time, our economic and fiscal outlook the first week of March — March 2 — so we are not late. It’s also a good thing you are quoting me on that.
The economic indicators we are seeing so far points toward the fact that it’s possible we have a soft landing still. Labour market indicators are quite strong despite what some believed or suggested. The Consumer Price Index, or CPI, the indicator and measure of inflation, which was released this morning, also suggests inflation is coming down and could well reach 3% by mid-year this year. This still suggests it’s possible to have a soft landing and that a recession is not a foregone conclusion.
I think early February was the last time I appeared before you, and what I said still holds true. It may not be totally true for other economies like European countries and the U.S., but for Canada, we are still confident that a recession is avoidable.
Rob may have more to add on that.
Robert Behrend, Director, Fiscal Analysis, Office of the Parliamentary Budget Officer: I’m fine. Thank you.
Senator Loffreda: That’s optimistic. Thank you. I do have a quote about something you questioned, but I’m not going to give you a long quote on that. You were correct, so thank you for that. That’s why I say your reports and interventions are always very insightful and valuable to us.
Going back to the estimates and the level of spending, we see now, based on these estimates, that you did question unforeseen events and whether there was enough wiggle room for them. It was a level of concern for you. Given what you’ve seen now on inflation and on the level of spending, do you feel unforeseen events are still a huge level of concern for you? Or do you feel the government at this point has correctly put forward spending plans that could entail proper management of unforeseen events in the future?
Mr. Giroux: I have to admit, that’s a tough question. There are a couple of questions that make me scratch my head, and this is one such question.
There are many ways to answer that question. Anybody could say a government has a lot of wiggle room because it can incur deficits as big as it wants when conditions warrant, as we’ve seen during the pandemic. Similarly, one could say the government has a fiscal track. It promised to have a $12 billion deficit in five years, so it has to stick to it.
It depends on what the government’s fiscal anchor is. Several years ago — in fact, a few decades ago — we heard the Finance Minister say that we would balance the budget come hell or high water. That’s the standard to which the government of that day held itself. Now the government wants to have a decreasing debt-to-GDP ratio over the medium term. Therefore, the government could still have a declining debt-to-GDP ratio and still spend significantly more, depending on circumstances, should it face headwinds such as a global recession or a financial crisis. However, with the level of spending the government has incurred or is incurring, every time the government spends a bit more, it gives itself less and less flexibility to face such unforeseen events, such as a potential financial crisis — not that I’m thinking that one is imminent. But when the government spends on its policy priorities and says that we will keep having a declining debt-to-GDP ratio, more spending on its policy priorities leaves it with less wiggle room. It depends on what the long- or medium-term objectives of the government are and what room for manœuvre is resulting from that fiscal anchor.
Senator Loffreda: You talked about debt to GDP and debt levels. I would like to have your opinion on this. During the meetings I assisted with in Washington with the World Bank and IMF, there are countries that will be insolvent, and there are many issues with poor countries, and I think we fare fairly well compared to our counterparts, even in the G7 and G20.
We talk about debt levels all the time, but I would say that although the debt levels are high, for how long will they be high? I would look at a projection and say capacity to repay is the most important.
I would like your opinion on that. Would interest to revenue be a better measure of our capacity to repay the debt rather than everyone always talking about debt over GDP? I would look at a projection and say if in two years that debt to equity or debt to GDP is coming down to a fair level, we can do this deal, and many times we would. Mind you, I’ve never seen bad projections. They’re always very good.
I would like your opinion on that because I don’t hear interest over revenue being discussed often enough. Capacity to repay is not being discussed often enough.
Mr. Giroux: I’m glad you raised that, because we tend to include debt-servicing costs in our reports, and we show that these have tended to go down for the last several years. Even during the pandemic, the debt-servicing costs were down, and they reached 7% or 8% of tax revenues. They have been increasing due to the increasing stock of that and the increase in interest rates.
It is true that it’s a good measure of fiscal sustainability and fiscal health. I think the default with that or the downside of looking at debt-servicing costs is that you can’t look at this in isolation. You also have to look at the stock of debt to be able to make a judgment call as to the capacity of any government to deal with a sudden increase in interest rates, which we have seen over the last couple of months.
I don’t think there is one perfect indicator in all circumstances. You’re right that debt-servicing costs is a very good indicator as to how much it costs to service that debt, but I think it’s good to look at this in combination with the stock of debt in relation to the size of the economy so that anyone who looks at that can have a better appreciation of the exposure of any government to a sudden increase in interest rates that is used to finance that.
Senator Loffreda: Thank you.
Senator Marshall: Mr. Giroux, I’m back to trying to reconcile the estimates with the budget book, because you can’t look at Main Estimates now in isolation. You have to look at what changes the government has made in the budget to the Main Estimates.
In the chapter on effective government, the government is expecting to realize about $12 billion over the next five years in savings, but I’m mostly interested in this particular year because there is half a billion dollars projected in savings for professional and special services. I would like your views on whether you think that’s possible given that the fiscal year has already begun.
It’s also providing for $3.5 billion, which they call realigning previously announced spending. It looks like there are savings coming from somewhere. You may know where it’s coming from, but I can’t tell.
There are also savings in another chapter called “Net Fiscal Impact” of unannounced measures. It looks like what is happening there is that they are taking over a billion dollars and pushing the spending back in the last fiscal year so the savings should be in this fiscal year.
Could you speak to whether you know where those savings are coming from and also whether you think it’s realistic that those savings are going to materialize?
Mr. Giroux: I will try to keep a straight face when I answer all these questions.
Senator Marshall: I kept a straight face asking them.
Mr. Giroux: So reduced spending on consulting, professional services and travel, I think that should be relatively easy to achieve given the sharp increase we have seen in recent years, together with the increase in the size of the public service. So there is capacity to do some of the work that consultants are doing inside the public service.
Consulting and professional services have increased during the pandemic for good reasons. There are some very valid reasons to use consultants, notably to provide health services to remote First Nation communities, for example. I don’t think that should be cut, and I don’t think this will be cut. But there are a variety of other consulting services that could as well be done in-house if the government recruited the right person. I think that part is relatively easy to achieve.
Even though the fiscal year has started, government departments probably had an indication to go easy on spending in these categories before the start of the fiscal year, before the government tabled its budget. There are ways, without announcing or revealing the cards, to tighten the screws on that before the budget gets tabled.
With respect to the other areas of spending restraints, reductions and reallocations, we don’t have a lot of details yet. We don’t have criteria yet. Maybe we will soon, but based on what we have seen, notably based on last year’s budget where there was a strategic policy review announced with savings of $9 billion targeted, that has been cancelled, effectively, in this budget. Personally, I wouldn’t count these savings as firm savings that the government can bank.
Senator Marshall: This is probably not a good timing, but I have to ask it: We’re all watching what will happen with the union and whether there will be a strike. We know the government has offered so much, but the union is looking for so much. We have seen the number of people employed by the federal government going up. Do you think the government would be able to sustain a higher increase and retain the number of public servants they have on staff? What are your views on that with regard to the fiscal impact of what the union is looking for?
Mr. Giroux: We’ve looked at how much it would cost the government to go from a 2%, 2.5% annual wage increase to 4.5% for all public servants, not only those in a strike position, and we find it would cost $19 billion over five years. Whether that’s something the government can afford or not, I think when the government is about to spend $100 billion per year, $19 billion over five is something the government could afford. Whether it wants to is another issue, because if the government grants these salary increases to public servants, it means it has to spend a bit less in other areas. It’s a question of trade-offs that the government will have to decide whether it wants to make.
The size of the public service is another area where the government has some flexibility. In fact, departmental plans tabled recently indicate that departments have plans to decrease the number of public servants over the next couple of years. Whether that really happens will depend on next steps in terms of what the government does with its budget and with its fall statement. But there is always a trade-off that’s possible, where the government grants salary increases that are more generous to its employees but decreases the size of the public service so that overall total compensation costs do not increase. The government could also play with benefits. But, personally, I would be concerned about having that many public servants on staff, retaining them with salary increases that could be lower than inflation but also having too many public servants who don’t have enough to do with the pandemic being over and with that quick need for action being behind us.
There are many moving pieces, and I’m not sure the government has a firm handle on its overall plan for the public service.
Senator Marshall: Based on what we have seen, the numbers always go in that direction, or the government finds it easier for the numbers to go in that direction.
Do I have time for another question?
The Chair: No.
Senator Marshall: I will go on third round.
The Chair: If we go to third round, yes.
[Translation]
Senator Gignac: I have two questions to ask over the three or four minutes of my speaking time. I would ask you to please take that into account when giving me your answers.
During the first round, I asked you if the government had lost control of its spending, because the Main Estimates were 45% higher than the last pre-pandemic ones. You replied, rightly, that it was rather a question of political choice and that you could not say that the government had lost control of its spending.
If we look at this year’s Main Estimates, they are $35 billion higher than last year’s, which comes to an increase of 8.9%. Right now, inflation is the number one problem in the country. Everything has been done in terms of monetary policy to reduce the inflation rate. I know that you are above all things political. Can you tell me, yes or no, if we have an inflationary budgetary policy in Ottawa?
Mr. Giroux: I could refer to the Monetary Policy Report that was released by the Bank of Canada last week, in which the Bank of Canada makes it clear that growth in government spending is helping to stimulate demand. This is obviously something that involves not only the federal government, but also provincial governments. Governments have an attitude about spending that stimulates inflation. The Bank of Canada says so in terms which are a little more elaborate than that. So yes, governments in Canada do stimulate demand.
Senator Gignac: I know that people are very careful about their choice of words, but we can say that this stimulates inflation. In fact, the Senate Committee on Banking, Trade and Commerce will be hearing from the Bank of Canada, and I intend to come back to this subject.
My second question has to do with the efficiency of government management. You say on page 4 of your document that departmental plans were not tabled at the same time. However, you also look at departmental results and say that over the last four years, on average, almost a quarter of the performance targets were not met. You also explain in your documents that, basically, it is the public servants themselves who choose the targets. We think they don’t set unrealistic targets, yet at the same time, they are the ones who analyze them.
Let’s use a scale of 1 to 10. We can’t say that the government has lost control because these are political choices, but let’s talk about the effectiveness of financial management. You are not an auditor, but you are the Parliamentary Budget Officer. You have so much experience in Ottawa. One quarter of federal targets have not been met in the last three or four years; is that new or has that always been the case in the last 15 or 20 years?
Mr. Giroux: I couldn’t say over 15 or 20 years, but I can ask Ms. Vanderwees if she has any more accurate statistics on the achievement of results over the last few years, whether it has changed, gotten worse or better.
[English]
Kaitlyn Vanderwees, Analyst, Office of the Parliamentary Budget Officer: Prior to 2018-19, the way the government assessed targets and results was different. When you look at the performance prior to that, it does have a different trend in that they had a lot fewer targets to meet.
Comparing the 25% of targets not met to what was met before, it’s not quite comparing the same thing; in our report, that’s why we stick to the four years.
Senator Smith: Mr. Giroux, going back to the personnel expenditure analysis report, the major issue raised was the rapid increases in professional services spending, estimated at 15% annual growth rate. The report highlights that the bulk of spending was the Department of National Defence in engineering and architectural services.
In your research, have reasons been provided by the department of the significant external resources that are being sought? Are these types of skills not readily available internally within our federal public service?
Mr. Giroux: We have not looked at the reasons. Ms. Vanderwees may have more information as to the reasons provided by departments to use these services. In some cases, it’s obvious. As I mentioned before, health services in remote and rural communities, notably for First Nations; that’s expertise that is difficult to find within the public service, especially for those locations.
For some other services, you would expect at least some of that expertise to be in the public service when you see that there is a need year after year after year for that type of expertise, and for the government to hire these experts, engineers or IT specialists, for example, as much as possible internally, especially at a time when the public service is growing.
What we have seen, especially anecdotes for those who live in the so-called Ottawa bubble, is that the government tends to recruit people who don’t necessarily have the skills needed. They say, “Even if you don’t know Word or Excel, don’t worry, we’ll train you.”
I imagine it’s probably the same reaction when the government needs expertise that they have a tendency to hire people who may not necessarily have the exact skill set that is needed; when they realize that they need to deliver, so they go for consultants.
Senator Smith: With the evolution that seems to be exploding in artificial intelligence, or AI, for the new generation, getting the skills you were talking about before — which are more traditional skills — is there any discussion about increasing the skill level heading toward this new generation of technology?
Mr. Giroux: That is a very good question, senator. In the absence of an overall plan for the public service, I can’t really say whether there is an impetus or a desire to move in that direction inside the public service.
Senator Smith: Any directional change or an addition to the direction of creating this type of personnel plan that will be tied to policy?
Mr. Giroux: I haven’t seen any evidence suggesting that.
Senator Pate: Thank you again to all the witnesses.
I want to pick up on some of the information you have provided to this committee in the past. When you were here on February 7, you talked about the targets for departmental results being determined, in large part, by public servants themselves, and some concerns about how those are set.
In light of the concerns that you have raised about how easily achievable many of those goals are, what are your recommendations to us in terms of how we can contribute to the development of a more transparent and accountable performance? I know you have mentioned some of that already, but I wanted to provide you an opportunity to expand on that, given the considerations that you have raised about these issues.
What strategies could we implement to improve the overall effectiveness of performance reporting and evaluation by the public service?
What information could we be requesting, or what recommendations could we be making that might be most useful in assisting you to better fulfill your mandate?
Mr. Giroux: That’s a very interesting question.
Whether it is this committee or committees, there is a potential role — if parliamentarians have the appetite — to request performance indicators and have witnesses from the public service testify as to why they have chosen specific indicators, how they are measured and even ways for committees and parliamentarians in general to suggest and recommend specific performance indicators. As parliamentarians, you are the legislators and the decision makers ultimately.
If there is an appetite among parliamentarians, it certainly is possible for you, collectively, to recommend some performance indicators, and require that public servants or ministers testify on their choice of performance indicators and the targets that they achieve, miss or fail to achieve after the end of the year.
Senator Pate: Thank you.
Senator Duncan: I would like to pick up on — and I’m not singling out any particular department — but there is one line item in the estimates that puzzles me. The Northern Pipeline Agency, consistently, we see their expenditures of half a million dollars in 2020, 2021, and in 2021-22 and yet they consistently ask for almost double that and it’s granted in the budget. That’s me as an individual and as a senator who can look through and see this in one particular line item. How can the Parliamentary Budget Officer assist us in this sort of examination of departments that are consistently asking for more than what they have actually spent and, again, have you specific recommendations of how we could assist in this spending review? You made a specific recommendation about the budget date, do you have a specific recommendation about the spending review?
Mr. Giroux: With respect to spending reviews, I think you could decide, if you wish to do so, you could decide as a committee to provide a list of criteria or even targets that the government should use in conducting its own spending reviews. You could ask to have a role in such a spending review.
It’s entirely up to you as parliamentarians to involve yourselves, or not, in the degree of involvement you want to have in these reviews.
The government may decide that it doesn’t want to have a Senate committee involved at all but there is nothing preventing you from conducting an analysis and tabling recommendations as to the criteria, the targets or specific areas of spending reduction.
It’s a question you’re asking me right now. I could probably give it some more thought and provide you with a more fulsome answer if you wanted to.
Senator Duncan: Thank you. If we could have a more fulsome answer, I would appreciate it.
Senator Loffreda: I want to follow up, Mr. Giroux, on the economy and what reference with the Main Estimates in government spending should always address main concerns and the economy and inflation. We didn’t mention housing affordability or household debt and that’s a main concern. It always is. I would like to say the consumer is always the motor of every economy and you will see where I am going with the numbers we received this morning with inflation dropping to 4.3% in March from 5.2% in February. Much of the easing was explained by energy being 6.9% less, food remains at 8.9%, and excluding food and energy, plus 4.5%. But this is important. The biggest upward contributors to core price gain in March include travel tours and car purchases.
I remember in my banking days, the last thing the clients would not pay was their mortgage. The second to last was the car. When those car defaults started to increase, we were in trouble. I see now that the biggest contributors were car purchases and travel. The consumer is the motor of every economy, and it leads to me your forecast — which I have in front of me, so I know you produced them and they are always very insightful. You have two main concerns when you look at risks and uncertainty, one was geopolitical, the war. I agree. In terms of upside risks, and I quote from your report:
. . . we judge that the most important risk is stronger-than-expected household spending in Canada. High levels of household savings coupled with a resilient labour market could fuel consumer spending above levels projected in our baseline.
Given these numbers that are fresh off the press, given what I have expressed, I would like to have your comments on that going forward. Not an updated projection, we don’t have time for that. But maybe fresh comments?
Mr. Giroux: Sure. It’s true that household debt is high and when you look at household debt as a proportion of disposable income and the fact that we’ve mentioned that household savings could lead them to spend more is something that we have mentioned because we have been surprised in the past with the level of consumption, despite elevated household debt, so consumption has surprised us on a couple of occasions in the past, despite the household debt level because there is also the savings. When we say household debt as a share of disposable income is high, it is not a net basis. That’s looking at just the growth. The flip side of that, savings have increased significantly during the pandemic. Savings rates are probably down now that people can go on about living their lives more normally, so that’s why we have indicated that as a potential offside risk. People could surprise us by spending more than forecasts called for.
The Chair: Not too often, and there are not too many precedents that we could go into a third round. That said, before we go to a third round, I have a question.
[Translation]
I would like to follow up on Senator Loffreda’s question.
Mr. Giroux, we look at the numbers and, for the average person, whether it’s east to west, south to north, there are s a lot of concerns. I would like to talk about the most vulnerable in our society.
My question is about the ability of the federal government to continue to assist Canadians, especially the most vulnerable, in their retirement. In particular, I have had the opportunity to speak with several people over the past three months, either by phone or in waiting rooms, while waiting. Old Age Security, the Guaranteed Income Supplement and retirement allowances are funded by the federal government. This is a fact, it is the responsibility of all governments.
Can the government continue to fund programs for much longer, given the way it is spending now?
Mr. Giroux: It is a legitimate concern, especially when Canadians see the level of spending. Having said that, I think it’s an understandable and legitimate concern, but I don’t think people should be overly concerned.
There are a couple of answers to that question. The first is that the Canada Pension Plan (CPP) and the Quebec Pension Plan are financially sustainable for at least the next 75 years, taking into account demographic projections. So, the evolution of the working age population and the funds that are set aside, which amount to hundreds of billions of dollars, act as a reserve to deal with an aging population. These funds that are invested generate income, which is used in part to pay current pensions, but also provides an important reserve for future pensions. So that’s for the CPP and the Quebec Pension Plan.
Old Age Security and the Guaranteed Income Supplement are among the federal government’s largest expenditures, but they are fully indexed to inflation. In our long-term plans, it is anticipated that the federal government will have the financial means to pay these pensions over the next few decades.
Of course, if the government were faced with a major financial crisis, it might be tempted to reduce the generosity of some of these programs. However, what we have seen recently is that the government has gone in the opposite direction by increasing the generosity of these programs, notably through a 10% supplement for people aged 75 and over.
So, certainly, in the event of a financial crisis or a fiscal crisis, the government might be tempted to cut back on those expenditures or to restrict them further, but I think there are other areas where the government could cut back on expenditures for segments of the population that are less at risk before they become eligible for those pensions — Old Age Security and the Guaranteed Income Supplement. I am not concerned about this. With each passing year, I get closer to being able to collect those sources of income, but it’s not something I’m personally concerned about.
Senator Dagenais: Mr. Giroux, Senator Marshall’s question has awakened the old union leader in me, but I don’t think I’ll see any bargaining this morning.
You mentioned that the public service has grown considerably. Look at the paltry offers the government has made to public servants. I guess sooner or later they’re going to have to settle, and surely the government has planned to make counter-offers. You’ve planned for up to 4.5%, so maybe you should be at the table — we could avoid a strike.
That being said, if the government comes to an agreement, is this an expenditure that is going to be called ad hoc? You mentioned that the size of the public service could be reduced, but unionized employees can’t just leave. Are we going to do it through attrition? How do you say, “I have thousands of employees to pay in my budget and this is my ability to pay”? There’s some wiggle room, but is it all going to end up as an impromptu expenditure, saying it wasn’t planned, to get us to a plan B, plan A or C?
How can we live with this? Because we are going to live with it, and I don’t think this strike will last two or three weeks. Will it last a month? I don’t think so. Does the government have the money available to be able to pay?
Mr. Giroux: That’s a good question. Perhaps the funds to pay for the outcome of the negotiations, if the salary offers are increased, are mysterious lines, “provision for unannounced decision” lines, or anticipated in the short term. There is a certain opacity in these mysterious lines for which no details are available.
Perhaps this will be part of it and perhaps the government will negotiate salary increases within the financial parameters of the budget by being, for example, more generous for non-financial parameters, such as hybrid work and telework.
Perhaps there are already provisions in the government’s budgetary framework for offers that are a little more generous than what has been tabled, but we can’t know that for sure, of course. The government won’t tell us publicly, because that would undermine its own negotiating position. It’s not something that should be said publicly.
Senator Dagenais: Thank you very much, Mr. Giroux.
[English]
Senator Marshall: Mr. Giroux, I have a question on the banking sector. I don’t know if you can answer or not. We keep talking about how sound our banking system is and that we’re proud of our banking sector. Last year’s budget imposed two different taxes on the banks; one was for five years and one was permanent. We see again this year there is an imposition of another tax on the banks. The banks have to be under pressure because people are having problems paying their mortgages. We’ve seen articles from the CIBC about personal loans and business loans.
Have you ever looked at the vulnerability of the banking sector and the possibility that the government at some point in time may have to bail out a bank or some of the banks? That would have a big impact on the bottom line. I know most people don’t sympathize with the banks, but the government keeps going back to them for more money.
Have you ever looked at that? Have you ever considered the vulnerability and the impact it would have on the government?
Mr. Giroux: The banking sector is regulated by the Department of Finance with its responsibility for the financial system as well as the Office of the Superintendent of Financial Institutions. It’s also looked at by the CDIC, the Canada Deposit Insurance Corporation, and the Bank of Canada. Those are four institutions with very capable individuals or groups of individuals, so we have not looked at the solidity or robustness of the Canadian banking sector, but I don’t believe that it’s something of significant concern. I don’t think we’re in the same situation as the U.S., for example, because of the higher concentration in the hands of five or six main institutions.
The fact that additional taxes have been imposed on these banks will result in either one of two things or a combination of both: higher fees for everybody who does business with the banking sector, which is pretty much everybody, or lower returns for shareholders. Shareholders are pretty much everybody again because we’re all shareholders the moment we contribute to the Canada or Quebec Pension Plan, or if we hold mutual funds. I don’t think this will have a material impact on the soundness and robustness of the Canadian banking sector.
[Translation]
Senator Gignac: The Main Estimates were tabled in the Senate on February 16, we received them in committee on March 7. The 2023-2024 Departmental Plan was tabled by the President of the Treasury Board on March 9.
Can you explain to me whether it is a tradition or an exception that departmental plans are tabled almost a month after the Main Estimates? Because last night I went to look at the different plans, which are quite voluminous. Why aren’t the departmental plans and the Main Estimates tabled at the same time? Are there deadlines that I am not aware of?
Mr. Giroux: Ms. Vanderwees can answer that question.
[English]
Ms. Vanderwees: Yes, to answer your question, it is often that the government tables the departmental plans after the Main Estimates. That is a concern we’ve raised several times in different reports, including our budget issues note. I’ll return to Mr. Giroux for more comments on that.
[Translation]
Mr. Giroux: I don’t think there’s a good, basic reason for the gap between tabling the two types of documents. It makes the work of parliamentarians a little more difficult to have a succession of reports that should ideally be tabled at the same time, because they contain information that is necessary to evaluate each other. It would be much simpler for you and for us too, if these documents were tabled at approximately the same time.
Senator Gignac: I agree with your observation, because when you start looking at the Main Estimates and you haven’t had a chance or much time to analyze the departmental plans, it’s difficult to ask relevant questions of the various departments that come before the committee.
[English]
Senator Loffreda: One last question. I am looking at your report, Mr. Giroux, on the government’s expenditure plan and Main Estimates for 2023-24. I’m looking at page 7. Health care is always a major topic of national concern. We see this across Canada at this point. Many provinces are struggling with giving proper health care services to our citizens. Despite the high level of spending and transfers, and on page 6 you do discuss the Canada Health Transfers being made to the provinces, and for many of the provinces, a large percentage of their budgets go toward health care — we can go through those numbers — but there is a statement that I’d like you to elaborate on:
In addition, the CHT . . .
Which is the Canada Health Transfers:
. . . continues to be allocated to all provinces and territories on an equal per capita basis. This means that jurisdictions with older, less healthy, and more rural populations may not receive a funding increase commensurate with these pressures.
Did you make that statement of that concern based on results you’re seeing in health care services being given across Canada, or is it strictly demographics? And how do you see the sustainability of our health care system and the amounts of transfers and payments that are made toward the system, given our demographics and our aging population? Do you project that in the future these amounts will be sustainable and will increase substantially?
Mr. Giroux: That comment is based on demographics. We know, and people who have looked at health care expenditures know that the last year of life is the most expensive from a health care perspective. The second most expensive year of life is the second last. There is a clear correlation between age and health care expenditures, so that’s why we have said that for populations that are older or provinces that have an older population, health care costs are higher, but the CHT does not adjust for different demographic structures of provinces. That’s one thing. That’s the spirit of that comment.
With respect to the affordability of health care, when we do our fiscal sustainability report each year looking at the fiscal sustainability of the federal and provincial governments, that’s a driving factor behind the fact that some provinces are not expected to be financially sustainable over the next several decades. It relates in good part to the health care expenditures that will be a major driver of provincial expenditures.
An older population means more expenditures on health care, so that’s why we have some provinces that are expected to be unsustainable under current policy parameters. We take that into account when we do our long-term fiscal projections.
Senator Loffreda: Thank you.
The Chair: Honourable senators, this brings us to the end of our meeting.
[Translation]
I would like to thank Mr. Giroux and his team for being here today. We greatly appreciate it.
[English]
As we always see from sharing information on the questions from the senators, it’s always insightful and enlightening.
I would like to remind you to please submit written responses to the clerk by the end of the day on Tuesday, May 2, 2023.
Honourable senators, our next meeting will be tomorrow, Wednesday, April 19, at 6:45 p.m. to continue our study on the Main Estimates 2023-24.
(The committee adjourned.)